Defined most simply, logistics is the management of the multidirectional flow (and storage) of goods and related information from the point of origin to the point of consumption. The purpose of it all is to satisfy customer requirements as efficiently and reliably as possible. Good logistics is crucial to customer satisfaction. It is also crucial to business profitability in that it gets goods and materials where they need to be when they need to be there.

Over the last two decades, logistics management has evolved from a cost function at the back end of the business process to a major component in supply chain management. The greatest evidence of that is the central role that logistics has played in making inventory management more efficient.

Last year, logistics costs as a percentage of gross domestic product dropped to an all-time low of 9.5 percent, a figure determined by Robert Delaney and Rosalyn Wilson in their 2002 State of Logistics Report. Our annual look at the logistics business begins with a story on Delaney and Wilson's findings.

Relative logistics costs fell last year in large part because of declining interest rates and downward pressure on transportation costs. But in an era of product proliferation and increasing customer demand for fast, flexible, reliable, efficient service, advances in logistics management deserve much of the credit for keeping inventory—particularly raw materials and work-in-progress inventory—in check.

So professional logistics managers have accomplished much. But as always in life, new challenges are already at the door. Logistics service costs will almost certainly rise when the economy recovers, as detailed in the second part of our annual report, beginning on page 37. The need to tighten security in our transportation system will require innovation and new levels of real collaboration among supply chain participants. Development and adoption of technology, which continues to change apace, demands new levels of sophistication from managers. Skills in analysis and negotiation will become more important as logistics providers and outsourcing specialists offer more complex and diverse services.

So while the last year or two may not have been much fun, given business conditions, the emerging challenges offer plenty to keep logistics an interesting profession for a long time to come.