Inbound vs Outbound Logistics

Your logistics network is the backbone of how materials are turned into products, and how your products are delivered to your customers. Many people understand how their logistics networks are integral for the success of their operations but don’t see a full picture of their logistics network as a whole. In fact, the processes to bring materials to your company and then deliver finished products to your customers are distinct. These are known as inbound and outbound logistics, and understanding the inbound and outbound logistics difference is essential for gaining a full field view of your entire logistics network.

Inbound vs outbound logistics serve different purposes, and their design reflects this. Both the inbound and outbound logistics process is distinct and is optimized to fulfill the role required of the network. In this article, we’ll dive into what inbound and outbound logistics refers to, what the differences between these two are, and how optimizing these two networks requires different priorities. It should be understood from the outset that both logistics networks are necessary for success. However, what works for your supply chain won’t necessarily translate to your delivery network. The opposite is also true. Efficiencies developed in getting your products to your customers don’t necessarily always work for optimizing your supply chain. To understand this a little better, let’s take a look at what both inbound and outbound logistics look like, what the purpose of these networks is, and how they are different.

Inbound Logistics

Inbound logistics refers to the network that brings goods or materials to your business. Your inbound logistics network includes everything needed to transport, store, and deliver goods to your business from other suppliers. The actual products being brought into your business depend on what you do. Inbound logistics can cover things like raw materials if you are a manufacturer, or finished products if you deal with assembly. Essentially, inbound logistics refers to everything that you need to bring into your operations to create the finished product you eventually sell.

Inbound logistics is both incredibly complex and important. There are some key factors to inbound logistics that are essential to ensure smooth operations. If your business demands raw materials to produce certain goods, you’ll need a steady supply of those materials to match your production output. At the same time, you don’t want too much of a raw material delivered if you don’t have the warehousing to accommodate it. In most cases, you’ll want to receive your raw material close to when you are actually going to use it. This means that your inbound logistics network must be tailored to your specific production cycle and warehousing capacity to ensure that there isn’t a surplus of any material or goods when it isn’t needed.

Optimizing your inbound logistics network is essential for smooth operations. To understand how to optimize your inbound logistics network, you’ll need to have a full picture of all of the moving parts of the network and understand how they work together. Everything from receiving products from your suppliers, transporting those products to your facilities, receiving them, and distributing them to where they are needed must be understood and optimized for your inbound logistics network to operate as efficiently as possible. One of the ways many businesses do this is by working with a third-party logistics  (3PL) provider. 3PL’s are subject matter experts in crafting and optimizing inbound logistics networks to ensure that the flow of goods and materials into your business is optimized to meet your business and operational objectives.

Consider a situation where you need to ramp up production. How do you go about doing that? While you may need to hire more labor for actual assembly or manufacturing, you’ll also need to acquire more labor for receiving and distribution. You’ll need more robust warehousing, which may require additional facilities, off-site storage, or the equipment to handle greater quantities of inbound goods. You’ll need to work closely with suppliers to ensure that required materials or goods are flowing to your business when you need them so that you can match your production to demand. You’ll need a robust transportation management system in place so that you can track resources and goods through your network as needed, and so that you can view in real-time the health of your inbound logistics network.

Doing all of this in-house is possible, but it can be extremely expensive. It is also more appropriate for situations where you permanently need these efforts in place. For businesses that only need to increase their production temporarily, such as a company that experiences higher sales volume during the holidays, you only need a more temporary solution. One way that businesses scale up their inbound logistics network temporarily is by working with a 3PL. 3PL’s are often capable of scaling a business’s inbound logistics network with their current needs, without the costly investment in labor, equipment, and infrastructure that doing so in-house would require.

Outbound Logistics

Outbound logistics refers to the transportation, storage, and delivery systems that bring your products to your customers. Outbound logistics is the way you bring your finished products to their destination. Your outbound logistics networks will generally work with different partners than your inbound logistics network. While some entities in the transportation industry specialize in inbound logistics, others specialize in product distribution and delivery. The process for outbound logistics reflects these differences. While inbound logistics will bring raw materials into your business, outbound logistics will move your finished products to their destination. Often, this requires moving your products to a distribution center where they are routed to your customers.

Outbound logistics networks can be quite a bit different than an inbound logistics network. Because of these differences, it is usually helpful to separate them both. Consider the fact that your inbound logistics network brings in a steady supply of materials that are roughly matched to your operational needs. On the other side, your outbound logistics network is designed to bring your products to your customers. This may mean distributing your products when they are ordered. If you deliver direct to consumers, this means moving your products through a distribution network and eventually to a carrier that will handle final-mile delivery.

Optimizing your outbound logistics network can present unique challenges that aren’t present in your inbound logistics network. Remember that an inbound logistics network involves bringing goods or products into your business. These materials or products are then assembled into the finished product you sell, which must then be distributed. There are a number of competing considerations that must be weighed when bringing your products to market. Your finished products may be more fragile than the components you originally brought in, which will require special packaging to ensure that are protected during transit. Your distribution network will also be much wider. Instead of a network bringing in supplies from a limited number of manufacturers, you’ll be delivering your products to a potentially much wider variety of destinations. If you deliver directly to consumers, this means having an outbound logistics network that is capable of delivering to a huge number of potential destinations.

Like your inbound logistics network, your outbound logistics network should be optimized to ensure that it is running as efficiently as possible. This includes having the labor, equipment, and resources available to make sure your goods are being transported to your customers efficiently. Optimizing your outbound logistics network can result in substantial cost savings, while also allowing you to more accurately determine delivery windows. Unlike an inbound network where problems with delivery can result in slowed production cycles, problems with an outbound delivery network can directly impact your relationship with your customers. Because of this, many companies are placing an increasing emphasis on optimizing their outbound delivery networks. One way they are doing this is by working with an experienced 3PL.

One of the primary challenges many businesses are facing in regards to their outbound logistics network is keeping up with consumer expectations. Consumer expectations are changing, particularly when it comes to how they order their products and when they expect to receive them.

In the past, outbound logistics for most companies was more similar to inbound logistics. Most shipments were large in size and were sent at regular intervals to retailers who stored some of the shipment in warehouses and some of the shipment on their shelves. Once the stock was depleted, the retailer would receive more. This isn’t really the case any longer. E-commerce has resulted in many more consumers completed purchases online. These purchases are then fulfilled through fulfillment centers, but those fulfillment centers generally don’t have the storage space to store huge amounts of products on their shelves. Rather, fulfillment centers store enough of a product to rapidly fulfill an order, but must then be replenished at more frequent intervals. This has resulted in much tighter windows during which products must be delivered.

Consumers today also have an expectation that they will receive their products in a much shorter period of time. If your customers expect 2-day shipping, you’ll have to get your product to their door within that window or else risk losing their business. Meeting this expectation requires working with delivery networks that specialize in rapid delivery and offer final-mile delivery services that are cost effective. At the same time, in order to meet these expectations for rapid delivery, you’ll most likely have to stage your products at distribution centers located near key urban markets.

Clearly, optimizing your outbound logistics network can be a daunting task. Working with a 3PL is one of the ways that modern businesses accomplish this. A 3PL will have access to the resources you need to get your products from the assembly line to your customers as efficiently as possible. Many businesses choose to work with a 3PL for outbound logistics because their networks are already optimized for efficiency and are ultimately more cost-effective. This is particularly true for smaller and medium-sized businesses  which don’t have the resources or desire to create their own distribution and fulfillment networks internally. For most businesses, it simply isn’t practical to do all of this internally. Rather, it makes sense both financially and operationally to outsource some or all of your outbound logistics to providers that specialize in it.

Closing Thoughts

Understanding the differences between your inbound and outbound logistics is essential for gaining a full picture of your entire logistics infrastructure. Both inbound and outbound logistics are necessary for modern businesses. Inbound logistics refers to the movement of goods and raw materials to your business. From these goods and raw materials, you create the products that you sell to your consumers. Outbound logistics refers to the movement of your finished products to their final destination. Both of these processes require specialized networks and tools, and will usually require working with different partners.

It is important to recognize that ideally, you’ll want to optimize both your inbound and outbound logistics networks to ensure that you are maximizing efficiency. One way that many businesses choose to optimize their inbound and outbound logistics is by working with a 3PL provider. 3PL’s have a wealth of industry expertise to draw on and have spent years developing relationships with carriers. They understand the intricacies of optimizing both inbound and outbound logistics and often use their expertise to guide businesses towards process improvements that generate increased efficiencies in both how they bring materials and equipment in, and how they distribute finished products afterward. Working with a 3PL can also result in a substantial cost saving, particularly for smaller and medium-sized businesses that lack the negotiating power of larger entities. By working with a 3PL you’ll gain access to the extended distribution networks, warehousing, labor, and equipment needed to get materials to your business and your products to your consumers, without the costly investment it would take to create these internally.

Sources:

  1. https://smallbusiness.chron.com/outbound-vs-inbound-logistics-77016.html
  2. https://www.inboundlogistics.com/cms/article/whats-the-difference/
  3. https://www.inboundlogistics.com/cms/article/how-to-reduce-supplier-inventory-costs/
  4. https://www.inboundlogistics.com/cms/article/5-ways-to-improve-fulfillment-center-efficiency/
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