Chapter 7
Transportation & Logistics
Transportation
• Transportation involves the various methods of
moving goods outside the firm’s buildings.
• Transportation is an essential ingredient in the
economic development of any area.
• It brings together raw materials for production
of marketable commodities and distributes the
products of industry to the marketplace.
• For most firms, transportation is the
single highest cost in distribution,
usually accounting for 30% to 60% of
distribution costs.
• The carriers of transportation can be divided
into five basic modes:
1. Rail
2. Road
3. Air
4. Water
5. Pipeline
Rail
• Railways provide their own ways, terminals,
and vehicles, all of which represent a large
capital investment.
• This means that most of the total cost of
operating a railway is fixed.
• Thus, railways must have a high volume of
traffic to absorb the fixed costs.
• Railways are best able to move large volumes
of bulky goods over long distances.
• Their frequency of departure will be less than
trucks.
• Train service is cheaper than road service for
large quantities of bulky commodities such as
containers.
Road
• includes trucks, buses, and automobiles.
• Trucks are particularly suited to distribution of
relatively small-volume goods to a dispersed
market.
• Trucks can provide door-to-door service as
long as there is a suitable surface on which to
drive.
• In comparison to other modes, the cost of a
vehicle is small.
Air
•Air transport does not have ways in the sense of
fixed physical roadbeds, but it does require an
airway system.
•These systems are usually provided by the
government.
•The aircraft are expensive and are the single most
important cost element for the airline.
• The main advantage of air transport is speed of
service & safety, especially over long distances.
• Transportation cost for air cargo is higher than
for other modes.
• For these reasons, air transport is most often
suitable for high-value, low-weight cargo or for
emergency items.
Water
• Waterways are provided by nature possibly with
the assistance of the government.
• Terminals may be provided by the government but
are increasingly privately owned.
• The main advantage of water transport is cost.
• Operating costs are low, and since the ships have a
relatively large capacity, the fixed costs can be
absorbed over large volumes.
• water transportation is most useful for moving low
value, bulky cargo over relatively long distances.
Pipelines
• Pipelines are unique among the modes of
transportation in that they move only gas, oil, and
refined products on a widespread basis.
• As such, they are of little interest to most users of
transportation.
• Capital costs for ways and pipelines are high and are
borne by the carrier, but operating costs are very
low.
According to the Council of Logistics Management- a
nonprofit organization of business personnel:
Logistics is the process of planning,
implementing, and controlling the efficient, cost
effective flow and storage of raw materials, in-
process inventory, finished goods, and related
information from point of origin to point of
consumption for the purpose of conforming to
customer requirements.
This definition highlights the key features of
logistics:
– It is concerned with movement and storage of
materials
– It is concerned with managing information
flows that underpin the materials’ flow
– Its scope ranges across the whole supply chain
from the raw materials’ point of origin to the
finished products’ final consumption
Key objectives:
(a) achieving appropriate customer-service
standards and
(b) doing so in a cost-effective manner.
Parts of Logistics
The entire process of logistics can be divided into three
parts:
• Inbound logistics -which represents the movement and
storage of materials received from suppliers;
• Materials management - which covers the storage and
flows of materials within a firm; and
• Outbound logistics or physical distribution- which
describes the movement and storage of products from the
final production point to the customer
Principles of Logistics
• Responsiveness
– Right support in the right place at the right time
– Keystone of the logistic principles, for all else
becomes irrelevant if the logistic system cannot
support the concept of operations of the supported
commander.
• Attainability
– Ability to provide the minimum essential supplies
and services required to begin combat operations
Cont…
• Simplicity
– Avoidance of complexity and enhancement of
efficiency in both the planning and execution of
logistic operations
• As the different models, types, and
configurations of vehicles is increased, logistics
becomes more complex and expensive
Cont…
• Flexibility
– Ability to adapt logistic structures and procedures to
changing situations, missions, and concepts of
operations
• Logistics plans and operations must be flexible to
achieve both responsiveness and economy
• Economy
– Provision of support at the least cost
Cont…
• Sustainability
– Ability to maintain and continue logistic support to
all users throughout the area of operations for the
duration of the mission
• Considered the most difficult task because it
entails resupplying the combat forces
throughout the entire area of operations
End of the course
Thank you
