Logistics and Transportation (Encyclopedia of Management)
According to the Council of Supply Chain Management Professionals (CSCMP), logistics management can be defined as, "that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements."
The history of logistics is rooted in its military application. Since WWII it has developed into an important function of business as it became evident that logistics and transportation add place and time value to products and enhance the form and possession value added by manufacturing and marketing.
The concept of logistics as a business discipline began to appear in the business-related literature in the 1960s when it was called physical distribution. At that time its focus was on the outbound side of the logistics system. With the emerging importance of Supply Chain Management, logistics and transportation has become even more crucial as supply chain managers realize that the coordination and integration of the logistics systems of all organizations with the supply chain are requirements for success.
According to Coyle, Bardi and Langley there are four subdivisions of logistics:
- Business logisticshis is the same as the definition from the CSCMP and approach we are adopting in our discussion.
- Military logisticsll that is necessary to support the operational capability of military forces and their equipment in order to ensure readiness, reliability, and efficiency.
- Event logisticsanagement of all involved (activities, facilities, and personnel) in organizing, scheduling, and deploying the resources necessary to ensure the occurrence of an event and efficient withdrawal afterwards.
- Service logisticscquisition, scheduling, and management of facilities, personnel, and materials need to support and sustain a service operation.
Within the context of this essay we will be addressing the concept of business logistics. Business logistics systems can be classified into four categories:
Balanced System. Firms with a balanced system have reasonably balanced inbound and outbound flows.
Heavy inbound. These firms have a very heavy inbound flow but a very simple outbound flow. Firms with heavy inbound flow typically do not warehouse their finished goods, for example, aircraft manufacturers.
Heavy outbound. These firms have a complex outbound flow and a very simple inbound flow. Their inbound flow is usually raw material from a relatively short distance. Typically their outbound shipments are a wide variety of packaged finished goods requiring storage and transportation to the final consumer.
Reverse system. Reverse supply chain logistics systems have reverse flows on the outbound side of their system. Durable products are returned for credit, trade-in, repair, salvage or disposal or the firm utilized returnable or reusable containers.
Coyle, Bardi and Langley list a number of activities that lie within the realm of logistics:
- Order fulfillmentctivities involved with completing customer orders. Obviously, transportation and logistics would be an integral part of completing the orders since they directly impact delivery.
- Traffic and transportationhe physical movement of goods.
- Warehousing and storage number of ware-housing decisions directly impact logistics and transportation. For example, how many warehouses are needed, where should they be located, how large should they be, how much inventory should be held in each?
- Plant and warehouse site locationocation can alter time and place relationships between the warehouse and the customer. Frequently transportation cost is a major factor in plant and warehouse location.
- Materials handlinghe placement of goods and the movement of goods within a ware-house, factory or other facility. This includes incoming movement of goods and the movement of goods from storage to order-picking areas to dock areas for shipment.
- Industrial packagingransportation directly impacts the type packaging needed. Fast methods of transport, such as air, generally require little in the way of packaging while the slower modes, such as water or rail, require substantial packaging expenditures to ensure safe shipment.
- Purchasinguantities purchased directly affect transportation costs. Also, transportation relates directly to the distance or location of goods purchased by the firm. Purchasing and logistics are increasingly integrated in many major firms.
- Demand forecastingccurate and reliable forecasting is essential for effective inventory control purposes, especially within firms utilizing lean manufacturing and JIT.
- Inventory controlhis is directly related to transportation and warehousing. If transportation is slow higher levels of inventory are needed, ergo, more warehouse capacity is needed.
- Production planningroduction planning must operate in close coordination with logistics in order to ensure adequate market coverage. Production planning and logistics are increasingly integrated within large corporations.
- Parts and service supporthe effectiveness of parts and service support depend upon speed of transportation, location of warehouses, and forecasting of support function needs. Obviously, parts and service support have a direct impact on customer service levels.
- Return goods handlingeverse supply chain logistics is an increasingly important but frequently overlooked dimension in logistics.
- Salvage and scrap disposalisposal is an integral part of the reverse supply chain. There is an increasing interest, in the logistics literature, in the impact of the location of evaluation and disposal facilities for returned goods.
- Customer service levelsogistics plays an extremely important role in ensuring that customers get the right products at the right place at the right time. Transportation, warehousing, forecasting, inventory control, and production planning all have a direct impact on customer satisfaction.
The two most obvious aspects of logistics are warehousing and transportation.
WAREHOUSING AND STORAGE.
Warehousing is defined as the storage of goods: raw materials, semi-finished goods, or finished goods. This includes a wide spectrum of facilities and locations that provide warehousing. Since this is a point in the logistics system where goods are held for varying amounts of time, the flow is interrupted or stopped, thereby creating additional costs to the product.
In a macroeconomic sense, warehousing creates time utility for raw materials, industrial goods and finished products. It also increases the utility of goods by broadening their time availability to prospective customers.
Transportation involves the physical movement or flow of goods. The transportation system is the physical link that connects customers, raw material suppliers, plants, warehouses and channel members. These are the fixed points in a logistics supply chain.
The basic modes of transportation are water, rail, motor carrier, air and pipeline. Water being the slowest mode with rail, motor carrier, and air following in order of speed of delivery. Generally, the order is reversed when looking at costs.
Selection of the appropriate carrier has several steps. First the firm selects a transportation mode. The shipper must compare the service desired with the rate or cost of service. Service usually means transit time or the time that elapses from the time the consignor makes the goods available for dispatch until the carrier delivers to the consignee. Pickup and delivery, terminal handling and movement between origin and destination account for the time involved in transporting goods.
The firm must balance the "need for speed" with the costs inherent in the mode of transport. This includes the rate charged for the service, minimum weight requirements, loading and unloading facilities, packaging, possible damage in transit, and any special services that may be desired or required. If next day delivery is imperative, the shipper will utilize an air freight carrier but will pay a premium price for such rapid service. If time is not a particularly critical element the shipper may elect to use rail or a motor carrier, or may even utilize a water carrier if time is inconsequential. Water-based modes of transportation are the least expensive and are used for commodity type products such as grain, coal, and ore. Some firms even utilize more than one mode of transportation, called intermodal transport, to move their goods.
Once a mode is selected, the shipper must decide the legal classification or type of carrier they wish to utilize: common, regulated, contract, exempt or private.
Common carriers serve the general public at reasonable prices and without discrimination. They cannot refuse to carry a particular commodity or refuse to serve a particular point with the scope of the carrier's operation. Common carriers are liable for all goods lost, damaged, or delayed unless caused by an act of God, an act of a public enemy, an act of public authority, an act of the shipper, or some defect within the good itself.
Regulated carriers are required to provide safe and adequate service and facilities upon reasonable request and are liable for damage up to limits established by the carrier. Regulated carriers can be motor carriers or water carriers and are subject to minimal federal controls.
A contract carrier does not serve the general public, but, rather serves one or a limited number of contracted customers. They have no legal service obligation. They often provide a specialized service and usually have lower rates than common or regulated carriers.
Exempt carriers are exempt from regulation regarding rates and services. Exempt status comes from the type commodity hauled or the nature of the carrier's operation. Exempt motor carriers are usually local and typically transport such items as agricultural goods, newspapers, livestock, and fish. Exempt water carriers transport bulk commodities such as coal, ore, grain, and liquid. Exempt rail carriers transport piggy-back shipments and exempt air carriers haul cargo.
A firm's own transportation is termed a private carrier. Private carriers are not "for-hire" and not subject to the same federal regulations as other types of transport. However, the carrier's primary business must be something other than transportation.
Once the mode and type of carrier is determined a final decision can be made based on other factors. Accessibility is one such factor. Some firms have geographic limits to their routing network. Others may not possess physical access to needed facilities or have the ability to provide the equipment and facilities that movement of a particular commodity may require. Reliability, the consistency of the transit time a carrier provides, is also a key factor. Finally, convenience and communication are other important considerations when selecting a carrier.
Measures that a transportation firm would use to judge its performance include: orders shipped on time, orders shipped complete, order preparation time, product availability, and transit time. From the customer perspective performance can be gauged from orders received on time, orders received complete, orders received damage free, orders filled accurately, and orders billed accurately.
The expansion of the global marketplace puts the concept of global logistics into the limelight. Logistics experts must now manage all of the aforementioned logistics activities within a world-wide arena spanning a multitude of countries, languages, cultures, governments, and regulations. Along with this expansion of the marketplace comes the need for global channel intermediaries. Today's global logistics manager would be familiar with the role of each of the following:
- Foreign freight forwardersandlers of a myriad of foreign freight services: rate quotes, vessel chartering, booking of vessel space, handling of documentation and cargo insurance, tracing and expediting, arranging inland transportation and providing translation services.
- Export management companiesuppliers of expertise to those wishing to sell products overseas but lacking the necessary resources.
- Export trading companiesocaters of overseas buyers. They also handle export documentation, transportation and the meeting of foreign government requirements.
- Customs house brokersverseers of the movement of goods through customs. They also ensure that accompanying documents are complete and accurate.
- Ship brokersales representatives for ship owners and purchasing representatives for the shipper.
- Ship agentsocal representative of the ship operator that handles the ship's arrival, berthing, clearance, loading and unloading.
- Export packersuppliers of export packaging services.
- Port authoritieswner and operator of the port. They provide wharf, dock, and other terminal facilities at port locations.
Coyle, John J., Edward J. Bardi, and C. John Langley, Jr. The Management of Business Logistics: A Supply Chain Perspective. Mason, OH: South-Western Thomson Learning, 2003.