What logistics is and why it is fundamental today

Logistics is the set of organizational, managerial, and strategic activities that govern the flows of materials and information from suppliers to the delivery of finished products and after-sales service. The overall goal is to make the right goods available, in the required quantities, at the agreed place and time, at the lowest total cost, and with the level of service expected by the customer.

In recent years, the logistics function has expanded its scope: from the mere movement/transport of goods (moving a product from A to B) to the integrated management of the supply chain. This evolution has been accelerated by the globalization of markets, e-commerce, demand unpredictability, and increasing sustainability constraints. For companies, logistics is no longer just a cost center; it is a competitive factor capable of enabling resilience, service quality, and responsiveness.

Efficiency and effectiveness in logistics management

Every logistics decision must balance two key criteria:

Operational definitions

• Efficiency: measures performance in relation to the resources used (time, means, capital, energy). In short, achieving the best possible result with the resources available. Examples: automation of manual processes, reorganization/outsourcing, route optimization and load saturation.
• Effectiveness: measures how much of the objective has been achieved. Examples: revenue growth, customer behavior analysis, expansion of online sales, improvement of the perceived service level.

Between efficiency and effectiveness there is often a trade-off: cost reductions that worsen service or, conversely, service-oriented choices that increase costs. Good logistics design finds a dynamic balance between the two aspects, guided by data and indicators.

Key performance indicators (KPIs) of logistics

• Lead time for procurement, production, and delivery.
• On-time delivery and shipping punctuality.
• Fill rate and customer service level.
• Inventory turnover and days on hand (DOH).
• Total logistics cost (transport, warehouse, handling, packaging).
• Vehicle saturation and capacity utilization rate.
• Emissions per shipment/ton-km as a sustainability metric.
  
  

Evolution of the role of business logistics

The role of logistics has shifted from mere operational execution to the responsibility of regaining market competitiveness through two paths: reduction of total costs and service improvement (speed, reliability, visibility). Today the function deals with the integrated management of the entire operating cycle, divided into three complementary domains.

Inbound logistics

Requirements planning, supplier qualification and negotiation, order issuance, incoming quality control, management of raw material and semi-finished inventories. The goal is to supply at the lowest total cost compatible with the service level required by production and the market.

Internal logistics

Production scheduling, material management, assembly, quality control, internal handling, and warehouse operations. Here logistics coordinates physical and informational flows to minimize waiting times, movements, and intermediate stocks.

Distribution logistics

From producer to customer: distribution network design, route and load optimization, order management, picking, packaging, shipping, reverse logistics and returns management (a growing issue with e-commerce). Distribution choices directly impact costs, lead times, and customer satisfaction.

Physical, informational, and financial flows: the heart of the supply chain

A high-performing supply chain synchronizes three flows, which run in parallel and feed each other:

Physical flow

Movement of materials, components, and finished products along the nodes and links of the network (suppliers, warehouses, plants, distribution centers, retail outlets, customers). Network design, choice of means, and stock management determine costs and service.

Information flow

Data, orders, documents, and demand signals that enable planning (demand planning) and control (order tracking). Forecasting techniques combine historical series, seasonality, and market trends; synchronization between sales and operational plans reduces overstock and stock-out.

Financial flow

Payments, business terms, working capital, and risk management. Proper alignment with physical and informational flows supports economic-financial sustainability and resilience.

From traditional logistics to innovation

Digitalization and customer-centric models

Digital transformation introduces real-time visibility of the chain, vertical and horizontal integration, end-to-end traceability. Technologies such as IoT, analytics and AI improve forecasting, orchestration, and automation; blockchain enables event notarization and transparency; collaborative platforms facilitate the integration of logistics partners and 3PLs.

Markets require increasing levels of customization, fast deliveries, and flexible services: “customer-centric” chains rely on decoupling point strategies, positioning the disconnection between forecasting and actual demand in such a way as to reconcile variety, costs, and lead times.

Sustainability and resilience

The environmental emergency requires green logistics networks: emission reduction, choice of low-impact modes, optimized packaging, reverse logistics, and circularity. The recent health crisis has demonstrated the centrality of logistics as an essential service to ensure continuity of supply and citizen safety: resilience and selective redundancy become essential design skills.

Logistics and the Physical Internet: innovation, research, and projects

The Physical Internet (PI) is a paradigm that applies to physical goods the principles of openness, modularity, and interoperability developed in the digital network. The idea is to overcome closed and redundant supply chains to create an open logistics network where capacity, means, and infrastructures are shared and orchestrated as “packets” intelligently routed to their destination.

Why the Physical Internet matters

• Systemic efficiency: resource pooling, dynamic routing, standardization of modular load units.
• Service effectiveness: greater reliability, rapid scalability, deliveries more aligned with actual demand.
• Sustainability: reduction of empty kilometers, increased load factor, lower emissions per ton-km.
• Open innovation: interoperable platforms that enable new business models and partnerships.
  
  

Research in the Physical Internet

Physical Internet research studies architectures, standards, and algorithms for physical routing, dynamic capacity allocation, data security, intermodal hub design, and impacts on cost, service, and environment.

Physical Internet projects

Physical Internet projects explore collaboration networks among operators, smart packaging and modular containers, capacity exchange platforms, shared urban hubs, and multimodal orchestration. These initiatives demonstrate that the PI paradigm can combine logistics innovation, sustainability, and economic advantages at an ecosystem level.

Conclusions

Contemporary logistics is a system that connects customers and suppliers through physical, informational, and financial flows, balancing efficiency and effectiveness to maximize value and sustainability. Digital technologies, customer-centric models, and a focus on resilience are transforming supply chains into intelligent networks. In this scenario, the Physical Internet emerges as a natural evolution: a framework for designing open, modular, and interoperable supply chains. With its contents and services, Franco.cloud supports the dissemination of practices, Physical Internet research and analysis of Physical Internet projects that make logistics innovation measurable and scalable.

Frequently asked questions

What is the difference between logistics efficiency and effectiveness?

Efficiency reduces resource use for the same output; effectiveness measures how much the goal is achieved (service level, customer satisfaction). A mature strategy combines both.

Why are informational flows crucial?

Because they synchronize demand, production, and distribution: without accurate data, networks suffer overstock or stock-out, impacting costs and service.

How does the Physical Internet innovate the supply chain?

It standardizes units and interfaces, shares capacity, and enables dynamic routing of “physical packets,” improving efficiency, effectiveness, and sustainability of the entire system.