What Is Logistics? Meaning, Benefits and Examples

Logistics, a term with military roots, is a fundamental concept in business. Logistics is getting resources—people, materials, and products—from their point of origin to their destination, efficiently and on time.

But what does logistics mean for retail businesses? Let’s dive in and explore some examples of the tasks involved in effective logistics management.

What is logistics?

Logistics is the process of moving goods to and from locations where they’re needed. Logistics management ensures that the right amount of goods arrive safely at those locations, exactly when required.

For retail businesses, logistics is a crucial part of back-office operations. As a subset of the wider supply chain, logistics ensures that:

• Materials are ready for manufacturers
• Products are stocked and organized in warehouses
• Stores have enough inventory to meet customer demand
• Purchased items are picked and shipped efficiently
• Returned items make it back to the vendor smoothly

Take a company like Apple, for example. Apple sources parts for its iPhones from different suppliers worldwide, stores those parts until needed, assembles the devices, distributes them to stores and retailers, and serves its ecommerce customers.

This process involves coordinating more than three million people and thousands of partner businesses and facilities. Without a robust logistics management system, Apple’s entire supply chain would grind to a halt.

But even if your business doesn’t manufacture goods or interact directly with the global supply chain, a well-oiled logistics process is still essential. It helps you avoid stockouts, keep your inventory organized, and get orders to your customers quickly and efficiently.

For many smaller businesses, partnering with a third-party logistics company is a smart way to handle these critical back-office tasks, so you can focus on what you do best.

Streamline your inventory management

Shopify makes it easy to manage your warehouse and store inventory from a single platform through Flexport. With built-in tools for tracking sales, running accurate demand forecasting reports, setting low stock alerts, creating purchase orders, and counting inventory, you’ll always have your finger on the pulse of your stock levels and can plan confidently.

Explore inventory management on Shopify

Why logistics is important

For small businesses, especially those that produce physical products, it’s easy to get caught up in the exciting, customer-facing aspects of retail—things like product design and marketing content. But here’s the truth: the business will suffer if your products aren’t available when customers want them. In fact, without solid logistics, you’ll likely fail.

That’s why logistics is such a vital part of any retail operation. Efficient logistics management keeps items in stock and ensures speedy delivery to customers. But it also helps control inventory costs. The less you spend on spoilage, shrinkage, storage, and expedited shipping, the more profit your business can generate.

Industry giants like Amazon have raised the bar when it comes to logistics efficiency. By making fast shipping and exceptional customer service a core focus of their innovation, they’ve reshaped customer expectations.

Consider Amazon’s 2017 acquisition of Whole Foods. By integrating the grocery store chain into its ecosystem, Amazon enabled Whole Foods customers to use its Prime home delivery service while giving Amazon Marketplace customers the convenience of picking up and returning packages during their grocery runs. Talk about a logistics win-win.

What are examples of logistics?

Logistics involves much more than just moving products from point A to point B. It’s a broad field that encompasses many tasks related to running a business. Some of the primary responsibilities of logistics management include:

Inventory management logistics

Inventory management is all about keeping track of what’s in your warehouse or store and ensuring you have enough stock to meet customer demand. For larger retailers, inventory organization is an ongoing task that requires continuous attention. Effective inventory management informs employees of stocking issues and allows them to locate and package items for customer orders quickly.

Transportation management logistics

Planning and coordinating the movement of goods between locations is another essential logistics activity. Transportation management is often divided into two categories:

Inbound transportation refers to acquiring raw materials or goods from wholesalers and production facilities. For example, a car mechanic might need to coordinate the delivery of various parts from suppliers to their garage.

Outbound transportation involves getting finished products from factories and wholesalers to retailers or customers.

Warehouse logistics

Warehousing is the process of storing goods safely and efficiently. Even the smallest home business needs a system for categorizing product SKUs, whether the “warehouse” is a garage or a spare room.

As businesses grow, formal warehouse management systems become necessary to maintain order processing speed, especially as floor plans expand and stock volumes and employee numbers increase.

Some warehouses also serve as distribution centers that fulfill orders and store inventory. For instance, IKEA’s famously unique warehouse layout lets customers pick and transport their orders, reducing the need for staff and storage space.

Order fulfillment

Order fulfillment involves promptly picking, packing, and shipping orders. Tasks include creating invoices, printing shipping labels, working with carriers, and handling returns (a process known as reverse logistics).

Reverse logistics is the process of managing the return of products for repair, replacement, refund, or disposal. Many companies have a review process for incoming returns to determine whether you can resell items and to issue refunds.

For ecommerce brands, a comprehensive returns policy can boost consumer trust. When customers can’t see or test products in person, knowing they can easily return items can be the deciding factor in a sale.

? Here’s a walkthrough of Shopify’s shipping and fulfillment tool.

Demand planning logistics

Demand planning involves forecasting customer needs to ensure you have enough inventory when orders surge or when external factors affect product demand.

Forecasts are typically based on historical sales data, such as seasonal sales volume patterns. However, demand planning also considers unique factors like the impact of recent marketing campaigns, new product launches, and products that go viral on social media.

Logistics management software

The history of logistics management software can be traced back to the 1960s, when IBM developed the first computerized inventory management system to help NASA coordinate manufacturing for its moonshot. The software was quickly adopted and replicated across the logistics industry, digitizing the process of inventory audits and stock counting.

Since then, logistics management software has continued to evolve, with artificial intelligence and automation playing increasingly significant roles.

AI in logistics

AI has become a major player in the logistics industry. Companies use it to predict demand, forecast supply chain shortages, and optimize delivery routes. For example, UPS uses AI to analyze data from its delivery vehicles to anticipate traffic patterns and discover more efficient routes, saving millions of miles and dollars each year.

Fulfillment automation

Automation in logistics involves using technology to perform tasks with minimal human intervention. Both hardware and software enable automation. For example, Amazon warehouses use dexterous robots to process up to 1,000 items per hour autonomously.

Shopify merchants can automate fulfillment tasks like low-inventory notifications, ordering replacement stock, and placing holds on risky or high-value orders.

Key components of an effective logistics system

The fundamental elements that make up an efficient logistics system include:

• Warehousing. How easy is it to locate inventory in your warehouse? Instead of scrambling to find a product when packing an order, a warehouse management system stores key information—like each item’s spot in a shelving unit—to pick orders faster and more accurately.
• Inventory control. You have a limited amount of storage space to keep unsold inventory. Ensure your logistics system integrates with inventory management tools like Stocky to identify underperforming items, those at risk of a stockout, and bestselling items that you should prioritize when replenishing inventory.
• Material handling. This describes how inventory is acquired, stored, and transported to its final destination. A designated receiving inventory area can keep new shipments separate from approved stock, preventing subpar inventory that doesn’t pass quality control from entering your supply chain.
• Packaging. Packaging prevents items from being damaged in transit. Damaged inventory costs you money to replace and results in lost revenue, especially if the customer receives a damaged item in their order. Use lightweight, compact packaging strong enough to withstand bumps, and wrap delicate items with fragile tape.
• Transportation. This describes how your goods move from one place to another (like from your warehouse to a customer’s home). Your logistics system should include last-mile delivery, shipment tracking, and partnerships with shipping carriers like Shopify Shipping to secure discounted rates on shipping labels.

Best practices for optimizing logistics operations

Secure discounted shipping rates

According to Shopify data, shipping accounts for almost 9% of a business’s annual expenses, but over a third of new business owners said it was the most unexpected cost of starting a business. Shipping labels can eat into your logistics budget, especially if you’re shipping a low volume of orders. Carriers often reward high-volume shippers with discounted rates.

Shopify Shipping is designed to solve that problem and give you a competitive advantage. “For the last 30 days, we’ve saved $25,454 in shipping costs with Shopify Shipping, which equates to about $305,448 per year,” says Jenni-Lyn Williams, CEO of SnarkyTea.

Activate Shopify Shipping and unlock up to 88% savings when you buy discounted shipping labels from leading carriers like DHL Express, UPS, and USPS directly from your Shopify admin.

Alternatively, outsource the entire process to third-party logistics services, such as Shopify Fulfillment Network and Flexport. As high-volume shippers, they often can pass on discounted rates to the ecommerce businesses they serve.

Optimize warehouse design

Studies show that the average price for a storage container has increased by 20% in the past year alone. Instead of spending extra money on a bigger warehouse, maximize your square footage with intelligent warehouse design.

Effective ways to optimize your warehouse space include:

• Using high or stackable shelving units to make the most of vertical space
• Designated specific picking and packing stations
• Grouping inventory by category for easier and quicker locating
• Clearly labeling storage areas, including shelves and bins
• Placing bestselling stock beside packing stations to limit the distance your logistics team has to travel when picking orders

Use route optimization rules

Route optimization helps you identify the most efficient and cost-effective routes for transporting goods. For example, if you have warehouses in New York, Chicago, and Los Angeles, route optimization would send any orders with a shipping address closest to New York to that warehouse.

Order routing makes shipping cheaper, because you’re not sending items as far. This also makes your ecommerce business more sustainable, as a closer location means less carbon going into the atmosphere due to reduced fuel consumption. Smartly planned routes can also get products into your customers’ hands faster, helping you meet the demands of two-day or even next-day delivery.

The best part about route optimization rules is that they can divert packages around crises, weather issues, or traffic congestion. For example, suppose you’re delivering parcels using your vehicles within a certain radius of your store. In that case, the software can guide you around traffic jams or weather warnings to reduce fuel consumption and increase delivery speed.

Invest in supply chain automation

Logistics is just one part of the supply chain puzzle. Invest in supply chain automation tools that integrate with your logistics and warehouse management systems to understand better how your business manages the physical movement of inventory.

Automation frees your logistics team from repetitive, time-consuming tasks like order picking or generating shipping labels. This gets customer orders out the door faster and improves order accuracy. There’s a lower risk of a customer receiving the wrong item if you’ve asked an automation tool to generate a packing slip that contains each item’s exact location and enter a customer’s shipping address onto a prepaid label.

Logistics vs. supply chain management

Logistics and supply chain management are terms often used interchangeably, but they refer to different aspects of inventory and goods transport.

• Logistics focuses on what happens within one company, including purchasing materials, packaging, shipment, and customer delivery.
• Supply chain management, on the other hand, involves a more extensive network of organizations working together to deliver products to businesses and customers. This includes vendors, shipping providers, call centers, and distribution centers.

Streamline your logistics with the Shopify Fulfillment Network

Logistics is often the unsung hero of commerce. It’s all about ensuring that products and resources are in the right place at the right time. From managing inventory to planning transportation, efficient logistics plays an invisible but crucial role in keeping a business running smoothly.

With the rise of fulfillment automation, logistics is becoming more efficient and user-friendly. Whether you’re a small business or an enterprise corporation, Shopify Fulfillment Network through Flexport can help you deliver on your promises to customers so you can focus on growing your business.