Transportation and Logistics
Products have little or no value if they are not reached to the
consumer on time
Time utility Products reach on time, Place Utility Products reach
at the desired place/location
Transportation can be considered as a subset of logistics, as logistics is
a broader term which includes all the ‘flow’ management,
transportation, packaging, storage, handling etc.
Transportation objectives are maximizing profits through
negotiations and providing service effectively to satisfy customer
needs
In logistics decision making also comes to play, which transportation
route to be taken, forms of transportation, material handling, and
storage.
Transportation companies are classified as: - 1) Common, 2) Contract,
3) Exempt, 4) Private Carriers
Common carrier offers transportation services to all shippers at
published rates without any discrimination
A common carrier refusing to provide services may be sued for
damages
Common carrier is liable for damages
Contract carrier are not bound to serve the general public, liability,
price and negotiations can be done as everything is contractual,
common carrier can act as a contract carrier
Exempt carriers are for hire carriers, they are exempted from basic
regulations of services and rates. They transport certain agricultural
products and livestock, example of exempt carriers is ambulances etc.
Private carriers are those carriers in which the company owns the
vehicles for transportation of own goods. They aren’t subjected to
economic regulation
There are 5 modes of transportation: - 1) Water, 2) Air, 3) Rail, 4)
Pipeline, 5) Motor/Road
Motor/Road is the most flexible mode of transportation
Competes with air/rail for short to medium hauls
Motor/Road have very low fixed and variable costs
Primary disadvantage is Traffic and weather might cause
hindrance.
In this chapter motor/road is considered as trucks
There are two types of trucks based on loading, one is LTL (Less than
Truckload), the other one is TL (Truck Load)
LTL Carriers move small shipments, and fees are relatively higher
LTL fees are higher than TL on the basis of per hundred weight (cwt)
It is advised to the carrier to consolidate many shipments in one
truckload, and then break down the truckload into many individual
shipments to their respective consumers
General freight carriers carry goods in standard trailer, Specialized
carriers carry specialized items
Rail carriers compete when distance is relatively higher, it is slow and
expensive compared to other carriers, instead of rail carriers TOFC
(Trailer on Flat Car) is used to provide point to point delivery, rail cars
can be tracked using RFID (Radio Frequency Identification) tags
Air Carriers are fast but expensive compared to other carriers
Amount of freight/goods carried is low in air carriers
Water carriers are inexpensive, slow, and inflexible
Used for heavy bulky or low value goods
Can carry equivalent to 24 truckloads
Pipeline carriers are limited in the variety they can carry
Low maintenance is required for pipeline carriers
Materials should be in gaseous or liquid phase
What makes it unique is its continuous flow
Combinations of various modes of transportation is known as
intermodal transportation
Have door to door shipping capabilities
Most common modes of transportation are TOFC (truck trailer on flat
cars), COFC (container on flat car) also known as piggyback
1PL is a company or firm that doesn’t outsources its transportation
and logistics to a third party
2PL is an asset-based carrier that owns the means of transportation
(shipping lines, ships etc)
3PL is which provides multiple logistics services for use of customers
(inventory management, handling, warehousing etc)
4PL is a non-asset based integrator that arranges supply chain
logistics, 3PL’s etc for the clients
Two basic pricing strategies are used by logistics service providers: - 1)
Cost of service pricing, 2) Value of service pricing
If the shipment is large negotiations can be done (Negotiated pricing)
Cost of service pricing is established when logistics service providers
base their prices on fixed and variable costs of transportation. Cost of
service pricing is such that a specific cutoff/percentage is set above
the cost and that price is charged
Value of service pricing is charging the clients at the highest possible
rates that market will bear. This is a profit maximizing approach, if
the service is high in demand but provided by less, then the prices will
tend to rise.
Negotiated pricing which is realistic approach lies in between both
cost of service pricing and value of service pricing
When products are bought from the supplier they may quote a price
that also includes the transportation cost to the location, this is
known as FOB (Free on board), if the buyer opts for FOB destination
then the supplier is the legal owner of the product till it reaches the
destination, and if the buyer opts for FOB shipping then supplier is
legal owner till the shipping point after that buyer has to arrange
logistics
Rates can be classified in a number of different ways: - 1) Class rates,
2) Exception Rate, 3) Commodity rates, 4) Miscellaneous rates
Class rates are published annually, based on value of the type of
freight
Exception rates are lower than class rates for specific destination
locations
Commodity rates are based upon minimum amount of products
being shipped
Miscellaneous rates are contractual rates
Warehouses allow firms to store purchases, provide faster and
frequent deliveries
Crossdocking is a concept in which warehouses are intended for the
shipment to come in bulk and redistributed and packages to
manufacturing or retail locations
Consolidation warehouse is a type of warehouse in which small
shipments are ordered from near localities from supplier and
amalgamate them into a large one
Private warehouses are warehouses owned by the company/firm
itself, it has its pros and cons
Insuring companies do not like insuring goods in a private warehouse
Public warehouses are warehouses that lease or contract their
services to other companies. They can provide various number of
services: - 1) Break Bulk, 2) Repackaging, 3) Assembly, 4) Quality
Inspections, 5) Long and short term storage
Risk pooling is a statistical concept in which it suggests that demand
variability is reduced if one can aggregate demand
Warehouses centralization and decentralization
Three types of warehouse location strategies: - 1) Market Positioned,
2) Product positioned, 3) Intermediate positioned
Warehouses have to develop lean capabilities: - 1) Greater emphasis
on cross docking, 2) Reduced lot size, 3) Commitment to customer on
product quality, 4) Increased automation, 5) Increased assembly
operations
