What is Logistics? Definition and Components (2023) - Shopify (2024)

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

Let’s look at what logistics means for retail businesses, and some examples of the tasks involved in logistics management.

What is logistics?

Logistics is the process of moving goods to and from locations where they’re required. Logistics management is about ensuring enough goods arrive safely at those locations, at the correct time.

Logistics is a major part of the back-office activities of retail businesses. It makes sure:

• 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

Think about a large company like Apple. It sources parts for its iPhones from different suppliers around the world, stores those parts until needed, assembles devices, distributes them to stores and retailers, and serves their ecommerce customers.

For Apple, this process involves the coordination of more than three million people and thousands of partner businesses and facilities. Without complex logistics management, Apple’s entire supply chain would immediately cease.

Even for businesses that don’t manufacture goods or interact directly with the global supply chain, a logistics process is required to avoid stockouts, organize inventory, and ship packages.

It’s common for smaller businesses to partner with third-party logistics companies to handle these back-office activities.

What are examples of logistics?

Logistics isn’t just about moving products from one place to another. It’s a broad field that covers many tasks related to running a business. Some of the main responsibilities of logistics management include managing inventory, arranging transportation, and finding the right storage for fragile items.

Here arefivekey areas that logistics can cover:

1. Inventory management
2. Transportation Management
3. Warehousing
4. Order fulfillment
5. Demand planning

1. Inventory management logistics

Inventory management is about keeping track of what’s in a warehouse or store, and making sure there’s enough stock to meet customer demand. For larger retailers, inventory organization is an important and continual task, keeping employees aware of stocking issues and allowing them to quickly find and package customer purchases.

2. Transportation management logistics

Planning and coordinating the movement of goods from one location to another is also a key logistics activity. Transportation management is often separated into inbound and outbound logistics.

Inbound transportation

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

Outbound transportation

Outbound transportation is about getting finished products from factories and wholesalers to retailers—or directly to customers.

3. Warehouse logistics

Warehousing refers to storing goods in a safe and efficient way. Even the smallest home business that keeps stock in its founder’s garage needs a method for categorizing product SKUs.

As businesses grow, warehouse management systems become necessary to maintain processing times as floor plans, stock volume, and employee numbers increase in size.

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

4. Order fulfillment

Order fulfillment is about picking, packing, and shipping orders quickly. Tasks involve creating invoices, printing shipping labels, working with carriers, and accepting returns—known as reverse logistics.

Reverse logistics

Reverse logistics is a term for managing the return of products for repair, replacement, or disposal. Many companies have a review process for incoming returns to determine whether they can be resold and for issuing refunds.

For ecommerce brands, a comprehensive returns policy strengthens consumer trust. When you can’t see or test products in-person, feeling confident about returns can help move shoppers from basket to checkout.

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

5. Demand planning logistics

Demand planning is about forecasting customer needs to make sure there’s enough inventory when orders surge or external factors affect product demand.

Forecasts are based on historical sales data, such as sales volume patterns across the year. Demand planning also considers unique factors like the effects of recent marketing campaigns, new product launches, and products that go viral on social media.

Why logistics is important

Small businesses—especially those that produce products—have lots to focus on. From product design to marketing content, it’s easy to get wrapped up in the customer-facing aspects of retail.

But, if products aren’t available to customers when needed, the business will suffer—and eventually fail. That’s why logistics is such a vital part of any retail company.

Efficient logistics not only keeps items in-stock and sees them delivered quickly, but also helps manage the costs of inventory. The less wastage, shrinkage, spoilage, distance covered, and resorting to expensive expedited services, the more profits a business can generate.

Companies like Amazon have changed the game when it comes to logistics efficiency by making fast shipping and customer service a focus of their innovation.

Take Amazon’s acquisition of Whole Foods in 2017. After buying the grocery store chain, Amazon allowed Whole Foods customers to use its Prime home delivery service, while giving Amazon Marketplace customers the ability to pick up and return packages during their grocery shopping trips.

Logistics management software

In the 1960s, 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 counting stock.

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

AI in logistics

Artificial Intelligence is a big player in the logistics industry. It’s used to help 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 and discover more efficient routes, saving millions of miles and dollars each year.

Fulfillment automation

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

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

Logistics vs. supply chain management

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

• Logistics is all about what happens within one company—including the purchase of materials, packaging, shipment, and delivery to customers.
• Supply chain management is about a larger network of organizations that work together to deliver products to businesses and customers. This includes vendors, shipping providers, call centers, distribution centers, and more.

Packaged delivered

Logistics is often the unsung hero of commerce. It’s all about making sure 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.

With the rise of fulfillment automation, logistics is becoming more efficient and user-friendly. Whether you’re a small business or an enterprise corporation, harnessing the latest logistics tools from platforms like Shopify will help you deliver on your promises to customers.