A solid understanding of the fundamentals of global logistics is a must for success when planning international exports and distribution of goods. In particular, key terms like inbound logistics and outbound logistics should become second nature to you, as they influence the decisions you make, the strategies you employ, and how your export strategies work. Knowing exactly what each term means and how it applies to your global business plan is critical.
If you want to understand the difference between inbound logistics and outbound logistics, please read our explanation below:
Inbound logistics
Inbound logistics refers to the movement of supplies and materials for the purpose of manufacturing products. For international trade, importing raw materials and production supplies means that production inputs are manufactured across borders.
Manufacturing takes place within the Buyer's jurisdiction, at another manufacturing facility, or by a manufacturer contracted by Buyer to produce finished goods for Buyer (outsourcing). For example, garments produced by a Bangladeshi foundry: The manufacturing plant manufactures finished products from other imported fabrics, threads, garment accessories (such as zippers and buttons) and exports them to others.
As another example, Canadian wheat is a commodity imported by Japanese trading companies that ship the wheat to Japan, and Japanese government agencies buy the wheat and sell it to Japanese factories for processing.
Organizations entering international supply chains must ensure that their supplier systems can withstand the additional demands of international trade. Materials management is a service function that represents the consolidation of purchasing, shipping, and warehousing functions into one management responsibility.
As shown in Figure 4.2, an integrated chain of material handling activities in a company's production process may flow in the following order:
A materials management program begins with the determination of material requirements and usually ends at the point of manufacture or distribution of a marketable product. It can be defined as the first half of the logistics chain. Manufacturers/buyers enter the procurement process to negotiate contracts with suppliers/sellers, define shipping terms and specification requirements, such as supply levels (e.g. just-in-time, zero inventory, and improvement) and quality requirements. Outsourced or offshore manufacturers contracting to manufacture and supply finished goods to the buyer may have more limited control over cost and other logistical factors if the buyer needs to use certain suppliers and materials, or provide materials to the manufacturer.
Buyers need to plan logistics for orders for supplies and raw materials. This includes the following activities:
Ships goods according to agreed trade terms
Customs Processing
Material handling, including picking, packing, loading and unloading supplies and raw materials, on and off vehicles/vessels
Inventory management, including implementing supply level planning, storage, tracking and ordering, and IT systems
Quality control as part of contract management and building relationships with suppliers
Inbound logistics is all about getting the right supplies:
Appropriate amount (based on inventory management procedures)
under specified conditions (as specified in the sales contract)
Go to the factory
When needed (when needed for production)
Lower cost
Suppliers can also export/sell their raw materials or commodities through distribution intermediaries. This indirect export allows suppliers to let others, such as marketing boards, trading companies or agents, handle international sales and logistics.
Outbound logistics
Outbound logistics refers to the movement of finished goods from the manufacturer to the consumer of the finished goods. Manufacturers sell their finished products domestically or sell their finished products directly or through the use of distribution channels to other other consumers.
For outbound logistics, the manufacturer needs to decide on the distribution model or channel to use, select a distribution intermediary (based on the distribution model chosen), negotiate contracts, define shipping terms, and then plan Logistics, including activities such as:
Ships goods according to agreed rules and distribution network
Customs Processing
Material handling, including picking, packing, loading and unloading finished goods on and off transport vehicles/vessels, breaking down and consolidating orders
Inventory management, including storage, warehousing and tracking
Customer order processing and management, including document management
Reverse logistics, including repair, reuse and recycling
Selling products internationally requires decisions about distribution channels, which depend on the organization's sales and marketing strategy and overall business strategy. Outbound logistics provides opportunities for various distribution channels and logistics arrangements. In terms of distribution, the most common go-to-market strategies are:
Direct export: An organization that promotes and sells goods or services to foreign buyers. Indirect exports: The organization sells goods or services to domestic intermediaries or foreign intermediaries residing in the organization's location. Intermediaries are responsible for finding buyers, establishing distribution routes and getting paid in foreign markets.
Organizations may also operate as domestic businesses through direct foreign investment by:
Set up manufacturing plants and branches in target markets
Acquire an existing company
Joint ventures with foreign partners
Setting up a franchise or sales license in the target market
These go-to-market strategies will use the target market's domestic distribution channels and can save on transportation logistics costs.