This post discusses logistics risk and logistics risk management. In this post, you will understand the meaning of logistics risk and the management of logistics risks.

WHAT IS LOGISTICS?

Logistics, also known as physical distribution management, is the flow of goods. Logistics is an activity carried out by companies for the physical distribution of goods. Consumer durables and many other industries regularly manufacture goods. The goods must be transported to distributors, dealers and final consumers. Logistics means transporting goods from the manufacturer or producer to intermediaries and end consumers. 

The essence of logistics is the flow that encompasses the steps and processes involved in delivering a company’s products to consumers. Goods or products can be stored in storage points or locations before distribution to intermediaries and consumers. Storage locations include logistics centres and warehouses. Delivery by large trucks and transportation by ships and aircraft are fundamental ways of transporting goods. The increasing demand for online deliveries, shorter delivery cycles, increased competition, shrinking margins, and the need for improved customer service are significant drivers of logistics management. 

However, logistics does not mean “transportation” only. There are several logistics activities and functions of logistics within an organisation. For instance, if a company intends to deliver goods from its warehouse to a dealer, the firm should adjust the warehouse inventory to meet its dealers’ and distributors’ demands. The company must also ensure that goods are dispatched promptly from the warehouse to reach its storage facilities, dealers and distributors. Furthermore, the company should ensure that goods are handled appropriately to meet the dealer’s desired conditions. Hence, the importance of a sound logistics risk management.

THE 7 R’s OF LOGISTICS

One of the essential concepts in logistics management is the concept of the 7 R’s or the 7 “Rights”. The Chartered Institute of Logistics and Transport (United Kingdom) defines the 7 R’s as getting the right product, in the Right quantity, in the Right condition, at the right place, at the right time, to the right customer, at the right price.”

Consequently, the 7 R’s of logistics means getting the right product, the right quantity, the right condition, the right place, the right time, the right customer, and the right price. 7 R’s of logistics emphasises the importance of logistics services and how items that meet specific criteria, including time, quantity, and prices, can be moved simultaneously. 

The implication is that the 7 R’s of logistics ensure an adequate flow of products, effective planning, efficient storage of goods, and better information management to meet customers’ needs, reduce costs, and improve turnover. Hence, the 7 R’s of logistics is vital in setting-up a firm’s logistics risk management framework.

Let us explain the 7 R concept of Logistics and how it helps improve a logistics risk management process.

1. RIGHT PRODUCT

While designing, manufacturing and selecting a product, the company should consider potential issues during transportation. Special packaging requirements, for example, might arise from the product’s weight or bulk, shape or fragility, and transportation distance. 

2. RIGHT CUSTOMER

Customers are the core component of the logistics process. The right customer is about finding customers and creating awareness about the product and services. The greatest challenge is how to identify the customer to target. 

3. RIGHT PRICE

Pricing is imperative for businesses as it is a significant factor influencing the profitability of a product. A sound system for storing and updating product prices ensures successful logistics management services. 

4. RIGHT QUANTITY

Sending the correct quantity of products is vital in logistics. If a company meets its product demand, it will retain revenue and customers. Warehousing and associated expenses will also increase if the company has an excess quantity. 

5. RIGHT CONDITION

The proper condition in logistics is about the safe delivery of the proposed product. The quality of the products should be maintained until it reaches the end user or the customer. 

6. RIGHT TIME

Time is a crucial factor in logistics. The company must have products on its shelves or in stock at the right time to cater to customers’ demands. Even if everything else is done accurately, the process can only succeed if the timing is correct. 

7. RIGHT PLACE

The demand for a company’s product varies depending on geography, demography, and other factors. Through market research, it is necessary to understand the exact place that needs to be targeted, as certain areas might have a higher demand for the product. In contrast, the other regions might not care about the product. The right product must be sent to the right place. 

WHAT IS LOGISTICS MANAGEMENT?

Logistics management involves organising and implementing the distribution of goods and services. The logistics process entails the flow of products and services to meet customers’ demands and expectations. Logistics management ensures effective management of resources, including tangible goods (materials, equipment and supplies), food, and other consumable items. 

Logistics management management involves the integration of the flow of information and its management tools, materials handling, production packaging, inventory, transportation, warehousing and sometimes security. Dedicated simulation software is often used to model, analyse, visualise, and optimise a complex logistical puzzle. A person who works in the logistics field is known as a logistician. A logistician plays vital role in setting up a logistiics risk management framework.

WHY IS LOGISTICS MANAGEMENT IMPORTANT?

Logistics is crucial to planning, implementing and controlling the flow and storage of goods and services to meet customers’ demands. Logistics risk management includes multiple processes that ensure the seamless movement of goods, freight, parcels, raw materials, finished inventory, and packages to the end users. 

The increasing complexity of moving goods from the point of production to the end-users has made logistics management critical to meet customer needs and compete effectively in the marketplace. Efficient logistics management provides clear visibility of transportation activities to ensure smooth logistics operations. By analysing the transportation data, companies can implement better route optimisation to avoid potential disruptions and save operational costs.

Logistics management helps identify cost-saving measures and reduce operational expenses, ensuring improved productivity. Efficient logistics management enables the implementation of reliable strategies to meet customer demand and improve sales volume. Logistics risk management aims to find efficient and effective ways to transport resources and products from conception through production to end-users.

BENEFITS OF AN EFFICIENT LOGISTICS MANAGEMENT

Businesses must maintain an effective logistics risk management to be competitive and enhance performance. Sound logistics management ensures that companies meet customers’ demands and expectations. 

Here are six key benefits of efficient logistics management:

1. Improves customer experience

2. Optimise operational costs

3. Enhances profitability

4. Improved intermodal operations

5. Improved productivity and efficiency

6. Enhances intelligent route planning

MAJOR COMPONENTS OF LOGISTICS MANAGEMENT

Logistics management involves a vast network of suppliers, agents, freight forwarding providers, distributors, packers, and service providers, through various modes of transport. It is a complex process that includes multiple components that determine the effective movement of goods. 

Significant components of logistics management include:

1. Inventory planning

2. Inbound logistics

3. Outbound logistics

4. Fleet management

5. Warehousing

6. Delivery fulfilment

7. Demand planning

IS LOGISTICS MANAGEMENT THE SAME AS SUPPLY CHAIN MANAGEMENT?

The terms logistics management and supply chain management are sometimes used interchangeably. Some scholars emphasise that there is no difference between the two terms, but supply chain management is the “new” logistics.

Supply chain management in the United States is commonly known as logistics management in Europe. While these two terms are similar, both concepts have different meanings. Supply chain management is an overarching concept that links multiple processes to achieve a competitive advantage. Logistics refers to the movement, storage, and flow of goods, services and information within the supply chain.

WHAT IS SUPPLY CHAIN MANAGEMENT?

The Council of Supply Chain Management Professionals defines logistics as “part of the supply chain process that plans, implements and controls the efficient, effective forward and reverses flow and storage of goods, services and related information between the point of origin and the point of consumption to meet customer’s requirements.”

Supply chain management involves several organisations working together as a supply chain to manage the flow of raw materials and ensure the finished goods provide good value to consumers. This implies that supply chain management entails collaboration between firms to connect suppliers, customers, and other partners to boost efficiency and produce value for the end consumer. Supply chain managers work across multiple functions and companies to ensure that finished products meet consumers’ needs and reach the end-users. Logistics is just a tiny aspect of an extensive supply chain network.

Logistics management is a subset of extensive supply chain management. Supply chain management helps plan, implement, and control the efficient flow of raw materials, goods and services, and related information from production to consumption to meet customers’ needs. 

The logistics management process can be divided into inbound and outbound logistics. 

Inbound logistics covers the activities concerned with obtaining materials and then handling, storing and transporting them. Outbound logistics covers the customer’s collection, maintenance, and distribution activities. Other activities include packing and fulfilling orders, warehousing, managing stock, and maintaining the equilibrium between supply, demand and other logistics factors.

KEY DIFFERENCES BETWEEN LOGISTICS AND SUPPLY CHAIN MANAGEMENT

Logistics management is a core component of supply chain management (SCM). It is necessary to emphasise that these terms should not be used interchangeably, but they supplement each other. One process cannot exist without the other. Here are the fundamental differences between logistics and supply chain management.

1. Supply chain management links significant business processes within and across companies to facilitate a high-performance business model that drives competitive advantage.

2. Logistics entails the movement, storage, and flow of goods, services, and information within and outside an organisation.

3. The main focus of the supply chain is a competitive advantage, while the main focus of logistics is meeting customers’ requirements and demands.

4. Logistics is a term that has been in use for a long time. The concept of logistics emerged from military operations. Supply chain management is a relatively new term.

5. Logistics is an activity within a supply chain process.

TYPES OF LOGISTICS MANAGEMENT

There are four main types of logistics management: 

1. Supply management and logistics, 

2. Distribution and material movement, 

3. Production logistics management, and 

4. Reverse logistics and product return.

DISTRIBUTION NETWORKS OF LOGISTICS MANAGEMENT

There are several links and points of distribution in a logistics management network, including:

1. Factories – where products are manufactured.
2. Warehouses – where products are stored.
3. Distribution centres – To receive and return items for clients.
4. Transportation – To deliver the product.
5. Retail locations – Consist of products-selling stores, including small and larger stores’.

These are the major hubs for the logistics of a product. However, there may be vendors and intermediaries operating between these points.

DISTRIBUTION AND LOGISTICS

The term distribution is easily mistaken for logistics. For example, logistics involves planning and moving the necessary materials and soldiers during a war. Logistics is an element that makes a difference between winning and losing the battle. Logistics is a broad concept for distribution. The distribution consists of product, sales, and procurement. The idea of centrally managing the flow of complicated goods and making them more efficient is also called logistics. However, equating distribution and logistics is not correct.

There is a notable gap between production and consumption. The goal of logistics is to fill in this gap. In the past, the primary mission of logistics was to deal with spatial distance by increasing transportation efficiency and reducing the time to deliver goods. However, an important theme is the speed and timely delivery of goods to consumers. Hence, a sound logistics system (including transportation, storage, inventory control, and quality product delivery) is essential to prevent excessive inventory and ensure efficient delivery. The goal now is efficient logistics to reduce wastage.

LOGISTICS SYSTEM

A sound logistics system ensures that the logistics flow delivers goods quickly and timely from the production stage to the consumer. A logistics system comprises six elements: transportation and delivery, storage, packaging, cargo handling, distribution processing, and information.

COMMON PROBLEMS IN LOGISTICS MANAGEMENT

Some common management mistakes could affect a company’s logistics management and performance. Here are five common mistakes that should be avoided in logistics management.

1. Disorganised processes,

2. Not using key performance indicators,

3. Communication issues among different sectors,

4. Not leveraging technology, and

5. Inaccurate business demand forecasting.

TYPES OF LOGISTICS

There are several types of logistics. The most well-known type is sales logistics, which entails moving products from the producer to the consumer. There are five broad types of logistics Fields: procurement logistics, production logistics, sales logistics, recovery logistics, and recycling logistics.

CLASSIFICATION OF LOGISTICS RISKS

To ensure a sound logistics risk management, it is reasonable to classify logistics risk into the following nine categories:

1. Commercial risk: This includes disruption of deliveries, lack of availability of goods on time, violation of deadlines, and non-fulfilment of financial obligations of supply chain counterparties (logistics system);

2. Loss of property: This includes the risk of loss of property due to natural disasters and unfavourable transportation conditions;

3. Strike and social unrest: entails the risk of loss of property due to strikes, mass unrest, and hostilities;

4. Safety and fire risks;

5. Theft risk: includes risks of theft in warehouses and transportation operations;

6. Environmental risks include risks associated with the product or mismatch of its properties, which may be detrimental to the environment;

7. Technical risks include the failure of machinery and vehicles resulting in delays in the delivery of goods and increased probability of other risks;

8. Counterparties risk: these are risks associated with inexperienced counterparties in the logistics system, including negligence, loss of documents, and low-quality service delivery.

9. Injury to third parties: entails the risk of civil liability and damage to third-party properties.

LOGISTICS RISK MANAGEMENT PROCESS

An effective logistics strategy is vital for a successful business operation. Managing inventory, warehousing, transportation schedules, and other aspects of a firm’s logistics activity require professional skills, especially when developing a risk management process. 

Sound logistics management is paramount regardless of the sector a firm operates in. The best way to avoid being highly affected by logistics risks is to develop ways of minimising their impacts and quick recovery from a logistics mishap. 

There are four basic steps in a logistics risk management process:

1. Identify risks to your supply chain.
2. Analyse and evaluate the impact of each risk.
3. Treat risks to your business.
4. Review the risk management process.

TIPS FOR EFFECTIVE LOGISTICS RISK MANAGEMENT

Logistics management involves much planning – the more the step, the better. The larger the operation, the more complex and challenging the logistics management. Hence, the need for sound logistics management. Efficient logistics management ensures a smooth flow of communication and products, builds better customer relationships, and minimises the need to maintain excess inventory. It also helps to reduce errors, shrink delivery times and increase revenues.

Here are eight tips for effective logistics management:

1. Ensure better control of ground-level activities,

2. Get inventory closer to customers,

3. Automate core logistics operations,

4. Ensure advanced routing practices,

5. Last-mile deliveries and customer-centric,

6. Reduce carbon footprint,

7. Effective benchmarking of third-party logistics performance, and

8. Establish robust risk management strategies.

See my video on Logistics Risk and Logistics Risk Management: https://youtu.be/nIifnwAs1Io