Outbound and inbound logistics: what they are and how to optimize

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As you’re reading this, your heart is both pumping blood out to your body and receiving blood to be oxygenated.

Both of these duties work simultaneously and without rest. Otherwise, your body stops functioning.

While that’s a strange way to start a blog post, it’s an apt metaphor for inbound and outbound logistics. 

The central location of your inventory system (your warehouse) is constantly receiving and sending out inventory. 

If this cadence ceases at any moment, the entire system falls apart. 

This article will discuss the importance of optimizing both systems to maximize profits and grow your business.

What is the definition of logistics?

Logistics is the planning, launching, streamlining, and managing of the effective flow of goods, services, and any related information from the place of origin to the point of consumption for the express purpose of meeting customer requirements. 

In other words, logistics is all about getting the right product to the right customer at the right time. 

There are two main aspects of logistics: outbound and inbound. 

Outbound logistics is getting products to the customer, while inbound logistics is getting products from the supplier to you. 

Why are inbound and outbound logistics important?

To be successful, product-centric companies must have a well-run logistics operation. Outbound logistics is essential because it determines how well a company can meet customer demand. 

If products are not available when the customer wants them, you lose business. Simple enough. 

Inbound logistics is equally vital because it affects the cost of goods. The more efficient and cost-effective inbound logistics is, the lower the cost of goods for the company. 

By measuring and optimizing these two areas, you can improve your company’s bottom line. 

And one of the most effective things you can do is model your current process and measure performance through Value Stream Mapping. 

The power of value stream mapping

To improve your ecommerce operation, you must first understand it. 

Then, you can create a roadmap to improvement through Value Stream Mapping. 

What is value stream mapping?

Value stream mapping is a method birthed out of a lean manufacturing philosophy.

Businesses of all sizes use it to create a visual guide of all the components necessary to deliver a service or product to the end-user. 

The goal is to get a high-level visualization of the entire process and subsequently optimize it. 

The diagram that results from the VSM shows the flow of materials and information throughout the organization. Businesses can use it to improve the efficiency of any process by identifying waste and non-value-adding activities. 

How is value stream mapping used in ecommerce?

Even for us engineer types, a smattering of spreadsheets isn’t enough. We need to see our business visualized.

A VSM can help you do that by diagramming the flow of materials and information in the ordinary course of business. 

Examples include regular material shipments, lead times, COGs, warehouse picking patterns, and more. 

Once you visualize these areas, you’ll likely identify some wasteful patterns or workflows.  

You can then eliminate them by implementing process improvements in your supply chain operations. 

Using a VSM can make your ecommerce operation more efficient and profitable. However, don’t dive right in before laying the necessary groundwork. 

Preparation for your VSM

Bear in mind that it’s not always a good idea to start cutting out the waste and improving inefficiencies until you identify codependent areas

The kneejerk reaction after seeing a problem is to fix things right away instead of considering the ripple effects of making a change.

Changing the way one area works can have serious repercussions upstream or downstream in the supply chain. 

Even worse, you can implement a change that could hurt you and others financially. 

For more information on how a small change can significantly alter the course of your business, check out our post on the Bullwhip Effect.

Negative impact case study

Consider this: we once knew a company that conducted an efficiency study. The study showed that the operators were probably using too much motion and tape to seal boxes for a shipment.

No impact studies were performed, and the manager changed the process on the spot immediately after it was mapped to cut down five passes of tape on the bottom of the packaging to three. It makes sense, right? 

Not so much. Several shipments went out to customers, and the equipment fell out of the boxes at different times during loading and unloading. 

The equipment wasn’t cheap, either. By the time news got back to the ecommerce owner, $30,000 in damage had occurred, and half of a warehouse location that held bundles of the equipment had been packaged that way for shipment. 

You can imagine the nightmare of repackaging the equipment, keeping frustrated customers happy, and eating the loss of that capital. 

So, it’s best to identify those co-dependencies and impact and get buy-in from stakeholders for the VSM before you start making sweeping changes. 

Pre-work for mapping the value stream of your inbound logistics activities

For mapping out your inbound system, here are the main activities that take place in your inbound logistics process:

  • Sourcing and procurement: The process of finding and acquiring the products you will sell on your ecommerce site.
  • Receiving and putaway: Receiving products from suppliers and storing them in the warehouse.
  • Warehousing: The process of storing products in a warehouse until they ship to the customer.
  • Inventory management: The process of tracking and managing the inventory levels in your warehouse.
  • Returns management: The handling and processing of returns from customers to ready them for returning to suppliers.
  • Purchasing: The process of buying the products that you will sell on your ecommerce site.
  • Transportation: The process of getting the products from the supplier to your warehouse.
  • Customer service: The process of providing customer support, including responding to inquiries and complaints.

Breaking it all down

Identifying an area to study is an excellent way to break down factors into manageable chunks for Value Stream Mapping. 

Then you can put all your maps together at the end. Here’s an example of a starting point for value mapping. 

Steps in inbound logistics (receiving)

  • Purchasing and Sourcing
  • Recording and Receipts
  • Notification
  • Load Arrival
  • Receiving
  • Inspection

The flow described above is a high-level overview of the receiving process. You can use it to create your own value stream map or use it as a starting point for further study.

You can also break down the steps in each process to create a more detailed value stream map. For example, you could break down the “Purchasing and Sourcing” step into:

  • Researching products
  • Finding suppliers
  • Negotiating prices
  • Placing orders

You could also break down the “Recording and Receipts” step into:

  • Creating purchase orders
  • Entering data into the system
  • Printing labels
  • Filing paperwork 

If you’re not sure where to start, consider breaking down the process into smaller steps or focusing on one area of the process at a time.

Once you have a detailed map of the inbound logistics process, you can identify areas of improvement.

Challenges of inbound logistics

Below are some common issues in ecommerce supply chain management. Many of these may emerge as you begin your VSM mapping process.

  • Inbound shipping inefficiencies: These are delays, damaged goods, missing products.
  • Stock-outs: This scenario means you don’t have the right product in the correct quantity at the right time.
  • Inaccurate stock reports: Inventory management is a part of inbound operations and too much or too little of a product; outdated information of products and related issues can hinder or even halt production 
  • Managing growth: As your company grows, so does the complexity of your inbound logistics. You will need to scale up (or down) accordingly.
  • Information vacuum: Lack of transparency, information, or data not being properly disseminated to the people who need it when they need it.
  • Surges in deliveries and receiving: Seasonality and promotions can wreak havoc on inbound logistics if not managed carefully.
  • Processing returns: Returns must be processed, inspected, and put back on the shelves (or sent back to the supplier).
  • Supplier reliability: If your suppliers are not meeting their obligations, it will directly impact your inbound logistics.
  • Balancing supply and demand: You need to have the right products in stock, but not too much. This is a fine line that needs to be managed carefully.

Best practices for breaking down area processes

Now that you understand inbound logistics and their challenges, you can begin to map them out using a VSM. 

(Yes, we’re finally at the fun part.)

One good resource to learn how to do it is the light read Learning to See: Value Stream Mapping to Add Value and Eliminate MUDA by Mike Rother. You can get the booklet on places like Amazon for under $50. 

There are also several VSM templates online, and you can even create some using Microsoft Visio that appear professional and are highly effective. 

To see the steps for creating a VSM in Visio, you can click here: Create a Value Stream Map.

After a Value Stream Mapping event, you can take a macro view of the processes studied. Or, roll up your sleeves and use work measurement and time studies to break them down to their minutiae “in the field.”

The latter case involves getting out there with a clipboard and a stopwatch to record time spent on activities and processes. Or observing the percentage of time that operators spend on a particular task. 

Later, you can use the results from all your efforts to determine where you can cut out any wasted movement, travel, unnecessary steps, etc., or optimize any operations, layouts, or systems.

You can benchmark another partner, supplier, or competitor to see how they do this or hire a consultant to help. There are tons of literature, templates, and tools that show you how to do everything described here. 

Other ways to optimize your inbound logistics after you fully understand your operations are to:

  • Analyze your choices: To make the best decision for your ecommerce company, you need to analyze the choices in front of you. What is the cost of goods? How much will it cost to store inventory? How much does shipping cost? These are valid questions that need answers before deciding on a strategy.
  • Develop strategies to address inefficiencies system-wide: After thoroughly analyzing your options, you can develop strategies to address inefficiencies system-wide. This could involve automating specific processes, integrating your systems, or streamlining your operations.
  • Build strong relationships with suppliers: Building strong relationships with suppliers is vital in optimizing your inbound logistics. By maintaining good communication and working together, you can avoid disruptions in the supply chain and keep your operations running smoothly.
  • Use a transportation management system (TMS): A TMS can help you manage your inbound logistics by tracking shipments, optimizing routes, and reducing costs.
  • Use a warehouse management system (WMS): A WMS can help you optimize your warehouse operations by managing inventory, tracking shipments, and improving order fulfillment.
  • Combine deliveries: Combining deliveries can help you reduce costs and improve efficiency by consolidating shipments and reducing transportation costs.
  • Use segmentation: Use shipping carrier integration to get real-time shipping rates and print labels. Use customer segmentation to target specific groups of customers with specific offers.

You’re on the right track

After you have your process down and VSM complete, it’s time to look for some quick wins. 

You’ll find a lot of them with inbound logistics because it’s such a critical part of the ecommerce supply chain—and because it’s often overlooked.

What about improving outbound logistics?

The truth is outbound logistics can be just as challenging and complex as inbound. There are a lot of factors to consider, such as shipping routes, delivery times, and package size restrictions.

But by taking the time to understand your operations and optimize your inbound logistics, you’re already on the right track to improving your outbound logistics.

Outbound logistics activities

Just as there is with inbound logistics, there are activities common to outbound logistics, including: 

  • Customer Order Processing: This is the receiving and fulfilling of customer orders.
  • Order Picking: This is the process of selecting the products included in an order.
  • Replenishment: This is the process of adding products to inventory to ensure that there is always enough stock on hand. Many WMS platforms like SkuVault Core offer low stock notification features that tell you when to replenish your material.
  • Packing and Shipping: Packing products into boxes or containers and shipping them to customers.
  • Verification/Loading trucks: This is the process of verifying that orders are correct and loading them onto delivery trucks.
  • Transportation/Shipping orders, returns: This is the process of transporting orders to customers and producing products to suppliers.
  • Tracking shipments: This is the process of monitoring the status of shipments and noting any delays or problems.
  • Customer Service: This is the process of responding to customer inquiries about their orders or shipments.
  • Reverse Logistics: The process of returning products to the supplier or manufacturer.
  • Delivery: This is the process of delivering products to customers or consignees.
  • Distribution Channels: These are the different ways products are delivered to customers.
  • Last-Mile Delivery: The delivery of products to the final customer or end-user.
  • Delivery Optimization: The process of improving the efficiency of deliveries.

Challenges of outbound logistics

There are a few challenges when it comes to outbound logistics. Here are a few of the main ones: 

  • Managing the increasing complexity of customer orders. 
  • Determining the most efficient shipping routes.
  • Meeting delivery deadlines.
  • Complying with shipping regulations.
  • Coordinating with operations, suppliers, and carriers.
  • Handling returns and reverse logistics.
  • Ensuring that products are delivered with accuracy and in perfect condition.
  • Transportation costs.
  • Rising customer expectations
  • Determining the most efficient shipping routes: This is the challenge of figuring out which shipping routes are the most efficient. 
  • Packaging restrictions: This is the challenge of packaging products in a way that meets shipping carrier requirements.

How to optimize your outbound logistics

Fortunately, there are solutions to these challenges, and some of the ways to optimize your outbound logistics include: 

  • Optimize delivery routes by using intelligent route planning and route planning software. 
  • Understand when fast delivery begins and plan your operations accordingly.
  • Adapt to current inventory strategies used with your business model.
  • Work with a third-party logistics provider to help you manage your outbound logistics. They can help you manage the complexity of customer orders and meet delivery deadlines.
  • Use a warehouse management system (WMS) like SkuVault Core to streamline order picking, packing, and shipping processes.
  • Working with a logistics partner who can help you 
  • Improve communication between operations, suppliers, carriers, and customers.
  • Better managing returns and reverse logistics with a Returns Management Software.
  • Offer customer service that exceeds customer expectations.
  • Use Transportation Management Software to improve transportation costs and track shipments.
  • Integrate your WMS with your carrier’s shipping system to automate the packing and shipping process.

Some of these strategies may not apply to your ecommerce company, but hopefully, this gives you a starting point for thinking about how to optimize your outbound logistics. 

You can use Value Stream Mapping for outbound logistics. There are Transportation Value Stream Maps (TVSM) as well. 

The following literature coupled with Mike Rother’s aforementioned guide can help you organize your outbound and transportation VSM endeavors:

The Transportation Value Stream Map by Bernard Villarreal

In addition, there is powerful software you can buy and use to make polished VSM graphics. However, hand-drawn models with photos that are organized and recorded for permanency work just as well. 

The takeaways

As you can see, logistics is a complex process, but it is essential to the success of your ecommerce company. There are many moving parts, and it is critical to optimize each piece of the process to ensure that your company is efficient and profitable. 

By understanding the challenges and implementing some of the solutions mentioned above, you can take the logistics of your ecommerce company to the next level, saving money on transportation costs, improving customer satisfaction, and increasing profits.

Sell faster, pick faster and ship faster with SkuVault Core

SkuVault Core has many features to help you optimize your logistics operations, such as low stock notifications, order tracking, and shipment verification. 

If you want to scale, you need a WMS solution that can help your business: 

  • Connect channels
  • Organize warehouses
  • Manage inventory efficiently with powerful integrations and simple workflows

In that case, SkuVault Core is the right solution for you. Schedule a demo today, and see how SkuVault Core can help your business grow.