OM/U4 Topic 7 Inbound and Outbound SCM
Inbound logistics refers to the transport, storage and delivery of goods coming into a business. Outbound logistics refers to the same for goods going out of a business. Inbound and outbound logistics combine within the field of supply-chain management, as managers seek to maximize the reliability and efficiency of distribution networks while minimizing transport and storage costs. Understanding the differences and correlation between inbound and outbound logistics can provide insight for developing a comprehensive supply-chain management strategy.
Companies work with different supply-chain partners on the inbound and outbound side of logistics. The inbound side concerns the relationship between companies and their suppliers, while the outbound side deals with how companies get products to their customers. Regardless of the source or destination, companies may work directly with third-party distributors on either side as well. A wholesaler, for example, might work with a distributor to receive products from an international supplier, while using their own fleet to deliver goods to their domestic customers.
Damage and Liability
Transport agreements between suppliers and customers specify which party is financially responsible for the cost of any damage occurring in transit at different points, according to specific terms. For example, Free on Board (FOB) shipping terms specify that the recipient — the one on the inbound side of logistics — is responsible for shipping costs after the shipment is loaded onto a transport carrier, or when it reaches a specified location. The International Chamber of Commerce defines several alternative terms, such as “Delivered Duty Paid,” which specifies that international suppliers deliver goods to buyers after providing for all import costs and requirements.
Tools and Materials
Inbound logistics cover anything that your company orders from suppliers, which can include tools, raw materials and office equipment in addition to inventory. Outbound logistics, on the other hand, deals almost exclusively with your end products. Tools, materials and equipment only fall into the outbound category if your company sells them as a main line of business. Inbound logistics for a furniture manufacturer, for example, can include wood, cloth materials, glue, nails and safety glasses, while the manufacturer’s outbound logistics would likely only cover finished furniture products.
Supply Chain Integration
Vertical integration occurs when one company acquires or merges with its own suppliers or customers. A vertical integration strategy can greatly increase supply-chain efficiency and produce competitive cost advantages, due to the single source of strategic control over multiple players in the supply chain. A fully integrated supply chain can synchronize both inbound and outbound logistics with automatic ordering and order-fulfillment systems, shared fleet vehicles and drivers, and close cooperation between managers at different child companies on pricing agreements, volume contracts, delivery terms and even custom product design.