What Is Inbound Logistics? And How Does It Work?

Inbound logistics moves supplies, raw materials, and/or inventory to a business. In other words, inbound logistics provide an organization with the items it needs to sell products to its customers. Given this, it’s easy to see why inbound logistics are absolutely crucial to any business’s supply chain.

In this article, we’ll take a deeper look inbound logistics. What, exactly, qualifies as inbound logistics? How, exactly, do inbound logistics work? (We’ll include examples!) And, maybe most importantly, what benefits and challenges does it present to an organization and its supply chain manager?

With all the answers to these questions, you’ll get a solid foundation in this fundamental area of logistics.

Inbound vs. Outbound vs. Reverse Logistics

Want to learn more about these critical logistics processes—and the differences between them? Check out our other articles on these topics:

What Is Outbound Logistics? How Does It Work?
What Is Reverse Logistics? How Does it Work?
Inbound & Outbound Logistics: What’s the Difference?

Inbound Logistics: Understanding the Basics

The term “inbound logistics” describes the processes by which supplies, raw materials, and even finished products make their way to a manufacturer, supplier, wholesaler, retailer, or reseller. These companies will either sell these items directly to customers or use these items to create finished goods for sale.

Whether these items are headed for a company’s warehouse, manufacturing facility, distribution center, or retail store, all the processes that get them to these destinations fall under the umbrella of inbound logistics.

To give you an even clearer picture of exactly what activities constitute inbound logistics, take a look at the list below:

Procurement, which involves sourcing the right suppliers for your raw materials, supplies, or finished goods, and Purchasing items from those suppliers, including negotiating contracts and placing the order for the quantity you need.
Transporting the freight where it needs to go, whether that’s to a warehouse, distribution center, etc. In this arena, supply chain managers will need to balance cost and speed to manage expenses while keeping the business well-supplied.
Receiving items, including evaluating shipments for accuracy, inspecting for potential damage, and logging receipt in an inventory or warehouse management system.
Storing the items in the proper location, such as a warehouse, a distribution center, or the stock room of a retail store.
Retrieving and moving items as they’re needed internally—for a manufacturing process, for example.
Managing inventory to rotate stock as needed and ensure consistent supply according to projected forecasts. Supply chain managers may choose a just-in-time or a just-in-case philosophy to guide their decisions.

What Is the Main Objective of Inbound Logistics?

The main objective of inbound logistics centers around keeping a business supplied with the raw materials, components, or finished goods it needs to operate—and generate revenue.

A supply chain manager focused on a business’s inbound logistics would continuously examine ways to make these processes more efficient, reducing waste and expenses.

What Is a Real-Life Example of Inbound Logistics?

All the processes involved with sourcing, obtaining, shipping, and coordinating the necessary supplies to make Crayola Crayons at their Pennsylvania factory would be a real-life example of inbound logistics.

Crayola’s Crayons are largely made up of paraffin wax and colored pigment. Crayola purchases these items from outside suppliers, and the supplies move either over the road or by rail to the Crayola production facility. Everything involved with obtaining these raw materials from Crayola’s suppliers, moving them to their production facility, and getting them to the production line falls into the category of inbound logistics.

Is Reverse Logistics an Inbound Logistics Activity?

Yes! Given that the reverse logistics process involves moving items to the manufacturer or the seller, reverse logistics can be considered part of inbound logistics.

In that case, the processes involved with shipping items back to the manufacturer/supplier; receiving them at the warehouse; evaluating them for resale, refurbishment, or disposal; and putting eligible items back into inventory would all be considered inbound logistics activities.

The Benefits of Optimizing Your Inbound Logistics

Supply chain managers produce value by optimizing activities along the entire length of the supply chain. When they focus specifically on the inbound logistics part of the equation, several specific benefits pop up, including:

Creating a Faster Path to Revenue

The longer it takes a company to obtain the supplies, materials, or finished goods it needs to sell products to customers, the longer it takes to make a sale—and generate revenue. When supply chain managers create time efficiencies within inbound logistics, they shorten the time to revenue. That means less money tied up in materials and inventory and improved cash flow.

(By the way, Crayola turns out 12 million crayons every day. That’s twelve million more crayons ready to become revenue on a daily basis!)

Maintaining a Better Handle on Supply & Inventory

Optimized inbound logistics processes—which include inventory and warehouse management—give an organization critical information for managing both raw materials and finished goods.

In other words, when an organization knows exactly how much it has in stock and how much time it will take to get more stock, they can make better decisions about restocks and reorders. This allows the company to strike the right balance between having too much on hand and too little on hand.

Additionally, when all of this information is well-organized and easily accessible, it can mean more accurate projections for the following year’s forecast.

Keeping Customers Satisfied

As many companies discovered during the pandemic, customers quickly get frustrated by delays in their orders or “out of stock” notices. By optimizing a company’s inbound logistics—and keeping necessary materials flowing—companies can stay stocked, fill orders in a timely manner, and build consumer confidence in future purchases.

Controlling Costs

With optimized inbound logistics processes—including good inventory management—a company can plan ahead and select more cost-effective modes of freight transportation. Ocean freight, for example, can take a few weeks, but it’s more budget-friendly than air freight for most shipments.

When a company’s got its inbound logistics under control, it can choose slower and cheaper freight service. However, if a company doesn’t have a handle on its inbound logistics, it might unexpectedly run out of a key raw material. That might mean an emergency shipment via expedited freight methods, which can cost a pretty penny.

By analyzing and optimizing inbound logistics processes, a supply chain manager can make these incidents the exception (not the rule!) and manage costs carefully.

The Challenges of Inbound Logistics

Of course, any supply chain manager will encounter a few challenges while optimizing a company’s inbound logistics. Although the exact challenges will be unique to each business, common ones include:

Managing Expenses

Costs related to inbound logistics directly impact the organization’s margins, so they’ll need to be considered carefully. Out-of-control inbound logistics expenses can completely erode your company’s profits. On the flip side, creating efficiencies in inbound logistics processes has the opposite effect, with impacts that directly improve your company’s bottom line.

(By the way, Crayola turns out 12 million crayons every day. That’s twelve million more crayons ready to become revenue on a daily basis!)

Not Having the Information to Make Crucial Business Decisions

Inbound logistics are inherently tied to another party—the suppliers you’re ordering from. If you don’t have a good line of communication open with a supplier, you might feel like you’re operating in a vacuum. This could result in uncertainty as to when your materials or supplies will arrive, which may lead you to over- or under-order, both of which can create issues.

For all these reasons, locating suppliers with strong communication capabilities—as well as the ability to share tracking information—is crucial. Some businesses use a transportation management system (TMS) to assist with tracking and optimizing freight activities, both for inbound and outbound logistics.

Shifting Consumer Demand

Whether you’re using a just-in-time or just-in-case model, no business wants to be caught with their shelves bursting at the seams with inventory no one wants. Empty shelves also create a problem.

Although organizations do their best to forecast consumer demand, shifts do occur. Consider the pandemic, when demand for masks, hand soap, and hand sanitizer went through the roof on a dime. Or consider trendy items like Squishmallows. One day, you can’t stock enough of them. Then, suddenly, you can barely give them away.

Shifting consumer demand is simply one of the rollercoasters a company has to ride, and it can significantly impact inbound logistics.

Warehouse Management Pitfalls

Warehouse management has far-reaching effects in a business. Items improperly stored can, in some cases, spoil or get damaged. Items stored in the wrong spot—or in an awkward location—can waste employee time and resources. Items stored too long may become obsolete—so obsolete that no one wants them, at any price. All of these can cost a business significant money.

Optimizing inbound logistics also means optimizing a company’s warehousing and storage processes. These can quickly become a burden if they’re not getting the attention they deserve. For some companies, implementing a warehouse management system (WMS) can assist with optimizing warehouse operations, including tracking inventory.

Creating Efficiencies Along All Links in the Supply Chain

Ultimately, supply chain managers examine the entire supply chain for ways to reduce waste, create efficiencies, and save their organization time and money. Optimizing inbound logistics comes with its own challenges. However, optimizing inbound logistics also comes with plenty of opportunity for significant positive impact, right from the supply chain’s start.

Looking for ways to optimize your inbound logistics? Our freight experts would be happy to help you analyze your transportation usage and budget to uncover new efficiencies. Reach out for a complimentary consultation to get started.

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