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What It Is:

Logistics is the integration and management of the product value chain from suppliers to the customer.  It includes all aspects of the chain of production, including design, suppliers, financing, information, energy, transportation, distribution, and sales.

How It Works/Example:

Logistics involves the integration of the production and delivery of a product or service in order to ensure efficient and effective management.  Originally, logistics was used in the military to coordinate the delivery of soldiers and weapons to the right place at the right time.  The critical nature of the place and timing in war required special integration and precision. 

Logistics consists of identifying the steps in a production value chain, ensuring just in time (JIT) delivery of the inputs for an assembly process, coordinating the flow of information, and the scheduling of delivery.   As the diagram shows, logistics manages the flow from supplier to customer in order to ensure that supply and product inventory is not accumulated or wasted. An efficient production and delivery process prevents the tying up or loss of valuable capital.

While logistics is a process used by many companies (made famous by Walmart, for example), it is used increasingly as a business model by various warehouse and distribution companies (such as UPS and Fedex).

Why It Matters:

Logistics manages the flow of supplies to match the needs of the producer with the schedule of sales to customers.  Logistics coordinates the flow of information, providing feedback about sales, financing when due, and the delivery of product from various suppliers.  With the increase in global sources of suppliers as well as global consumer markets, the use of logistics to coordinate production and distribution is growing in importance.