Logo - Business Development Bank of Canada - BDC


Logistics definition

As one component of supply chain management, logistics is the process of coordinating and managing the flow of material goods as they make their way from production to the point of consumption and, in some cases, back again.

Outside of your business, what does the word “logistics” mean to you? Many of us use it to simply describe the details that go into completing a project.

If we hear, “Don’t worry, so-and-so is managing the logistics of the birthday party,” we can safely assume that person will buy a cake, candles, decorations and other supplies; managing the movement of it all from one or more places to the ultimate destination; booking and coordinating with a venue, as needed; and communicating the right information to the right people at the right time to ensure the party goes off without a hitch.

This example is not far off from how logistics operates in a commercial environment, whether it’s sending a legal document across town for a signature to finalize a contract or filling a ship with several tonnes of manufactured goods and sailing it across the ocean to its destined retail stores.

Logistics comprises many moving parts and requires diligent planning and established processes.

What does logistics mean?

In commercial terms, logistics is the coordination and management of goods within a system known as supply chain management.

According to Jason Riley, a certified professional in supply chain management and BDC consultant, logistics is the high-level activity that encompasses smaller elements like procurement, warehouse design and management, inventory control and analytics.

“Logistics refers to the movement of material goods through multiple modes of transportation. It’s also the planning and processes used to move them both forward and in reverse across the supply chain.”

For every B2C or B2B business that deals with physical goods, logistics is a critical part of the business strategy. Efficient, well-coordinated logistics can serve as a competitive advantage, ensuring cost effectiveness and customer satisfaction.

Who are logistics professionals?

It’s important to consider all the roles logistics takes on. In a large company, that could include:

  • procurement professionals, who secure and draft partnerships and contracts with companies that sell goods
  • logistics managers, who oversee planning, scheduling, and the allocation and execution of master contracts with transportation carriers
  • logistics employees, who execute supply chain management plans
  • shippers/receivers, who create or receive documentation and bills of lading, and coordinate inbound and outbound material

“Any time material moves, you will find somebody filling these types of roles,” says Riley.

In a small to medium-sized business, these roles may be occupied by one or two people, or outsourced to a third-party logistics provider.

No matter the size of the operation, all the logistical roles and responsibilities remain consistent. The variation comes with the modes of transportation and the environment.

What are examples of logistics?

To illustrate the scope of a sophisticated logistics operation, Riley uses the logging industry. A logistics planner that manages the transportation of logs from a forest to a construction site or home improvement store must consider a number of complexities, including:

  • determining the weight, size and shape of goods being moved so the appropriate transportation partner (with the right equipment) can haul it out of the woods and onto lumber roads
  • providing detailed customer orders so that once the logs arrive at a site, receivers know their intended use
  • identifying the appropriate transportation (e.g., truck, rail), based on the size and weight of the processed logs, as well as other factors

Even projects smaller in scope, such as the building of a single home, require logistics. You need, for instance, to plan and coordinate shipments from a local lumber yard directly to the site and ensure you have the proper equipment to load and offload.

“No matter the size of the operation, all of the logistical roles and responsibilities remain consistent. The variation comes with the modes of transportation and the environment,” says Riley.

What are the 4 types of logistics?

Logistics are normally divided into four distinct categories:

Supply management logistics

This covers the planning, procuring and coordinating aspects. It also includes the transportation of materials as well as the securing of a place for their storage. This category typically refers to the movement of commodities that will be processed into a different form. The logistics planner will need to gauge supply levels along different stages of the process to ensure the customer has the parts they need for the particular manufacturing.

Distribution and material movement

This deals with fixed sizes, volumes and weights. Often referred to as “filling the cube,” it has the planner optimizing the container so as to find the best per-unit cost for shipping the goods. It also involves keeping track of the stock and how it’s used. This type of logistics essentially controls the warehouse-to-store journey.

Production logistics and management

This is the customer side of logistics, a process in which the logistics planners are the ones receiving products. It involves coordinating materials needed to assemble products. Planners must time materials to ensure they meet their product deadlines.

“If I’m building a car, I need to essentially coordinate thousands of different items to build the car,” says Riley. “I need a logistics plan for building my finished goods that accounts for different product lead times.”

Reverse logistics and product return

This involves the returning of goods or their packaging back to their source, usually referred to as “returnable dunnage.” One example would be if a home improvement store receives 50 truckloads of lumber, the pallets they were shipped on need to be returned to the supplier so they can be reused. If the goods are dropped off on a one-way trip, the returnable dunnage will need to be coordinated with the timing of another shipment.

What is logistics management?

While logistics is the physical movement of material from one place to another, logistics management typically refers to the information that flows with the goods. This would include tracking numbers and other data, which are laid out in the collection of global standards called the Incoterms 2020.

The Incoterms are managed by the International Chamber of Commerce (ICC), which sets out the rules employed in the trade of goods. These could include filing a purchase order, packaging and labeling a shipment for freight transport or preparing a certificate of origin at port.

These rules assign liability between the buyer and the seller, throughout the shipping process and can differ depending on the commercial contract and mode of transportation.

Riley shares an example of this.

“If I’m buying livestock from New Zealand and I’m in Indonesia, you could have Incoterms that say I own the livestock from the time it leaves New Zealand. That means that I have to pay for those goods before they leave New Zealand even though they haven’t landed on my dock. And I’m responsible if the ocean-going vessel sinks! As a buyer, I will require insurance to cover that livestock.”

What are third-party logistics?

Many companies have logistics functions within their organization, including a procurement team that works with a logistics manager and team. It may be more cost-effective and efficient for smaller businesses to outsource them to a third-party logistics (3PL) provider.

“A 3PL company will manage the four types of logistics. For the entrepreneur in Canada, your best bet is to partner with a 3PL provider, so you don’t have to become an internal expert on all aspects of logistics,” says Riley.

“Often, 3PL can be seen as another cost of running your company, much like a utility bill or accountant fees.”

When choosing a 3PL provider, it’s important to choose a company that:

  • is reputable and familiar with your industry
  • strictly adheres to regulations
  • uses modern practices such as sustainable transportation

It’s important to consider logistics throughout the various phases of a business and whether to invest in internal resources or outsource the process to a 3PL provider.

How is customer service related to logistics management?

Whether you have a B2B or B2C organization, logistics is a crucial part of your ability to provide excellent customer service. Strong logistics plans and management ensure you are buying goods or commodities at a reasonable price and at the right intervals. Your customers get what they need, when they need it, and you’re not paying unnecessary warehouse costs.

Next step

Find out how well you understand the basic principles of operational efficiency. Take our free quiz for entrepreneurs.

Your privacy

BDC uses cookies to improve your experience on its website and for advertising purposes, to offer you products or services that are relevant to you. By clicking ῝I understand῎ or by continuing to browse this site, you consent to their use.

To find out more, consult our Policy on confidentiality.