Evolution and Objectives of Logistics

Evolution of Logistics
The evolution of logistics in the 1990s can be traced back to “physical distribution
management” in the 1970s when there was no coordination among the various functions of an
organization, and each was committed to attain its own goal. This myopic approach then
transformed into “integrated logistic management” in the 1980s that called for the integration
of various functions to achieve a system-wide objective. Supply Chain Management (SCM)
further widens this scope by including the suppliers and customers into the organizational fold,
and coordinating the flow of materials and information from the procurement of raw materials
to the consumption of finished goods.

Logistics involves getting, in the right way, the right product, in the right quantity and right
quality, in the right place at the right time, for the right customer at the right cost. The logistic
network consists of the suppliers, the retailer and the users. The purpose of an integrated
logistic network in a supply chain is to fulfill customer orders through providing place utility
to deliver products and services to end users. The place utility is achieved by managing a
number of key functions of a supply chain. The functions include:

 Demand management
 Inventory management
 Transportation
 Warehousing
 Order processing
 Information Management

Logistics is a key enabler of supply chain collaboration. Improving performance in this field
allows supply chains to increase their efficiency significantly and help to create innovations in
different areas. In this context, an important task is to find structures and approaches which
enable all types of performance management in logistics and supply chains for a better
fulfillment of customer needs.

Objectives of Logistics

1. Cost Reduction and Profit Maximization

Logistics management results in cost reduction and profit maximization, primarily due to:
  Improved material handling
 Safe, speedy and economical transportation
 Optimum number and convenient location of warehouses etc.

2. Efficient Flow of Manufacturing Operations

Inbound logistics helps in the efficient flow of manufacturing operations, due to on-time
delivery of materials, proper utilization of materials and semi-finished goods in the production
process and so on.

3. Competitive Edge

Logistics provide, maintain and sharpen the competitive edge of an enterprise by:

 Increasing sales through providing better customer service

 Arranging for rapid and reliable delivery
 Avoiding errors in order processing; and so on.

4. Effective Communication System

An efficient information system is a must for sound logistics management. As such, logistics
management helps in developing effective communication system for continuous interface
with suppliers and rapid response to customer enquiries.

5. Sound Inventory Management

Sound inventory management is a by-product of logistics management. A major headache of

production management, financial management etc. is how to ensure sound inventory
management; which headache is cured by logistics management.

Components and Functions of Logistics

Management
According to Phillip Kotler, “Market logistics involve planning, implementing and controlling
physical flow of material and final (finished) goods from the point of origin to the point of use
to meet customer requirements, at a profit.”

Logistics management consists of the process of planning, implementing and controlling the
efficient flow of raw-materials, work-in-progress and finished goods and related information-
from point of origin to point of consumption; with a view to providing satisfaction to the
customer.

Components of Logistics Management

Logistics management consists of three major components:
 1. Order processing or Input

This component is the first process of logistics where information about the resources and
production is gathered based on which the products are manufactured. In the case of freight
forwarding, order processing refers to the step where the various source of vendors and
transportation are gathered for the importing or exporting of goods.

2. Inventory Management

Inventory management plays an important role in the supply chain management system. As the
name suggests, inventory management helps the logistics company in allocating the resources
like transport vehicles, labour and other resources according to the order received by the client.
This helps in making sure that no orders or freights are being left out or are being delayed for
delivery.

3. Freight transportation

This is the last and the major component of logistics management. After the order is processed
and the resources are allocated in order to transport the freight to the destination. Various routes
and types of transportation are analysed to check which transportation and the routes will
deliver the product on or before the delivery time. There are tools and software which analyse
these factors with the help of artificial intelligence and machine learning tools and provide the
best plans to the logistics company.

These components together help in delivering the best quality goods to the consumers and is
delivered on time. These components help in reducing the additional costs and increasing the
productivity of the work, therefore the logistics company will be able to provide the best
services with great quality to their clients and consumers.

Functions of Logistics Management

(i) Network Design

Network design is one of the prime responsibilities of logistics management. This network is
required to determine the number and location of manufacturing plants, warehouses, material
handling equipment’s etc. on which logistical efficiency depends.

(ii) Order Processing

Customers’ orders are very important in logistics management. Order processing includes
activities for receiving, handling, filing, recording of orders. Herein, management has to ensure
that order processing is accurate, reliable and fast.

Further, management has to minimize the time between receipt of orders and date of dispatch
of the consignment to ensure speedy processing of the order. Delays in execution of orders can
become serious grounds for customer dissatisfaction; which must be avoided at all costs.
(iii) Procurement

It is related to obtaining materials from outside suppliers. It includes supply sourcing,

negotiation, order placement, inbound transportation, receiving and inspection, storage and
handling etc. Its main objective is to support manufacturing, by providing timely supplies of
qualitative materials, at the lowest possible cost.

(iv) Material Handling

It involves the activities of handling raw-materials, parts, semi-finished and finished goods into
and out of plant, warehouses and transportation terminals. Management has to ensure that the
raw-materials, parts, semi-finished and finished goods are handled properly to minimize losses
due to breakage, spoilage etc. Further, the management has to minimize the handling costs and
the time involved in material handling.

(v) Inventory Management

The basic objective of inventory management is to minimize the amount of working capital
blocked in inventories; and at the same time to provide a continuous flow of materials to match
production requirements; and to provide timely supplies of goods to meet customers’ demands.

Management has to maintain inventories of:

 Raw-materials and parts

 Semi-finished goods
 Finished goods

(vi) Packaging and Labeling

Packaging and labeling are an important aspect of logistics management. Packaging implies
enclosing or encasing a product into suitable packets or containers, for easy and convenient
handling of the product by both, the seller and specially the buyer.

Packaging facilities the sale of a product. It acts as a silent salesman. For example, a fancy and
decorative packaging of sweets, biscuits etc. on the eve of Diwali, makes for a good sale of
such items.

Labeling means putting identification marks on the package of the product. A label provides
information about – date of packing and expiry, weight or size of product, ingredients used in
the manufacture of the product, instructions for sale handling of the product, price payable by
the buyer etc.

(vii) Warehousing

Storage or warehousing is that logistical activity which creates time utility by storing goods
from the time of production till the time these are needed by ultimate consumers.
Here, the management has to decide about:

 The number and type of warehouses needed and

 The location of warehouses.

(viii) Transportation

Transportation is that logistical activity which creates place utility.

Transportation is needed for:

 Movement of raw-materials from suppliers to the manufacturing unit.

 Movement of work-in-progress within the plant.
 Movement of finished goods from plant to the final consumers.

Distribution Related Issues and Challenges in

Logistics Management
1. Fuel Costs

One of the highest costs contributing to the ‘cutting transportation cost’ concern is fuel prices.
Higher fuel prices are likely to increase transportation costs for US shippers this year by
pushing up fuel surcharges. Rising India diesel fuel prices are escalating surcharges added to
freight rates, which is reversing a two-year trend that cut into the revenue and earnings of
truckers as fuel prices plummeted.

2. Business Process Improvement

Not withstanding the need for new technology, which we discuss in number eight on this list,
it has become an increasing challenge for the logistics industry to stay on top of new advances
in business processes. Taking advantage of these new opportunities sounds enticing but
adoption and onboarding can be overwhelming.

3. Improved Customer Service

Customers want full transparency into where their delivery is at all times. These days, the
location of a package is as interconnected as your social network. In fact, as customer
expectations have increased, their willingness to pay for fast shipping has decreased with just
about 64 percent of consumers unwilling to pay anything extra for less than two-day shipping.

4. Economy
With high fuel prices comes a greater credit crisis and rising inflationary demands that take a
greater toll on the US economy. This industry is then pressured by increasing compliance
regulations, declining demand, additional capacity with additional increases in key cost centers.

5. Driver Shortage & Retention

Hiring and retention remain an issue despite the lower demand mentioned above.

6. Government Regulations

Carriers face significant compliance regulations imposed by federal, state and local authorities.

7. Environmental Issues

The anti-idling and other emission reduction regulations brought about by state and local
governments has created concern that the compliance costs could exceed benefits.

8. Technology Strategy & Implementation

While the industry understands and supports many of the benefits of these technologies, some
questions remain as to how they will pay for it and who will help implement the improvements.

Gaining Competitive Advantage through

Logistics Management
Effective logistics management can provide a major source of competitive advantage. The
bases for successes in the marketplace are numerous, but a simple model has been based around
the three C’s – Customer, Company & Competitor. The source of competitive advantage is
found firstly in the ability of the organization to differentiate itself, in the eyes of the customer,
from its competition and secondly by operating at a lower cost and hence at greater profit.

Seeking a sustainable competitive advantage has become the concern of every manager who
realizes the realities of the marketplace. It is no longer acceptable to assume that the goods will
sell themselves. An elemental, commercial success is derived either form a cost advantage or
a value advantage or, ideally both. The greater the profitability of the company the lesser is the
cost of production. Also a value advantage gives the product an advantage over the competitive
offerings. Successful companies either have a productivity advantage or they have a value
advantage or maybe a combination of the two.

There are two main vectors of strategic direction that need to be examined:

1. Productivity Advantage

In many industries there will be a competitor who will be a low cost producer and will have
greater sales volume in that sector. This is partly due to economies of scale, which enable fixed
costs to spread over a greater volume but more particularly to the impact of the experience
curve.

It is possible to identify and predict improvements in the rate of output of workers as they
become more skilled in the processes and tasks on which they work. Bruce Henderson extended
this concept by demonstrating that all costs, not just production costs, would decline at a given
rate as volume increased. This cost decline applies only to value added, i.e. costs other than
bought in supplies. Traditionally it has been suggested that the main route to cost reduction
was by gaining greater sales volume and there can be no doubt about the close linkage between
relative market share and relative costs. However it must also be recognized that logistics
management can provide a multitude of ways to increase efficiency and productivity and hence
contribute significantly to reduced unit costs.

2. Value Advantage

It is a cliché that customers don’t buy products they buy benefits. These benefits may be
intangible i.e. they relate not to specific product features but to such things as image and
reputation. Unless the product or service that we offer can be distinguished in some way from
its competitors there is a strong likelihood that the marketplace will view it as a ‘commodity’
and so the sale will tend to go to the cheapest supplier. Value differentiation can be gained in
numerous ways. When a company scrutinizes markets closely it frequently finds that there are
distinct value segments. In other words different groups of customers attach different levels of
importance to different benefits. The importance of such benefit segmentation lies in the fact
that often there are substantial opportunities for creating differentiated appeals for specific
segments. Adding value through differentiation is a powerful means of achieving a defensible
advantage in the market. Equally powerful as a means of adding value is service. Increasingly
it is the case that markets are becoming more service sensitive and this poses a challenge in
management of logistics. It is important to seek differentiation through means other than
technology. A number of companies have responded to this by focusing upon service as a
means of gaining a competitive edge. Service in this context relates to the process of developing
relationships with customers through the provision of an augmented offer. This augmentation
can take many forms including delivery service, after sales service, financial packages,
technical support and so on.

In commodity market situations where a company’s products are indistinguishable from their
competitors’ offerings the only strategy is to move towards being a cost leader or towards being
a service leader. Often the leadership route is not available. This particularly will be the case
in a mature market where substantial market share gains are difficult to achieve.

Cost leadership strategies have been based upon the economies of scale, gained through greater
volume of sales. This is why market share is considered to be so important in many industries.
This cost advantage can be used strategically to assume a position of price leader and make it
difficult for high cost competitors to survive. This cost advantage can come through effective
logistics management. In many industries logistics cost represents such a large part of total
costs that that it is possible to make major cost reductions through fundamentally reengineering
logistics processes.
The other way to come out of the commodity quadrant of the matrix is to seek a strategy of
differentiation through service excellence. Customers ion all industries are seeking greater
responsiveness and reliability from suppliers; they are looking for reduced lead times, just-in-
time delivery and value added services that help them do a better job of serving their customers.

GAINING COMPETITIVE ADVANTAGE THROUGH LOGISTICS

A firm can gain competitive advantage only when it performs its strategically important
activities (designing, producing, marketing delivering and supporting its product) more cheaply
or better than its competitors.

Value chain activity disaggregates a firm into its strategically relevant activities in order to
understand behavior of costs and existing and potential sources of differentiation. They are
further categorized into two types

(i) Primary: inbound logistics, operation outbound logistics, marketing and sales, and service

(ii) Support: infrastructure, human resource management, technology development and

procurement

To gain competitive advantage over its rivals, a firm must deliver value to its customers through
performing these activities more efficiently than its competitors or by performing these
activities in a unique way that creates greater differentiation.

Logistics management has the potential to assist the firm in the achievement of both a
cost/productivity advantage and a value advantage. The under lying philosophy behind the
logistics concept is that of planning and coordinating the materials flow from source to user as
an integrated system rather than, as was so often the case in the past, managing the goods flow
as a series of independent activities. Thus under a logistics management regime the goal is to
link the marketplace, the distribution network, the manufacturing process and the procurement
activity in such a way that customers are service at higher levels and yet at lower cost.

Gaining Competitive Advantage through

Logistics Management
Effective logistics management can provide a major source of competitive advantage. The
bases for successes in the marketplace are numerous, but a simple model has been based around
the three C’s – Customer, Company & Competitor. The source of competitive advantage is
found firstly in the ability of the organization to differentiate itself, in the eyes of the customer,
from its competition and secondly by operating at a lower cost and hence at greater profit.

Seeking a sustainable competitive advantage has become the concern of every manager who
realizes the realities of the marketplace. It is no longer acceptable to assume that the goods will
sell themselves. An elemental, commercial success is derived either form a cost advantage or
a value advantage or, ideally both. The greater the profitability of the company the lesser is the
cost of production. Also a value advantage gives the product an advantage over the competitive
offerings. Successful companies either have a productivity advantage or they have a value
advantage or maybe a combination of the two.

There are two main vectors of strategic direction that need to be examined:

1. Productivity Advantage

In many industries there will be a competitor who will be a low cost producer and will have
greater sales volume in that sector. This is partly due to economies of scale, which enable fixed
costs to spread over a greater volume but more particularly to the impact of the experience
curve.

It is possible to identify and predict improvements in the rate of output of workers as they
become more skilled in the processes and tasks on which they work. Bruce Henderson extended
this concept by demonstrating that all costs, not just production costs, would decline at a given
rate as volume increased. This cost decline applies only to value added, i.e. costs other than
bought in supplies. Traditionally it has been suggested that the main route to cost reduction
was by gaining greater sales volume and there can be no doubt about the close linkage between
relative market share and relative costs. However it must also be recognized that logistics
management can provide a multitude of ways to increase efficiency and productivity and hence
contribute significantly to reduced unit costs.

2. Value Advantage

It is a cliché that customers don’t buy products they buy benefits. These benefits may be
intangible i.e. they relate not to specific product features but to such things as image and
reputation. Unless the product or service that we offer can be distinguished in some way from
its competitors there is a strong likelihood that the marketplace will view it as a ‘commodity’
and so the sale will tend to go to the cheapest supplier. Value differentiation can be gained in
numerous ways. When a company scrutinizes markets closely it frequently finds that there are
distinct value segments. In other words different groups of customers attach different levels of
importance to different benefits. The importance of such benefit segmentation lies in the fact
that often there are substantial opportunities for creating differentiated appeals for specific
segments. Adding value through differentiation is a powerful means of achieving a defensible
advantage in the market. Equally powerful as a means of adding value is service. Increasingly
it is the case that markets are becoming more service sensitive and this poses a challenge in
management of logistics. It is important to seek differentiation through means other than
technology. A number of companies have responded to this by focusing upon service as a
means of gaining a competitive edge. Service in this context relates to the process of developing
relationships with customers through the provision of an augmented offer. This augmentation
can take many forms including delivery service, after sales service, financial packages,
technical support and so on.

In commodity market situations where a company’s products are indistinguishable from their
competitors’ offerings the only strategy is to move towards being a cost leader or towards being
a service leader. Often the leadership route is not available. This particularly will be the case
in a mature market where substantial market share gains are difficult to achieve.
Cost leadership strategies have been based upon the economies of scale, gained through greater
volume of sales. This is why market share is considered to be so important in many industries.
This cost advantage can be used strategically to assume a position of price leader and make it
difficult for high cost competitors to survive. This cost advantage can come through effective
logistics management. In many industries logistics cost represents such a large part of total
costs that that it is possible to make major cost reductions through fundamentally reengineering
logistics processes.

The other way to come out of the commodity quadrant of the matrix is to seek a strategy of
differentiation through service excellence. Customers ion all industries are seeking greater
responsiveness and reliability from suppliers; they are looking for reduced lead times, just-in-
time delivery and value added services that help them do a better job of serving their customers.

GAINING COMPETITIVE ADVANTAGE THROUGH LOGISTICS

A firm can gain competitive advantage only when it performs its strategically important
activities (designing, producing, marketing delivering and supporting its product) more cheaply
or better than its competitors.

Value chain activity disaggregates a firm into its strategically relevant activities in order to
understand behavior of costs and existing and potential sources of differentiation. They are
further categorized into two types

(i) Primary: inbound logistics, operation outbound logistics, marketing and sales, and service

(ii) Support: infrastructure, human resource management, technology development and

procurement

To gain competitive advantage over its rivals, a firm must deliver value to its customers through
performing these activities more efficiently than its competitors or by performing these
activities in a unique way that creates greater differentiation.

Logistics management has the potential to assist the firm in the achievement of both a
cost/productivity advantage and a value advantage. The under lying philosophy behind the
logistics concept is that of planning and coordinating the materials flow from source to user as
an integrated system rather than, as was so often the case in the past, managing the goods flow
as a series of independent activities. Thus under a logistics management regime the goal is to
link the marketplace, the distribution network, the manufacturing process and the procurement
activity in such a way that customers are service at higher levels and yet at lower cost.

Transportation: Function, Cost & Mode of

Transportation
Transport or Transportation is the movement of humans, animals and goods from one
location to another. In other words, the action of transport is defined as a particular movement
of an organism or thing from a point A to a Point B. Modes of transport include air, land (rail
and road), water, cable, pipeline and space. The field can be divided into infrastructure, vehicles
and operations. Transport enables trade between people, which is essential for the development
of civilizations.

Transport infrastructure consists of the fixed installations, including roads, railways, airways,
waterways, canals and pipelines and terminals such as airports, railway stations, bus stations,
warehouses, trucking terminals, refueling depots (including fueling docks and fuel stations)
and seaports. Terminals may be used both for interchange of passengers and cargo and for
maintenance.

Function of Transportation
Transportation Functionality provides 2 major functions which are described below:

1. Product Movement

To move various types of product whether it is raw materials component, semi- finished goods,
finished goods, packaging material, scrap and so on. Transportation has become a very
essential. Infact if human beings are considered as a product. One can be amount of people
transport from one place to another by private and public carriers.

Transportation of a product involves the use of temporal resources. This is because a particular
product is inaccessible while it is in-transit. i.e while it is being transport from one place to
another place. These products are called in-transit inventories. These products are significantly
important because they influence a variety of supply chain decision. For e.g, if supply chain is
a considering a just in time strategy, or say. quick response strategy with regard to supply of
goods to the customer then this influences the time for which the goods should be in transit
because the goods have to reach quickly, or just in time to meet the requirement of the
customer. Further, if goods are dispatched only when a customers requires them. Then such
decision also affects the amount of inventories that have to be stored at the distribution centers.

Transportation of product involves the use of financial resources. Expenses on transport result
from cost of driver, cleaner, casual laborer, taxes, administrative costs, and repairs/
maintenance. In addition, if during transportation there is product loss or product damage, may
be this expenses have also to be taken into consideration.

Transportations of product also use environmental resources. Either directly or indirectly. In

direct terms, transportation uses a very large amount of energy in term of fuel and oil. Though
attempts are being made to make transport vehicles more fuel efficient. But consumption of
fuel and oil is not expected to decrease because of the ever-increasing global operation in
indirect term, transportation create environmental expenses in terms of congestion, air
pollution, and noise pollution.

2. Product storage

Though it is not very common, but one of the functions of transportation is also temporary
storage of goods. Of course, storing goods in vehicles is quite an expensive affair. However, in
case of goods have to be moved once again within Just a few days. It is advisable to keep them
stored in transport vehicles themselves. This will avoid the cost of unloading and loading as
well as the possible damage to goods during such operation.

It may happen that a company has limited storage facility at a particular warehouse. Hence,
when the company loads the goods in to the transport vehicle to be sent to the warehouse. It
may request the transport company to take a longer route to reach the destination. This will act
as temporary storage for the goods.

TRANSPORT COSTS
Transport systems face requirements to increase their capacity and to reduce the costs of
movements. All users (e.g. individuals, corporations, institutions, governments, etc.) have to
negotiate or bid for the transfer of goods, people, information and capital because supplies,
distribution systems, tariffs, salaries, locations, marketing techniques as well as fuel costs are
changing constantly. There are also costs involved in gathering information, negotiating, and
enforcing contracts and transactions, which are often referred as the cost of doing business.
Trade also involves transactions costs that all agents attempt to reduce since transaction costs
account for a growing share of the resources consumed by the economy.

Frequently, corporations and individuals must take decisions about how to route passengers or
freight through the transport system. This choice has been considerably expanded in the context
of the production of lighter and high value consuming goods, such as electronics, and less bulky
production techniques. It is not uncommon for transport costs to account for 10% of the total
cost of a product. This share also roughly applies to personal mobility where households spend
about 10% of their income for transportation, including the automobile which has a complex
cost structure. Thus, the choice of a transportation mode to route people and freight between
origins and destinations becomes important and depends on a number of factors such as the
nature of the goods, the available infrastructures, origins and destinations, technology, and
particularly their respective distances. Jointly, they define transportation costs.

Transport costs come as fixed (infrastructure) and variable (operating) costs, depending on a
variety of conditions related to geography, infrastructure, administrative barriers, energy, and
on how passengers and freight are carried. Three major components, related to transactions,
shipments and the friction of distance, impact on transport costs.

MODE OF TRANSPORTATION

1. Road transportation

Road infrastructures are large consumers of space with the lowest level of physical constraints
among transportation modes. However, physiographical constraints are significant in road
construction with substantial additional costs to overcome features such as rivers or rugged
terrain. While historically road transportation was developed to support non-motorized forms
of transportation (walking, domestication of animals and cycling at the end of the 19th century),
it is motorization that has shaped the most its development since the beginning of the 20th
century.
Road transportation has an average operational flexibility as vehicles can serve several
purposes but are rarely able to move outside roads. Road transport systems have high
maintenance costs, both for the vehicles and infrastructures. They are mainly linked to light
industries where rapid movements of freight in small batches are the norm. Yet, with
containerization, road transportation has become a crucial link in freight distribution.

2. Rail transportation and pipelines

Railways are composed of a traced path on which wheeled vehicles are bound. In light of more
recent technological developments, rail transportation also include monorails and maglev.
They have an average level of physical constrains linked to the types of locomotives and a low
gradient is required, particularly for freight. Heavy industries are traditionally linked with rail
transport systems, although containerization has improved the flexibility of rail transportation
by linking it with road and maritime modes. Rail is by far the land transportation mode offering
the highest capacity with a 23,000 tons fully loaded coal unit train being the heaviest load ever
carried. Gauges, however, vary around the world, often challenging the integration of rail
systems.

Pipeline routes are practically unlimited as they can be laid on land or under water. The longest
gas pipeline links Alberta to Sarnia (Canada), which is 2,911 km in length. The longest oil
pipeline is the Transiberian, extending over 9,344 km from the Russian arctic oilfields in
eastern Siberia to Western Europe. Physical constraints are low and include the landscape and
pergelisol in arctic or subarctic environments. Pipeline construction costs vary according to the
diameter and increase proportionally with the distance and with the viscosity of fluids (from
gas, low viscosity, to oil, high viscosity). The Trans Alaskan pipeline, which is 1,300 km long,
was built under difficult conditions and has to be above ground for most of its path. Pipeline
terminals are very important since they correspond to refineries and harbors.

3. Maritime transportation

Because of the physical properties of water conferring buoyancy and limited friction, maritime
transportation is the most effective mode to move large quantities of cargo over long distances.
Main maritime routes are composed of oceans, coasts, seas, lakes, rivers and channels.
However, due to the location of economic activities maritime circulation takes place on specific
parts of the maritime space, particularly over the North Atlantic and the North Pacific. The
construction of channels, locks and dredging are attempts to facilitate maritime circulation by
reducing discontinuity. Comprehensive inland waterway systems include Western Europe, the
Volga / Don system, St. Lawrence / Great Lakes system, the Mississippi and its tributaries, the
Amazon, the Panama / Paraguay and the interior of China. Maritime transportation has high
terminal costs, since port infrastructures are among the most expensive to build, maintain and
improve. High inventory costs also characterize maritime transportation. More than any other
mode, maritime transportation is linked to heavy industries, such as steel and petrochemical
facilities adjacent to port sites.

4. Air transportation

Air routes are practically unlimited, but they are denser over the North Atlantic, inside North
America and Europe and over the North Pacific. Air transport constraints are multidimensional
and include the site (a commercial plane needs about 3,300 meters of runway for landing and
take off), the climate, fog and aerial currents. Air activities are linked to the tertiary and
quaternary sectors, notably finance and tourism, which lean on the long distance mobility of
people. More recently, air transportation has been accommodating growing quantities of high
value freight and is playing a growing role in global logistics.

5. Intermodal transportation

Concerns a variety of modes used in combination so that the respective advantages of each
mode are better exploited. Although intermodal transportation applies for passenger
movements, such as the usage of the different, but interconnected modes of a public transit
system, it is over freight transportation that the most significant impacts have been observed.
Containerization has been a powerful vector of intermodal integration, enabling maritime and
land transportation modes to more effectively interconnect.

6. Telecommunications

Cover a grey area in terms of if they can be considered as a transport mode since unlike true
transportation, telecommunications often do not have a physicality. Yet, they are structured as
networks with a practically unlimited capacity and very low constraints, which may include
the physiography and oceanic masses that may impair the setting of cables. They provide for
the “instantaneous” movement of information (speed of light). Wave transmissions, because of
their limited coverage, often require substations, such as for cellular phone networks. Satellites
are often using a geostationary orbit which is getting crowded. High network costs and low
distribution costs characterize many telecommunication networks, which are linked to the
tertiary and quaternary sectors (stock markets, business to business information networks, etc.).
Telecommunications can provide a substitution for personal movements in some economic
sectors.

Transportation: Function, Cost & Mode of

Transportation
Transport or Transportation is the movement of humans, animals and goods from one
location to another. In other words, the action of transport is defined as a particular movement
of an organism or thing from a point A to a Point B. Modes of transport include air, land (rail
and road), water, cable, pipeline and space. The field can be divided into infrastructure, vehicles
and operations. Transport enables trade between people, which is essential for the development
of civilizations.

Transport infrastructure consists of the fixed installations, including roads, railways, airways,
waterways, canals and pipelines and terminals such as airports, railway stations, bus stations,
warehouses, trucking terminals, refueling depots (including fueling docks and fuel stations)
and seaports. Terminals may be used both for interchange of passengers and cargo and for
maintenance.

Function of Transportation
Transportation Functionality provides 2 major functions which are described below:

1. Product Movement

To move various types of product whether it is raw materials component, semi- finished goods,
finished goods, packaging material, scrap and so on. Transportation has become a very
essential. Infact if human beings are considered as a product. One can be amount of people
transport from one place to another by private and public carriers.

Transportation of a product involves the use of temporal resources. This is because a particular
product is inaccessible while it is in-transit. i.e while it is being transport from one place to
another place. These products are called in-transit inventories. These products are significantly
important because they influence a variety of supply chain decision. For e.g, if supply chain is
a considering a just in time strategy, or say. quick response strategy with regard to supply of
goods to the customer then this influences the time for which the goods should be in transit
because the goods have to reach quickly, or just in time to meet the requirement of the
customer. Further, if goods are dispatched only when a customers requires them. Then such
decision also affects the amount of inventories that have to be stored at the distribution centers.

Transportation of product involves the use of financial resources. Expenses on transport result
from cost of driver, cleaner, casual laborer, taxes, administrative costs, and repairs/
maintenance. In addition, if during transportation there is product loss or product damage, may
be this expenses have also to be taken into consideration.

Transportations of product also use environmental resources. Either directly or indirectly. In

direct terms, transportation uses a very large amount of energy in term of fuel and oil. Though
attempts are being made to make transport vehicles more fuel efficient. But consumption of
fuel and oil is not expected to decrease because of the ever-increasing global operation in
indirect term, transportation create environmental expenses in terms of congestion, air
pollution, and noise pollution.

2. Product storage

Though it is not very common, but one of the functions of transportation is also temporary
storage of goods. Of course, storing goods in vehicles is quite an expensive affair. However, in
case of goods have to be moved once again within Just a few days. It is advisable to keep them
stored in transport vehicles themselves. This will avoid the cost of unloading and loading as
well as the possible damage to goods during such operation.

It may happen that a company has limited storage facility at a particular warehouse. Hence,
when the company loads the goods in to the transport vehicle to be sent to the warehouse. It
may request the transport company to take a longer route to reach the destination. This will act
as temporary storage for the goods.

TRANSPORT COSTS
Transport systems face requirements to increase their capacity and to reduce the costs of
movements. All users (e.g. individuals, corporations, institutions, governments, etc.) have to
negotiate or bid for the transfer of goods, people, information and capital because supplies,
distribution systems, tariffs, salaries, locations, marketing techniques as well as fuel costs are
changing constantly. There are also costs involved in gathering information, negotiating, and
enforcing contracts and transactions, which are often referred as the cost of doing business.
Trade also involves transactions costs that all agents attempt to reduce since transaction costs
account for a growing share of the resources consumed by the economy.

Frequently, corporations and individuals must take decisions about how to route passengers or
freight through the transport system. This choice has been considerably expanded in the context
of the production of lighter and high value consuming goods, such as electronics, and less bulky
production techniques. It is not uncommon for transport costs to account for 10% of the total
cost of a product. This share also roughly applies to personal mobility where households spend
about 10% of their income for transportation, including the automobile which has a complex
cost structure. Thus, the choice of a transportation mode to route people and freight between
origins and destinations becomes important and depends on a number of factors such as the
nature of the goods, the available infrastructures, origins and destinations, technology, and
particularly their respective distances. Jointly, they define transportation costs.

Transport costs come as fixed (infrastructure) and variable (operating) costs, depending on a
variety of conditions related to geography, infrastructure, administrative barriers, energy, and
on how passengers and freight are carried. Three major components, related to transactions,
shipments and the friction of distance, impact on transport costs.

MODE OF TRANSPORTATION

1. Road transportation

Road infrastructures are large consumers of space with the lowest level of physical constraints
among transportation modes. However, physiographical constraints are significant in road
construction with substantial additional costs to overcome features such as rivers or rugged
terrain. While historically road transportation was developed to support non-motorized forms
of transportation (walking, domestication of animals and cycling at the end of the 19th century),
it is motorization that has shaped the most its development since the beginning of the 20th
century.

Road transportation has an average operational flexibility as vehicles can serve several
purposes but are rarely able to move outside roads. Road transport systems have high
maintenance costs, both for the vehicles and infrastructures. They are mainly linked to light
industries where rapid movements of freight in small batches are the norm. Yet, with
containerization, road transportation has become a crucial link in freight distribution.

2. Rail transportation and pipelines

Railways are composed of a traced path on which wheeled vehicles are bound. In light of more
recent technological developments, rail transportation also include monorails and maglev.
They have an average level of physical constrains linked to the types of locomotives and a low
gradient is required, particularly for freight. Heavy industries are traditionally linked with rail
transport systems, although containerization has improved the flexibility of rail transportation
by linking it with road and maritime modes. Rail is by far the land transportation mode offering
the highest capacity with a 23,000 tons fully loaded coal unit train being the heaviest load ever
carried. Gauges, however, vary around the world, often challenging the integration of rail
systems.

Pipeline routes are practically unlimited as they can be laid on land or under water. The longest
gas pipeline links Alberta to Sarnia (Canada), which is 2,911 km in length. The longest oil
pipeline is the Transiberian, extending over 9,344 km from the Russian arctic oilfields in
eastern Siberia to Western Europe. Physical constraints are low and include the landscape and
pergelisol in arctic or subarctic environments. Pipeline construction costs vary according to the
diameter and increase proportionally with the distance and with the viscosity of fluids (from
gas, low viscosity, to oil, high viscosity). The Trans Alaskan pipeline, which is 1,300 km long,
was built under difficult conditions and has to be above ground for most of its path. Pipeline
terminals are very important since they correspond to refineries and harbors.

3. Maritime transportation

Because of the physical properties of water conferring buoyancy and limited friction, maritime
transportation is the most effective mode to move large quantities of cargo over long distances.
Main maritime routes are composed of oceans, coasts, seas, lakes, rivers and channels.
However, due to the location of economic activities maritime circulation takes place on specific
parts of the maritime space, particularly over the North Atlantic and the North Pacific. The
construction of channels, locks and dredging are attempts to facilitate maritime circulation by
reducing discontinuity. Comprehensive inland waterway systems include Western Europe, the
Volga / Don system, St. Lawrence / Great Lakes system, the Mississippi and its tributaries, the
Amazon, the Panama / Paraguay and the interior of China. Maritime transportation has high
terminal costs, since port infrastructures are among the most expensive to build, maintain and
improve. High inventory costs also characterize maritime transportation. More than any other
mode, maritime transportation is linked to heavy industries, such as steel and petrochemical
facilities adjacent to port sites.

4. Air transportation

Air routes are practically unlimited, but they are denser over the North Atlantic, inside North
America and Europe and over the North Pacific. Air transport constraints are multidimensional
and include the site (a commercial plane needs about 3,300 meters of runway for landing and
take off), the climate, fog and aerial currents. Air activities are linked to the tertiary and
quaternary sectors, notably finance and tourism, which lean on the long distance mobility of
people. More recently, air transportation has been accommodating growing quantities of high
value freight and is playing a growing role in global logistics.

5. Intermodal transportation

Concerns a variety of modes used in combination so that the respective advantages of each
mode are better exploited. Although intermodal transportation applies for passenger
movements, such as the usage of the different, but interconnected modes of a public transit
system, it is over freight transportation that the most significant impacts have been observed.
Containerization has been a powerful vector of intermodal integration, enabling maritime and
land transportation modes to more effectively interconnect.

6. Telecommunications

Cover a grey area in terms of if they can be considered as a transport mode since unlike true
transportation, telecommunications often do not have a physicality. Yet, they are structured as
networks with a practically unlimited capacity and very low constraints, which may include
the physiography and oceanic masses that may impair the setting of cables. They provide for
the “instantaneous” movement of information (speed of light). Wave transmissions, because of
their limited coverage, often require substations, such as for cellular phone networks. Satellites
are often using a geostationary orbit which is getting crowded. High network costs and low
distribution costs characterize many telecommunication networks, which are linked to the
tertiary and quaternary sectors (stock markets, business to business information networks, etc.).
Telecommunications can provide a substitution for personal movements in some economic
sectors.

Containerization
Containerization is a system of intermodal freight transport using intermodal containers (also
called shipping containers and ISO containers). The containers have standardized dimensions.
They can be loaded and unloaded, stacked, transported efficiently over long distances, and
transferred from one mode of transport to another—container ships, rail transport flatcars, and
semi-trailer trucks—without being opened. The handling system is completely mechanized so
that all handling is done with cranes and special forklift trucks. All containers are numbered
and tracked using computerized systems.

Containerization originated several centuries ago but was not well developed or widely applied
until after World War II, when it dramatically reduced the costs of transport, supported the
post-war boom in international trade, and was a major element in globalization.
Containerization did away with the manual sorting of most shipments and the need for
warehousing. It displaced many thousands of dock workers who formerly handled break bulk
cargo. Containerization also reduced congestion in ports, significantly shortened shipping time
and reduced losses from damage and theft.

The main advantages of containerization are:

(i) Standardization

Standard transport product that can be handled anywhere in the world (ISO standard) through
specialized modes (ships, trucks, barges and wagons) and equipment. Each container has an
unique identification number and a size type code.

(ii) Flexibility

Can be used to carry a wide variety of goods such as commodities (coal, wheat), manufactured
goods, cars, refrigerated (perishable) goods. There are adapted containers for dry cargo, liquids
(oil and chemical products) and refrigerated cargo. Discarded containers can be recycled and
reused for other purposes.

(iii) Costs

Lower transport costs due to the advantages of standardization. Moving the same amount of
break-bulk freight in a container is about 20 times less expensive than conventional means. The
containers enables economies of scale at modes and terminals that were not possible through
standard break-bulk handling.

(iv) Velocity

Transshipment operations are minimal and rapid and port turnaround times have been reduced
from 3 weeks to about 24 hours. Containerships are faster than regular freighter ships, but this
advantage is undermined by slow steaming.

(v) Warehousing

The container is its own warehouse, protecting the cargo it contains. This implies simpler and
less expensive packaging for containerized cargoes, particularly consumption goods. The
stacking capacity on ships, trains (doublestacking) and on the ground (container yards) is a net
advantage of containers.

(vi) Security and safety

The contents of the container is unknown to carriers since it can only be opened at the origin
(seller/shipper), at customs and at the destination (buyer). This implies reduced spoilage and
losses (theft).

Drawbacks of containerization:
(i) Site Constrains
Containers are a large consumer of terminal space (mostly for storage), implying that many
intermodal terminals have been relocated to the urban periphery. Draft issues at port are
emerging with the introduction of larger containerships, particularly those of the post-panamax
class. A large post-panamax containerships requires a draft of at least 13 meters.

(ii) Capital intensiveness

Container handling infrastructures and equipment (giant cranes, warehousing facilities, inland
road, rail access) are important capital investments that require readily sources. Further, the
push towards automation is increasing the capital intensiveness of intermodal terminals.

(iii) Stacking

Complexity of arrangement of containers, both on the ground and on modes (containerships

and double-stack trains). Restacking difficult to avoid and incurs additional costs and time for
terminal operators. The larger the mode or the yard, the more complex the management.

(iv) Repositioning

Many containers are moved empty (20% of all flows). However, either full or empty, a
container takes the same amount of space. The observed divergence between production and
consumption at the global level requires the repositioning of containerized assets over long
distances (transoceanic).

(v) Theft and Losses

High value goods and a load unit that can forcefully opened or carried away (on truck) implied
a level of cargo vulnerability between a terminal and the final destination. About 1,500
containers are lost at sea each year (fall overboard), but these figures vary substantially
depending on if a specific incident takes place on any given year.

(vi) Illicit Trade

The container is an instrument used in the illicit trade of goods, drugs and weapons, as well as
for illegal immigration (rare). There are concerns about the usage of containers for terrorism
but no documented use has emerged

Cross Docking
Cross-docking is a practice in logistics of unloading materials from an incoming semi-trailer
truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail
cars, with little or no storage in between. This may be done to change the type of conveyance,
to sort material intended for different destinations, or to combine material from different origins
into transport vehicles (or containers) with the same or similar destinations.
Cross-dock operations were pioneered in the US trucking industry in the 1930s, and have been
in continuous use in less-than-truckload operations ever since. The US military began using
cross-docking operations in the 1950s. Wal-Mart began using cross-docking in the retail sector
in the late 1980s.

In the LTL trucking industry, cross-docking is done by moving cargo from one transport
vehicle directly onto another, with minimal or no warehousing. In retail practice, cross-docking
operations may utilize staging areas where inbound materials are sorted, consolidated, and
stored until the outbound shipment is complete and ready to ship.

Advantages of Cross-docking:

 Streamlines the supply chain, from point of origin to point of sale

 Reduces labor costs through less inventory handling
 Reduces inventory holding costs by reducing storage times and potentially
eliminating the need to retain safety stock
 Products reach the distributor, and consequently the customer, faster
 Reduces or eliminates warehousing costs
 May increase available retail sales space
 Less risk of inventory handling

Disadvantages of cross-docking:
  Potential partners may not have the necessary storage capacities
 An adequate transport fleet is needed to operate
 A computerized logistics system is needed
 Additional freight handling can lead to product damage
 Labour costs are also incurred in the moving and shipping of stock

Factors influencing the use of retail cross-docks

 Cross-docking depends on continuous communication between suppliers,

distribution centres, and all points of sale
 Customer and supplier geography, particularly when a single corporate
customer has many multiple branches or using points
 Freight costs for the commodities being transported
 Cost of inventory in transit
 Complexity of loads
 Handling methods
 Logistics software integration between supplier(s), vendor, and shipper
 Tracking of inventory in transit

Cross-dock facility design

Cross-dock facilities are generally designed in an “I” configuration, which is an elongated
rectangle. The goal in using this shape is to maximize the number of inbound and outbound
doors that can be added to the facility while keeping the floor area inside the facility to a
minimum. Bartholdi and Gue (2004) demonstrated that this shape is ideal for facilities with
150 doors or less. For facilities with 150–200 doors, a “T” shape is more cost effective. Finally,
for facilities with 200 or more doors, the cost-minimizing shape is an “X”. Cross docking is a
logistics procedure where products from a supplier or manufacturing plant are distributed
directly to a customer or retail chain with marginal to no handling or storage time. Cross
docking takes place in a distribution docking terminal; usually consisting of trucks and dock
doors on two (inbound and outbound) sides with minimal storage space.