Inbound Logistics: The New Frontier

Dr.Paul S Bender, Executive Advisor, [email protected]

Business logistics management was an extension of physical distribution, the management of material flows from the end of the production line to the customer. For this reason, inbound flows, from suppliers to production or logistics facilities, traditionally have had less attention among business logisticians. However, in many sectors, inbound logistics is a more important cost element than outbound logistics, with more complexity and greater impact on service.

Thus, detailed planning, execution and control systems to optimize inbound logistics operations are becoming a major competitive weapon in many sectors characterized by large scale procurement. These include the manufacturing of vehicles (e.g., automobiles, buses, trucks, locomotives, railroad cars, ships, aircraft), heavy equipment (e.g., farm, construction), process facilities (e.g., chemicals, oil), heavy electrical equipment (e.g., turbines, generators), large engines (e.g., marine, air conditioning) and also retail, reverse logistics and others.

The emergence of powerful tools to generate automatically large scale mathematical models of inbound logistics operations enables companies to update them dynamically as conditions vary. The capability to optimize such models enables them the capability to minimize total costs subject to all pertinent restrictions. Agillence has developed and implemented successfully such models at some of the most sophisticated companies in the world.

Another major contribution of these models is that they enable the efficient separation of purchasing from inbound logistics. Traditionally, purchasing departments have tended to buy products on a delivered basis at their companies’ docks. Our experience has been that negotiating product purchase prices independently from inbound logistics costs and then adding the minimum inbound logistics cost, typically yields important reductions in landed costs.

Furthermore, having detailed models of inbound operations enables logisticians to assemble total logistics models including also outbound and reverse logistics operations. Such models can optimize the entire material flow of companies or supply chains at a level of detail impractical until recently. The result is substantial reductions in total logistics costs together with significant improvements in service. We see increasing interest in this approach that is likely to dominate logistics management in the future.