Updated May 04, 2024
What Are Outbound Logistics?
An outbound logistics operation is all about moving finished inventory out of supplier storage and delivering those orders to customers. This includes ordering, processing, picking, packing, loading, shipping, and delivery.
Outbound vs Inbound Logistics
While outbound logistics is the process of fulfilling consumer demand—through selling, shipping, and delivering products to the customer, the inbound logistics process is all about obtaining raw materials or products. Together, inbound and outbound logistics comprise the majority of business operations for an eCommerce company.
Outbound Logistics Management & Processes
Outbound logistics activities begin when a customer places an order and ends when their goods arrive on their doorstep. The process includes many steps and many opportunities for logistics and network optimization.
Processing
As soon as a customer clicks purchase on an eCommerce website or a marketplace, the outbound logistics process begins. Every order needs to be processed to the right warehouse or order fulfillment center in order to fulfill it.
Picking and Packing
Warehouse workers need to pick the correct items and then pack them into boxes or mailers so they can be shipped to the end customer.
Loading
Once the finished product is picked and packed, it needs to get onto the vehicle—whether that’s a truck, boat, or plane—that will take it to its final destination.
Shipping
Ensuring that the finished product gets to the customer in a cost-effective and efficient way is the final step in the supply chain. Customers expect fast and timely delivery, along with affordable shipping, so optimizing this step is critical for a growing eCommerce company.
Documenting
Keeping a record at every step of the outbound logistics process ensures brands can measure supply chain KPIs and then optimize steps of the process to reduce costs and increase profits.
Outbound Logistics KPIs
Nearly 80% of companies with optimally functioning supply chains saw above-average revenue growth, according to Deloitte. That means that improving the supply chain is a great way to increase profits.
But brands can’t improve what they can’t measure. Here are some outbound logistics KPIs that brands will want to track so they can optimize their outbound logistics activity and improve their overall supply chain.
Order Fill Rate
The order fill rate is the percentage of orders that are immediately fulfilled by available stock. This rate determines how efficiently brands are able to meet customer demand. For example, if a company’s fill rate is consistently low—or falling—that means they are unable to meet customer demand for their products and need to review their product inventory management strategy.
Order Accuracy Rate
The order accuracy rate is the percentage of orders that are fulfilled and delivered to the customer without errors. A high order accuracy rate means that customers almost always receive the exact items they order in the proper condition. A high order accuracy rate also suggests that fewer customers will need to exchange or return their orders. While customers expect fast shipping, the satisfaction of receiving an item fast quickly disappears when it’s not the correct item.
Inventory Turnover
Inventory turnover ratio is the total cost of finished goods sold in a period (usually a year) to the cost of a company’s average inventory. Simply, this inventory KPI measures how efficiently a company uses its inventory. However, a low inventory turnover could mean weak sales or excess inventory while a high inventory turnover could mean strong sales or inadequate inventory levels.
Pack Time
For all of its warehouse partners, Flowspace tracks the median time to pack an order, which measures the median time between when an order is created, and the time the order moves to the “packed” status. This KPI can reveal slowdowns in the order fulfillment process and allow brands to optimize the pick and pack process, perhaps by looking at different types of order picking methods to see if a different method might speed up times.
Shipment Time
Shipment time measures the length of time between when an order is placed and when it leaves the warehouse. Flowspace also recommends brands track on-time shipment rate, or how many orders ship by the required ship time. Flowspace’s required ship time for its warehouse operations partners is by end-of-day for an order created before noon and end-of-day the following day for customer orders created in the afternoon. Along with this, brands should track late shipments, or the total number of orders that shipped after the required ship date of an order. Flowspace also tracks on-time shipment rates over time, which allows brands to look for patterns in outbound shipment rates and optimize fulfillment to improve those times.
Delivery Time
Delivery time measures how long it takes an order to reach the end customer. Today’s savvy customers demand fast delivery, and a brand’s ability to compete on speedy delivery with the Amazons of the world can be a make or break in a competitive eCommerce market.
Return Rate
In customer analytics, return rate measures how often customers return items. These returns can be for reasons a company can control—like the incorrect item was shipped—or reasons they cannot—like the customer ordered the wrong size or shade.
Customer Order Cycle Time
The customer order cycle time encapsulates the entire outbound logistics process and measures the time from a customer placing an order to the order arriving at its final destination.
Ratio of Fulfillment Costs to Average Order Value
This KPI measures the ratio of what it costs to fulfill an order—picking, packing, materials, and shipping—compared to the average order value. Ideally, the ratio between fulfillment costs and AOV should be no more than 20%.
Challenges of Outbound Logistics
While outbound logistics offers numerous opportunities for enhancing customer satisfaction and streamlining operations, it also presents a unique set of challenges. Let’s delve into these challenges and explore how businesses can navigate them effectively.
Synchronizing Multiple Processes
One of the primary challenges in optimizing outbound logistics is ensuring the synchronization of various processes. From order processing, inventory and warehouse management, to transportation/automotive logistics and delivery, each step must be meticulously coordinated. This synchronization is crucial for ensuring that the right products reach the right customers at the right time and location, and at the right cost.
Inventory Management
Effective inventory management is vital in having efficient outbound logistics. Businesses must strike a delicate balance between having sufficient inventory to meet demand and avoiding excess stock that can lead to increased storage costs and potential wastage. This requires a deep understanding of market trends and customer behavior to predict demand accurately.
Transportation Costs
Controlling transportation management costs is another significant challenge. Businesses must optimize their transportation management strategies to reduce expenses while ensuring timely and efficient delivery. This involves selecting the most cost-effective modes of transport and routes, and potentially negotiating better terms with carriers.
Customer Expectations
Today’s customers have high expectations regarding delivery speed, cost, and transparency. Meeting these customer expectations requires businesses to optimize their delivery processes, offer real-time tracking, and ensure timely communication. Failing to meet these expectations can lead to decreased customer satisfaction and loyalty.
Technological Integration
Incorporating technology into outbound logistics processes is essential for modern businesses. Technology can streamline operations, provide valuable insights, and enhance customer experiences. However, selecting the right technology and integrating it effectively into existing systems can be challenging.
Environmental Impact
The environmental impact of outbound logistics is increasingly becoming a concern for both businesses and consumers. Companies are challenged to adopt more sustainable practices, such as using eco-friendly packaging and optimizing delivery routes to reduce carbon emissions.
Globalization and Market Dynamics
Globalization has expanded the reach of businesses but also introduced complexities in outbound logistics. Navigating different regulatory environments, understanding international market dynamics, and managing cross-border shipments add layers of complexity to efficient outbound logistics.
Risk Management
Finally, managing risks associated with outbound logistics services, such as delays, damage to goods, and fluctuating fuel prices, is crucial. Businesses must develop robust risk management strategies to mitigate these risks and ensure smooth logistics operations.
Optimize Logistics with Flowspace
Flowspace partners with eCommerce brands to optimize logistics, including ordering, processing, picking, packing, loading, shipping, and more. Flowspace’s OmniFlow Visibility Suite gives brands real-time visibility and the ability to track KPIs. But Flowspace’s platform goes beyond just tracking KPIs; Flowspace’s platform gives retailers recommendations for how to improve and optimize their outbound logistics process.
The OmniFlow Visibility Suite provides visibility from fulfillment through delivery with platform-level transparency so brands can stay ahead of low inventory. The platform’s real-time insights and predictive analytics allow for inventory forecasting. Ensuring optimal inventory levels can improve customer satisfaction and build customer retention.
Having an outbound logistics process—and system—that tracks the metrics a brand cares about allows the company to be proactive in tracking and fixing errors, but it also allows brands to go back and look after errors that have occurred to prevent them from happening again.
One of the most unique features of the Flowspace fulfillment software is gaining access to the connected fulfillment network that spans the entire country. Flowspace finds the optimal fulfillment centers for each and every brand—which speeds up shipping times and lowers shipping costs.
Flowspace maintains agreements with all of its warehouse partners that dictate how quickly warehouses need to ship customer orders once they are received. Orders created before noon local time at the fulfillment center must ship by end-of-day local time, and orders created after noon must ship end-of-day the following day. An order is considered shipped on time if it is packed before the required shipped time and marked shipped by the carrier within 12 hours of the required shipped time. Orders created during a weekend have an SLA of the following business day (usually Monday).
Flowspace tracks the following metrics to ensure that warehouse partners are meeting the service level agreements and to help brands identify areas for improvement in the outbound logistics process:
- On-Time Shipment Rate
- Late Shipments
- Median Time to Pack an Order
- Median Time to Receive an Order
- On Time Shipment Rate over time
- Orders Pack Time Distributions
- Order Pack Distribution Over Time
Get in touch with Flowspace today to learn more about outbound logistics solutions.
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