S.D.I. English Edition : What does Integrated logistics means

Integrated logistics refers to a coordinated and holistic approach to managing all flows of products, information and financial resources along the entire supply chain, from production to the end consumer. This concept aims to optimise and synchronise an organisation's internal and external logistics processes to improve efficiency, reduce costs and improve customer service.

In detail, integrated logistics consists of a few basic processes that are

• Procurement management: selection and management of suppliers to ensure the timely flow of raw materials and components needed for production.
• Production management: production planning and control to ensure that products are manufactured efficiently and on time.
• Distribution management: coordination of storage, transport and distribution of finished products to customers.
• Returns management: efficient management of returns of defective products or products that do not meet customer expectations.
• Information management: integration of information systems to ensure that all stakeholders in the supply chain have access to the necessary information in real time.

The main objective of integrated logistics is to create synergies along the supply chain by improving collaboration between the various actors involved (suppliers, manufacturers, distributors, retailers and customers) to meet customer needs more efficiently and at a lower cost.

Interaction of logistics with the supply chain

The integration of logistics into the supply chain is fundamental to the operational and strategic success of an organisation. This process involves the harmonisation and optimisation of logistics activities within the entire supply chain, from the purchase of raw materials to the delivery of finished products to customers. The aim is to improve operational efficiency, reduce costs and increase customer satisfaction through a coordinated flow of goods, information and finances.

The key aspects of integrating logistics into the supply chain are several, starting with procurement planning and management, effective integration begins with the strategic selection and management of suppliers to ensure that the necessary raw materials and components are delivered in a timely and cost effective manner, this includes negotiating prices, establishing service level agreements (SLAs) and implementing performance monitoring systems.

Integrated logistics ensures that production is aligned with raw material availability and market demand. This involves data-driven production planning, inventory management and flexibility in production to respond quickly to market changes.

Choosing the right logistics partners and using advanced technology for shipment tracking are key components, this will ensure the best management and integration of distribution, transport and logistics to optimise transport routes, select the most efficient shipping methods and coordinate deliveries to minimise costs and delivery times.

An integrated returns management system, perhaps integrated with Erp and Quality Management, facilitates the efficient handling of returned products, improving customer satisfaction and reducing the costs associated with returns, proactive and responsive customer service helps to increase loyalty and effectively manage any delivery or product quality issues.

The best partners, strategic and specific collaborations and partnerships are the basis for building close cooperation between all supply chain partners to coordinate logistics activities, share best practices and develop innovative solutions to common challenges.

Warehouse as a strategy

Warehouses and the supply chain in logistics are crucial and strategic points, they must ensure the availability of the raw material at the right time in the necessary quantity, without overstocking but guaranteeing availability at the right time. The same concept has to be applied in the finished goods warehouse, where availability for the customer must be guaranteed or the date of availability of the required goods (ATP) has essentially to be provided.

These concepts highlight the need for an ever-vigilant stock management model and the introduction of two concepts, VMI and Call Off, which are cornerstones in modern logistics.???

Both are approaches used in supply chain management to optimise inventory and improve efficiency. However, they differ in their structure and in the way they manage inventory levels and responsibilities between supplier and customer are managed.

Vendor Managed Inventory (VMI)

This is an inventory management model in which the supplier (vendor) assumes responsibility for managing the customer's inventory. This collaborative approach is based on real-time information sharing between vendor and customer to optimise inventory levels, improve supply chain efficiency and reduce costs.

The success of VMI is based on the transparent, intensive and timely sharing of information between supplier and customer; data on sales, current stock levels, demand forecasts and incoming orders, data necessary for better planning and inventory management, ensuring that inventory levels are optimised. As always, the goal is to reduce inventory costs and improve supply chain efficiency for both parties, while maintaining high levels of customer service.

In VMI, the supplier is responsible for managing the customer's inventory, constantly monitoring stock levels to ensure that they are kept within optimal limits, preventing both shortages and excess inventory, reducing the risk of stockouts and warehousing costs.

At the same time, the supplier decides when to replenish the customer and in what quantity, based on shared data such as inventory levels, sales and demand forecasts; more direct control over the customer's inventory, working within agreed parameters to ensure there are neither shortages nor excess stockouts. Based on shared data and pre-defined agreements, the supplier automatically generates replenishment orders when stock levels fall below an agreed threshold, this automated process reduces waiting time and improves supply chain responsiveness.

The main objective of VMI is to maintain optimal inventory levels that meet demand while minimising the costs associated with excess inventory, the supplier uses forecasts and analytical models to adjust stock levels to fluctuations in demand based on past sales statistics and budget and demand forecasts (see article Demand Planning and Sales Satisfaction).

By reducing the risk of stock outages and improving product availability, VMI has its target in improving customer service. Efficient stocking, improved customer satisfaction and increased customer loyalty.

The VMI model requires close cooperation and trust between supplier and customer. Both parties work together to establish common goals, share risks and benefits, and continuously improve the inventory management process.

By integrating supplier and customer operations more closely, VMI can lead to reduced cycle times, optimised transport costs and an overall improvement in supply chain efficiency.

A collaborative strategy that aims to optimise inventory management along the supply chain, improving efficiency, reducing costs and increasing customer satisfaction through a close partnership between supplier and customer.

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Call-off Stock

Uses the same clear concept of material availability for the customer, very similar to VMI, but in this case the call-off stock system gives the customer control over when and how much inventory to call-off, based on a pre-existing agreement or pre-positioned stock.

In the call-off stock model, the customer recalls (or 'call-offs') inventory from an agreed lot or prearranged inventory at the supplier or at an agreed location, as required.

While there may be information sharing, the focus is less on proactive inventory management by the supplier and more on the customer's ability to call off parts of the inventory as needed.

This is with the aim of providing flexibility to the customer in handling peak demand, while reducing the need to maintain high levels of inventory at their facilities.

In contrast to VMI, where inventory control is managed by the supplier, the customer has more control over the use and timing of inventory replenishment, deciding when to 'call in' inventory based on their own operational needs.

Both methods seek to optimise inventory and reduce costs, but do so through different approaches and responsibilities.

Integration with external and tertiary warehouses

Another fundamental concept of integrated logistics is the integration of external warehousing and tertiary logistics services (Third-Party Logistics, 3PL), that is a key step for companies seeking to optimise their supply chain operations, improve efficiency and reduce costs. This process involves using external partners to manage one or more logistics functions, which may include warehousing, transportation, distribution, labelling and other value-added services.

The key aspects of integrating external warehousing and tertiary logistics services into integrated logistics lie in collaborating and partnering with reliable and competent partners. It is crucial and important to assess their experience, technology, adaptability and cultural compatibility with the client company, as well as the integration of the 3PL partner's information systems to avoid manual operations that are always error-prone.

Why use external warehouses

First and foremost for process optimisation, external partners intervene at the point of need, providing greater logistical capacity, more efficient inventory strategies, thus reducing storage costs and improving inventory turnover.

The use of external warehouses and 3PL services allows flexibility and scalability for companies to adapt more easily to fluctuations in demand, expanding into new markets or downsizing operations without having to invest directly in new infrastructure.

Improve customer service, because the strategic location of warehouses managed by 3PL partners helps reduce delivery times to end customers, increasing customer satisfaction. Think of a European company that needs to cover US and LATAM (Latin America) markets, a local logistics point will offer significant distribution advantages in quality and timing.

Last but not least, the value-added services offered by 3PLs often offer services such as customised packaging, labelling and assembly, enhancing the customer experience.

Working with logistics partners can also help to distribute products globally, meeting specific local market demands, navigating complex international regulations, ensuring compliance and reducing legal risk.

Logistics in manufacturing, what peculiarities?

Logistics in manufacturing, or production, has distinct peculiarities due to the nature of production operations and the need to effectively coordinate the procurement of raw materials, the management of production processes and the distribution of finished products.

It requires integrated supply chain management, that links the procurement of raw materials, production, storage, transport and distribution of finished products in a continuous and optimised flow to minimise costs and maximise efficiency.

Many manufacturers adopt the Just-In-Time (JIT) approach, Lean Manufacturing principles to reduce waste and improve production efficiency. This means that logistics must be extremely precise in timing, with deliveries of raw materials and components scheduled to arrive exactly when they are needed, thus avoiding overstocking; for example, adopting the same concepts as before such as VMI and Call Off.

Effective inventory management is crucial to balance the availability of raw materials and components with production requirements; continuous inventory review and demand-driven inventory management systems are commonly used techniques.

As demand for customised products increases, manufacturing logistics must support mass customisation, which requires flexibility in production and supply chain management to meet specific customer requirements without compromising efficiency.

For manufacturers that are handling products requiring ?temperature-controlled conditions or are classified as hazardous, logistics must include specialised solutions for the safe transport, storage and handling of these items.

Last but not least, there is also pressure for more sustainable operations aligned with the new ESG thinking, which means considering environmentally friendly practices for manufacturing logistics, such as reducing CO2 emissions, optimising transport routes and efficiently managing material returns and recycling (reverse logistics for returns and TMS).

Logistics in manufacturing requires a high level of integration, precision, flexibility and technological innovation to effectively manage the complexity of production and meet market expectations in terms of quality, speed and customisation. This makes close collaboration with suppliers, logistics partners and customers even more essential to synchronise the supply chain, improve visibility and increase resilience in the face of disruptions and fluctuations in demand.

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Integrating a TMS into logistics

Integrating a Transport Management System (TMS) into logistics is a key step for companies aiming to optimise transport operations and improve overall supply chain efficiency. A TMS is software designed to simplify the process of planning, executing and optimising freight transport activities while offering real-time visibility and in-depth analysis. This is how the integration of a TMS can benefit logistics:

A TMS helps companies select the most efficient and cost-effective modes of transport, combining and organising shipments when possible to reduce costs and improve delivery times, best when in conjunction with tendering platforms.

It provides real-time visibility into the status of shipments, allowing companies to monitor cargo movements, anticipate delays and proactively communicate with customers about the status of deliveries, organising in-house logistics at their best. It automates manual processes such as booking transports, generating shipping documents and invoicing, reducing errors and freeing up resources that can be deployed in high value-added activities.

It offers tools for analysing and managing transport costs, including costs per mile/km, carrier rates and ancillary charges, enabling companies to identify savings opportunities. It helps ensure compliance with national and international transport regulations by automatically generating the necessary documentation for shipments and reducing the risk of fines or delays.

It offers advanced analysis and reporting capabilities, allowing companies to assess carrier performance, analyse cost patterns and identify trends or areas for improvement in the supply chain.

All of that with a view to improving customer service by providing accurate shipment information, reliable delivery times and the ability to respond quickly to customer requests without forgetting the always welcome reduction of costs but without disruptions.

Watchword: Integration

A company's internal work platform must increasingly ensure integration and orchestration; logistics is absolutely among them; for internal, external, tendering platforms, transport management, code and product traceability to improve the accuracy and efficiency of logistics processes and steps.

Logistics integration is strategic for companies seeking to optimise their transport operations, improve supply chain collaboration and increase competitiveness in the global market. It is not only a matter of the physical movement of products, but also requires the coordinated management of information, finances and relationships between partners. This integrated approach leads to greater operational efficiency, reduced costs and increased competitiveness in the market.

The use of integrated information systems, such as ERP, Warehouse Management, CRM, Supply Chain, robotics and tracking technologies creates a connected ecosystem that improves collaboration internally and with partners, enables smooth and timely information sharing between all parties involved in the supply chain, and improves planning, visibility, monitoring and risk management.

All this, as always, requires careful planning, including assessing the company's specific needs, selecting the most suitable software and training users. Challenges can include staff resistance to change, integration with existing systems and data management. However, the long-term benefits in terms of cost reduction, improved efficiency and increased customer satisfaction can far outweigh the initial hurdles.

Technology integration of external warehouses

The use of Third Party Logistics deserves a separate mention, where the integration of IT systems between the company and its logistics partners facilitates the exchange of critical data, such as orders, sales forecasts, inventory movements and tracking information; the shared use of inventory management systems is essential to maintain real-time visibility of inventory, regardless of its physical location.

The effective integration of external warehousing and tertiary logistics services into integrated logistics requires close collaboration, advanced technology integration, process optimisation, improved customer service and careful risk and compliance management. This approach not only improves operational efficiency and reduces costs, but also offers greater flexibility and responsiveness to changing market needs.

Conclusions

Logistics is a part of the sales process that exposes the company to the customer, it becomes the connection point between seller and buyer. In a world where the speed of supply, the ability to meet demands and respect time and quantity becomes incisive in the sub-supply and sub-production chain.

Increasing challenges and even more advanced integrations will unite customers, suppliers and logistics in a unique connection to meet market needs.

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