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The logistics network for any enterprise is the backbone of its success. Effective logistics is the foundation of managing the supply chain with reduced expenses and better performance. The supply chain is a complex network of various organizations or individuals working closely to ensure the perfect coordination of supplies, storage, and delivery. To generate the best possible revenue, a company needs a smooth system for the right supplies, at the right place, and at the exact time. Thus logistics play a critical role in effectively managing the supply chain.
Every industry dealing with physical goods needs both inbound and outbound logistics to manage the supply chain. Though the terms ‘inbound’ and ‘outbound’ have different terminology in different sectors within supply chain management, they just come down to the difference between sending and receiving materials. Effective supply chain management requires both the logistics to work in harmony for the entire process completion and satisfactory customer service. While the processes directly affect the company’s production, profits, and customer service, putting the proper controls in required places brings about positive growth in the company’s success.
What is inbound logistics?
Inbound Logistics is the network focused on the transportation and storage of the incoming supplies and materials. Inbound logistics management is responsible for receiving and organizing the incoming shipments into the company’s warehouse, storage and distribution centers.
Inbound logistics operation is the most crucial part as it is responsible for the correct and timely delivery of the supplies to carry forward the supply chain process.
Inbound Logistics Activities
Following are the activities associated with inbound logistics.
- Sourcing and procurement – Obtaining suitable materials from the right sources is the first step of successful supply chain management. Inbound logistics are responsible for identifying potential supply sources, Obtaining price quotes, negotiating, and managing different vendors.
- Purchasing – Buying the required goods and materials for the company as per the demand market.
- Transportation – Analyzing the perfect mode of transportation required for the company’s benefit.
- Receiving – Acknowledge the order requirements and receive the incoming shipments.
- Warehousing and Storage – Managing the received goods safely within the facility for further usage.
- Inventory control – One of the most crucial tasks in a supply chain process. This department is responsible for deciding the correct amount of materials in storage in the right conditions and the correct order for fulfillment.
- Expediting and Distribution – Acknowledging and sending needed supplies to the correct facilities for further usage.
- Tracking – Keeping a tab about the incoming and outgoing orders along with information and data.
- Reverse Logistics – In case of return in shipments or return orders, the Inbound department looks after the order details and processes the goods accordingly.
Challenges of Inbound Logistics
Some of the fundamental challenges faced by inbound logistics include extremely high investment, poor transportation, uncertainty in delivery, and improper warehousing and storage facilities, making it hard to maintain and improve the overall efficiency and productivity.
High inbound shipping costs
Transportation makes up for one of the highest expenses in a supply chain. Inexperienced companies tend to spend too much on shipping and transportation. However, analytics can identify the best resources and transportation to limit the waste of time and money.
Poor visibility of operational information
Lack of information has always been a challenge that affects a substantial part of investment in a company. This poor visibility causes extra expenses resulting in production delays and deteriorates all over customer service.
Inefficient manufacturing operations
A slight inefficiency in any in-plant operation can damage the business. Inefficiencies in manufacturing units include material wastage, low quality of products, poor staffing, and lack of accurate data.
Poorly planned deliveries
Without proper planning and maintenance in the logistics, companies juggle too many deliveries simultaneously, leading to errors and wrong analytics. Inadequate drivers, unnecessary stoppage points, lack of optimized routes, and poorly maintained vehicles increase operational costs with poor customer service.
Poorly structured or absence of database
Data analysis is the only way to maintain a healthy supply chain. Poorly maintained databases or lack of databases result in ill-informed decision making and difficulty for businesses to optimize their processes to balance the supply and demand ratio.
Competitive influence, economic conditions, fluctuations in demand market and selling cycles, etc., can only be analyzed through a structured database. A good database predicts the market demand along with new opportunities to improve supply and purchases.
How to Optimize Your Inbound Logistics
With the ever-changing market pattern, optimization is the only way out for a successful venture nowadays. An optimized inbound logistics has its shares of benefits, including fast, cost-efficient, and leaner operations with room to identify weaknesses and make the necessary improvements.
Here are some ways to optimize the inbound logistics for better performance:
- Proper usage of supply chain analytics – Supply Chain Analytics helps model the current process, measure performance, and look for inefficiencies related to high cost, wastage, quality issues, information gaps, etc. This helps in improving the overall performance in comparison to the industry benchmarks.
- Develop strategies for in-house inefficiencies – A proper understanding of the decisions and their effect on the overall performance provides an insight into the areas for improvement.
- Increase automation – The most convenient option for an error-free process is automation. Automating the supply chain process helps enhance productivity by keeping an accurate track of inbound delivery fleets, plant operations, and storage units. This helps develop a clean and structured system to lower the extra expenses with great productivity and service.
- Formulating a Vendor Inbound Compliance Standard (VICS) protocol – Inbound Logistics deals with multiple suppliers and vendors, making it difficult to streamline their Inbound operations. A comprehensive Vendor Inbound Compliance Standard acts as a set of guidelines for both sides and avoids any unwanted disruptions in the supply chain process.
- Using Advanced Logistics Management System – Modern and updated logistics management software helps a business stay updated on the current market scenario. Freight charges and other factors can adversely impact the whole operation. With the latest technology and software systems, businesses have adequate visibility over the ongoing market elements and can likewise make optimized decisions.
Steps in Inbound Logistics (Receiving)
- Sourcing – Finding out reliable vendors and suppliers for the required raw materials.
- Purchasing – Negotiating the price and purchase.
- Recording and Receive Receipts – The purchase is recorded officially with the receipt from the vendor upon successful transaction.
- Notification – Upon successful transaction, the vendor notifies the company once the goods are shipped.
- Tracking – The supplier provides tracking information of the shipment for transparent monitoring.
- Shipment Arrival – The successful arrival of the goods to the receiver’s facility.
- Receiving – Upon successful arrival, the goods are unloaded to verify the quantity against the purchase and confirm acceptance.
- Warehousing and storage – The goods are then moved to their next designated location, either in a warehouse for storage or manufacturing units for further processing.
- Stage for cross-docking – Goods for further shipments follow the same process.
- Reverse Logistics – Customer returned goods for returns or repair against damaged products.
Inbound Logistics Example
A company’s inbound logistics depend on the product and business model. Here’s a simple example for a better understanding of the process of inbound logistics.
Here’re the steps of how inbound logistics work for a shoe manufacturer called Peter’s Shoes.
- Sourcing and purchasing – Peter’s Shoes first analyses the amount of leather fabric and other raw materials needed for the upcoming month to meet the forecasted market demand. The procurement team first identifies suppliers to meet the company’s needs. The purchasing team then negotiates a contract and completes the purchase.
- Recording and receiving receipts – The Purchasing team generates orders and sends them to the suppliers to match them with invoices and Receive Receipts upon successful transaction.
- Notification and tracking– Upon successful shipping of the raw materials, Peter’s Shoes receive a notification of the same with valid tracking information to track the shipment
- Shipment arrival – The supplies arrive at the company’s facility within the stipulated delivery time
- Receiving – The receiving staff unloads the shipment and scans the barcodes or RFID tags to verify the quality and quantity of the supplies.
- Warehousing and storage – The raw materials are then sent to the warehouse for further manufacturing into shoes.
- Reverse logistics – The receiving team also handles the return of unsold shoes from retailers or damaged products directly from customers. These are then sorted for further processing.
Importance of Inbound Logistics in Manufacturing
Inbound logistics is the primary and most crucial part of a supply chain. Businesses benefit in a number of ways, including:
- A better understanding of raw materials
- Predictable materials cost.
- Choose the better options from vendors
- Lower shipping charges
- Better transportation
- On-time delivery
- Steady production
- Higher productivity
- Improved product quality
- Better storage and inventory control
- Stronger management control over the supply chain
- Better customer service
What is inbound logistics in a value chain?
A value chain combines all the steps and processes related to manufacturing, storing, distributing, and receiving inputs, to all be changed into outputs for the consumers. Inbound logistics relate directly to the primary stage of a value chain by bringing in the critical element, i.e the raw materials in the facility, to be turned into valuable products for the consumers.
How to calculate inbound logistics?
The following are the cost factors considered in connection with measuring inbound logistics.
- Freight Cost of Raw materials
- Freight cost as a share of total production costs
- Incoming shipping expense
- Warehouse spacing
- Manpower required to handle goods
- Inventory expense
What is Inbound Vendor Freight Management?
Inbound vendor freight management is the process of monitoring and managing the inbound shipments directly from the vendors and suppliers. As transportation amounts to a large amount of a company’s logistics costs, inbound freight management allows a shipper to control these costs by improving reliability, gaining transparency, and reducing hidden expenses.
Effective inbound logistics management includes managing much more than procurement
Inbound logistics management has a significant impact on the procurement team in an organization. Procurement is much more than just purchasing and moving products in a supply chain. Optimizing the inbound logistics process has a direct effect on the procurement process. Leveraging inbound logistics technology and using updated measures to gain end-to-end visibility will enhance the inbound logistics process. As a result, due to accurate measurements, it is easy for the procurement department to take and implement new and updated decisions whenever needed.
Enhanced supplier relationships or developing loyal relationships are critical aspects of the logistics process. Thus, with a better inbound freight management system, the procurement department can focus on making reliable cost-associated decisions for the supply chain and improving the company’s effective inbound logistics management.
Consolidating Your Inbound Freight Deliveries
Freight consolidation refers to a practice where shippers combine multiple shipments heading to the same geographical area. This allows the shipping companies to lower the cost per unit. Shippers can either batch their supplies or coordinate with similar shipping companies who have their products headed to the same place or direction. After the combined shipments arrive at their destination, they are broken down into LTLs to be delivered to their respective destinations.
Benefits of Inbound Freight Shipment Consolidation
A drastic reduction in shipping charges
The prominent reason and benefit of shipment consolidation is lower shipping costs. By increasing the volume to total capacity, the per-unit expenses are decreased.
Reduced freight damages
Freights that are properly packed are less likely to be jostled and damaged.
Fewer loading-unloading stoppages
Traditional freight routes often lead to a frequent movement to multiple loading and unloading points. Consolidated shipments eliminate the extra stops and provide faster delivery of the goods.
Tracking multiple shipments at once is challenging for heavy logistics. With shipment consolidation, numerous shipments can be tracked on a single tracking number to be broken apart separately for the final delivery.
An overcrowded stop leads to severe issues for both the shippers and the receivers, including detention times. Freight consolidation helps eliminate the heavy congestion resulting in fewer delays and a less wait time.
Tips to Improve Inbound Logistics and Streamline Procurement
Some comprehensive ways to strengthen inbound logistics strategy along with streamline procurement are:
- Analyzing non-controlled costs – Recognising uncontrollable and hidden expenses can avoid unnecessary inbound freight charges.
- Analyzing inbound freight costs – Each and every inbound freight cost is to be analyzed using the latest algorithms and tools to avoid additional expenses.
- Embracing a database – Make use of the spontaneous and updated data for market scenarios and decide accordingly.
- Outsourcing – Outsourcing is an effective way to manage logistics and procurement. Third-party providers ensure the proper usage of freight data and provide an error-free service.
- Automation to track performance – Improper tracking results in unnecessary inbound freight charges. Thus, implementing the latest procedures and technology will result in avoiding additional costs.
Building Strategic Relationships with Your Supplier Partners
Supplier relationships are a critical aspect of the profitability and competitiveness of the business. However, the struggle in establishing and maintaining a stable relationship with the suppliers often emerges as an essential part.
Not all suppliers are to be treated alike. Suppliers can often deliver much more than just the stipulated price on the widget. Thus, firstly, it is vital for the procurement team to cultivate and maintain a healthy supplier relationship to ensure the profitability and growth of the company.
Some ways to set up a valued relationship with the supplier base are discussed below :
- Procuring more information about the supplier – to establish a strong connection, a procurement team needs to gather information about the function they support. A detailed understanding of the vendor’s services always positively impacts both parties.
- Understanding how the function supports the company’s profitability – Anticipating the future trends to identify reliable supply sources provides a better insight into the company’s needs in the right way.
- Taking the help of outsourcing partners and additional training – establishing a connection requires access and knowledge of the information generated internally and from the vendors. Thus, skilled teams can provide an upper hand in building a decisive strategic advantage that can help a business reach its profitability goals in the long run.
- Collaborate with other members of the supplier line as well –
Forming good relationships helps provide a competitive advantage and keep the costs down. Use the knowledge to build a strategic relationship with the supplier chain.
- Aim to improve the overall business performance – Focusing on the company’s success will provide a better insight to engage other partners to understand their roles in the company.
How to Take Control of Your Inbound Logistics Charges
Inbound logistics typically work with purchasing, receiving, storing, and adding completed products into the inventory. Thus, it plays a crucial part in the overall supply chain management. But, without proper planning and lack of analytical information, the charges associated with the process can result in heavy investment at times.
Analyzing Inbound Transportation Charges
Various suppliers calculate their shipping charges differently. As most companies don’t break out shipping expenses as a line item, a detailed transportation cost will provide a better insight into the cost-effective measures. Unnecessary shipping charges can be curbed down with proper planning and negotiation.
Managing Inbound Logistics Costs
While effective controlling of inbound logistics can seem to be difficult without a proper structure, however with the right accountability and guidance, inbound logistics costs can be slashed. Some of the effective ways to lower inbound logistics costs are –
Creating Route Guides and successfully implementing Vendor Compliance Protocol
Developing a personalized route guide helps provide a clear concept of transportation and the challenges accompanying it. Routing guides provide information such as modes of transportation, preferred carrier modes, stipulated time frames, exception protocols, etc.
For the events where routing guidance is absent, Vendor Compliance protocols carry the same function between the shipper and the receivers. It ensures that both sides are aligned, reducing variability and eliminating extra costs.
Use technology to increase transparency and control
Implementing automated systems like Transportation Management System (TMS), companies now are successful in increasing the visibility including inbound freight carriers, tracking transit points and deliveries. Automated shipment updates can be received and viewed instantaneously via Electronic Data Interchange (EDI), increasing the accountability and effectiveness of the vendor.
Understanding and refining inbound logistics may seem complex but is not something impossible. Modern technology and its impressive capabilities now make it easier for companies to formulate an optimized inbound strategy. The results? Smoother process, spontaneous supply chain flow, cost-effective overall improvement in performance and productivity, and boosted profitability.
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Inbound logistics specifically refers to the transportation of raw materials and storage of the incoming goods into the supply chain. It is the first step in the Value Chain of a company.
Following are the basic steps involved in inbound logistics –
- Receiving Receipts
- Shipping and Receiving the shipment
- Reverse Logistics
Some of the prime challenges in inbound logistics are :
- Poor visibility of Transportation
- Increased Logistics cost
- Inefficient Plant operations
- Poor Productivity
- Lack of data-driven decision
Inbound logistics can be optimized in the following ways
- Embracing Automation
- Using Advanced Logistics Management System
- Developing Vendor Inbound Compliance Standards
- Building strategic relationships with outsourcing partners
- Optimization of overall communication
Outbound logistics refers to the outflow of the finished products from the business end to the consumers. Outbound logistics involves steps like packaging, transportation, distribution, and customer service.