The Importance of Logistics in Today’s Economy

: Logistics deals with obtaining customer satisfaction at the minimum level of costs. In today’s global economy, buyers are not interested in promises that a seller can supply goods at competitive rates. Instead, buyers care about whether a seller actually has the capacity to supply goods in a timely, effective manner. Late deliveries can be the source of service problems and customer dissatisfaction. Product damage can also occur if the wrong items is shipped, or the item was damaged. Business demands due to globalization, lead time reductions, customer orientation, and outsourcing has contributed to the interest in logistics.

Efficient logistic operations, when done correctly, make it possible to remain competitive, earn reasonable profits, while delivering goods on time and reducing the cost involved.

What is Logistics Management?

Logistics generally refers to the inbound and outbound flow and storage of goods, services, and information between organizations. According to Council of Supply Chain Management Professionals (CSCMP), logistics management means: “that part of supply chain management that plans, implements, and controls the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming the customer requirement.”

A responsive and efficient logistics network helps the organization to satisfy their customers in a number of ways, including:

  • Increase in product availability/high order fill rate and promised delivery date;
  • Reduced order cycle time;
  • Reduced distribution system malfunction (accuracy of billing and product delivery);
  • Distribution system flexibility;
  • Improved post-sale product support.

Consequently, the efficiency and reliability of the logistics system affects economic productivity – the most important determinant of economic performance. The logistics industry is the basic industry of the national economic development in the world. Logistics, and its development level, is one of the important marks to evaluate the level of state modernization and comprehensive national strength.  In trade logistics, implementing the best practice has become one of the most exciting, yet challenging operational areas of business. Logistics is the accelerator of economic development and growth.

Measuring Logistics Success

The World Bank, with its professional and academic partners, has produced the Logistics Performance Index (LPI). The LPI helps countries develop logistic reform programs to increase trade by enhancing competitiveness. Essentially, the LPI is an interactive benchmark tool designed to help countries identify the challenges and opportunities they face in their performance on trade logistics. The LPI allows for comparisons across 160 countries.

An effectively run business uses logistics to forecast demand, plan inventory, and store goods as well as delivery. An optimized logistics performance means that these activities work closely together so that the customer of the logistics service is satisfied with the service, yet the cost the company incurs is minimized. This optimal performance requires an understanding of how the various logistical decisions and actions affect service for customers, and total cost.

The LPI measures logistics performance based on six core components. These are the most important export and import markers.

  • The efficiency of customs and border clearance;
  • The quality of trade and transportation infrastructure;
  • The ease of arranging competitive priced shipments;
  • The competence and qualify of logistics services;
  • The ability to track and trace consignments;
  • The frequency with which shipments reach consignees within scheduled or expected delivery times.

Transportation and the Economy

Transportation is one important link in the chain of logistics systems. Transportation is the physical connection among the companies in the supply chain, as well as connecting the product to consumers. When one entity sells a product to another, transportation provides the delivery. An outbound delivery for a supplying company is the inbound delivery for its customer. When one level in the supply chain experiences delays and problems, it impacts the abilities of downstream members of the supply chain to serve their customers.

The business of moving freight is a major expense for an individual. Transportation is a major industry in every developed economy. With customers’ demand for convenience, complex shipping operations and the need for shippers to manage their transportation have increased the number of shippers seeking out third-party provider’s expertise. When businesses start using third-party services to outsource transport and warehousing, they improve their overall business efficiency. This results in a better reputation and a stronger brand.

The United States Business Logistics Costs rose 11.4% to reach $1.64 trillion in 2018, or 8% of 2018’s $20.5 trillion GDP. Growing demand led to strong job market and rising wages, which carriers and warehouses passed on to shippers as higher prices.

The State of Logistics report found rising costs across all segments of the industry, including transportation and inventory-carrying costs. According to the report, transportation costs saw a 10.4% increase, but certain modes saw big jumps. Freight rates were up across the board in the most inflationary year for logistics costs in the last decade. The increase in motor carriers was most pronounced in private fleets with 13.1% increase, but the full truckload spike was high as well.

Cost pressures and last-mile challenges continue to create increased demand for logistics solutions. Similarly, consumer goods are increasingly moving to faster deliveries. But when there is a disruption in transportation, the larger economy can be affected. Transportation disruption can include equipment failures, natural disasters, inclement weather, work stoppages, government intervention, and issues with freight companies. For example, a truck accident attorney in Sacramento sees firsthand the crucial need to responsibly invest in 3rd party logistics, like a trucking or cargo company. This allows for smooth delivery of merchandise and shipments. Occasionally, transportation can be a costly expense especially when trucking accidents occur.

The final mile remains a challenge for delivery modes. More residential deliveries result in routes that are longer and less efficient. There is also variability in volumes, for example Thanksgiving and Christmas create a surge. In addition, large and irregular shaped items like patio furniture that requires special handling can also prove challenging. At the same time, customer expectations are increasing, as most customers demand same-day delivery. The State of Logistics report also stated that same-day delivery is now a $1 billion industry and is the fastest growing service type for e-commerce delivery.

As the customers demand rises, logistic management must evolve to provide innovation, flexibility, to remain competitive. 

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