Logistics Fundamentals

Moving Products, Moving Money

In Lesson 1, we mapped the full supply chain from raw materials to customer delivery. Now let’s zoom into the physical backbone: logistics. How goods actually move from point A to point B—and why those decisions determine whether you’re profitable or not.

By the end of this lesson, you’ll be able to:

• Compare transportation modes and choose the right one for each situation
• Explain warehousing strategies and their cost implications
• Describe how distribution networks affect delivery speed and cost

Transportation Modes

Every shipment has five fundamental options for getting from origin to destination:

Most supply chains use multimodal shipping—combining modes for the best balance. For example: ocean freight from China to a US port, then truck to a regional warehouse, then parcel delivery to the customer.

✅ Quick Check: If you sell handmade jewelry (small, lightweight, high-margin), which transportation mode makes the most sense for international orders? What about bulk raw materials like metal wire?

How AI Helps

“I import ceramic mugs from a manufacturer in Vietnam and sell them online in the US. Each mug weighs 12 oz and retails for $25. Compare the total cost and timeline for shipping 500 units via ocean freight versus air freight, including estimated customs and last-mile delivery.”

AI can model these comparisons instantly, helping you make informed shipping decisions.

Warehousing Strategies

Where you store inventory is just as important as how you ship it. Three main strategies:

Centralized warehousing — One large warehouse serves all customers. Lower storage costs, but longer delivery times for distant customers.

Distributed warehousing — Multiple smaller warehouses placed near customer clusters. Higher storage costs, but faster delivery and lower last-mile shipping costs.

Drop shipping — No warehouse at all. Suppliers ship directly to customers. Lowest upfront cost, but least control over quality and timing.

The Tradeoff

Most growing businesses start centralized and move toward distributed as volume justifies the investment.

How AI Helps

“I sell pet supplies online from a single warehouse in Dallas, Texas. 40% of my orders go to the Northeast, 30% to the West Coast, and 30% stay regional. My average order is $45. Should I add a second warehouse? If so, where? Analyze the shipping cost savings versus the additional warehousing cost.”

Distribution Networks

A distribution network is the complete system of warehouses, transportation routes, and delivery methods that connect your products to customers. Think of it as the road map your inventory follows.

Direct distribution — Products go straight from your warehouse to the customer. Simplest model, works well for e-commerce.

Hub-and-spoke — Products move from a central hub to regional spokes (smaller distribution centers), then to customers. Used by FedEx, UPS, and Amazon.

Third-party logistics (3PL) — You outsource warehousing and fulfillment to a specialist company. They handle storage, picking, packing, and shipping on your behalf.

When to Use 3PL

3PL makes sense when:

• Your order volume is growing but you don’t want to manage warehouses
• You need to reach new geographic markets quickly
• Seasonal demand spikes make your own warehouse capacity inefficient

How AI Helps

“I currently ship about 200 orders per month from my garage. I’m considering a 3PL provider. Help me create a comparison of self-fulfillment versus 3PL based on: cost per order, time spent, scalability, and customer experience. Assume my average package weighs 2 lbs.”

The Last-Mile Challenge

Last-mile delivery—the final stretch from a local hub to the customer’s doorstep—is typically the most expensive segment of the entire logistics chain. It can represent up to 53% of total shipping costs.

Why? Residential deliveries are inefficient. A single truck might make 100 stops in a day, each one a unique address with unique access challenges. Compare that to moving a container between two warehouses.

Cost reduction strategies:

• Offer pickup points as an alternative to home delivery
• Use delivery windows to batch nearby orders
• Set free-shipping thresholds that increase average order value

Try It Yourself

Map your own logistics chain (or a hypothetical one) using AI:

“Help me design a basic logistics plan for a small business that imports organic tea from India and sells it online to US customers. I need to cover: international shipping, customs, domestic warehousing, and last-mile delivery. Include estimated timelines and cost considerations for each stage.”

Key Takeaways

• The speed-cost tradeoff is the fundamental decision in choosing transportation modes
• Warehousing strategy (centralized, distributed, or drop-ship) directly impacts delivery speed and costs
• Distribution networks range from direct-to-customer to complex hub-and-spoke systems
• Last-mile delivery is often the most expensive logistics segment—optimize it first
• AI helps model scenarios and compare options before committing to logistics decisions

Up Next

In Lesson 3: Inventory Management, we’ll tackle the question that keeps operations managers awake at night: how much stock should you hold? Too much ties up cash; too little loses sales. We’ll learn frameworks to get it right.