Logistics & Transportation

Logistics is necessary to move goods from suppliers to buyers, move material, move finished
good and storage.
Utilities can be of two types: time and place.
Logistic is a broader term than transportation. Transportation refers to movement of product
from one location to another while logistics refers to the whole flow management which includes
not only transportation but also storage, handling, inventory and packaging.
Objective of transportation is to maximize value to form through negotiation and satisfy
customer needs with quality service.
Objective of logistics is deciding which forms of transportation, material handlings and storage
and routing to use.
Transportation Forms:
1. Common Carriers – Public Carriers: Offers transportation services at published rates,
legally bound to carry if enough space.
2. Contract Carriers – Not bound to serve general public, serve specific customers, free to
negotiate contracts for price.
3. Exempt Carriers – Exempt from regulations of services and taxes if they transport
certain exempt products like agricultural produce, e.g school buses, taxis.
4. Private Carrier – Private ownership, no economic regulation, large fleet to serve
company.
Modes of Transportation:
1. Motor/Road: Most flexible mode, short-medium hauls, low fixed and variable costs,
disadvantages include weather and traffic
Less Than Truckload (LTL) & TruckLoad (TL) Carriers: LTL move small shipments.
General freight carriers carry normal goods while specialized carriers transport liquid
petroleum, building material etc.
2. Rail: When long distance and heavy shipment, slow and inflexible, less expensive than
air and motor carriers, RTLS (real time location systems) to track rail cars in real time,
problems include railroad infrastructure.
3. Air: Small shipments, high value goods over long distances.
4. Water: Cheap, slow and inflexible, used for heavy bulky low value materials eg coal.
5. Pipeline: Little maintenance once running, materials in liquid or gaseous state
Intermodal transportation revolves around combinations of various transportation modes.
1. Truck Trailer On Flatcar: Trailers/containers on rail, also known as piggyback service.
2. Roll On Roll Off Containerships: Containers on trucks.
Wet bulk cargo refers to oil while dry bulk cargo refers to coal,grain.
1PL refers to first party logistics, usually the shipper or consignee, stands for both cargo sender
and receiver.
2PL refers to second party logistics, usually the one who owns means of transportation and
leases to other businesses.
3PL refers to third party logistics, provides multiple logistics services like transportation,
warehouse, inventory management etc.
4PL refers to fourth party logistics, independent integrators who assembles resources including
3PLs to design, build and run supply chain solutions.

Transportation Pricing

1. Cost of Service: Prices established based on fixed and variable costs of transportation,
varies based on volume and distance. As shipping volume increases, fixed cost
decreases.
2. Value of Service: Carriers price services at highest levels of market, profit maximizing
approach, prices based on level of competition and current volume of demand.
3. Shippers want cost of service pricing while carriers want value of service. Negotiated
pricing is done to reach a reasonable level allowing carriers to make a reasonable profit
and shippers to get logistics services at reasonable price.
FOB pricing or free on board pricing is where seller quotes a price including the cost of
delivering goods to the nearest port. In FOB Destination, supplier is legal owner of product while
in FOB Shipping Point, buyer is legal owner of products.
For high value goods, FOB destination is typically preferred.
Rate Categories:
1. Class rates are published by national transportation authority, based on value of freight.
2. Exception rates are rates that are lower than class rates for specific locations or high
volumes.
3. Commodity rates apply to minimum quantities of products shipped between two location.
4. Miscellaneous rates apply to contract rates that are negotiated between parties.
Regulations tends to assure adequate services throughout country while protecting consumers
for monopoly pricing etc.
Deregulation encourages competitions and allows prices to adjust due to demand and
negotiation.
Warehousing & Distribution

Warehousing allows firms to store goods and perform quality checks and assessment, provides
faster and more frequent deliveries.
Cross docking refers to receiving shipments, breaking them down, repackaging orders and then
distribution to retail centers. In this case, warehouse is referred to as distribution center.
Firms order raw materials to hold inventories and transfer when there is need.
Consolidation warehouses pull together small shipments from number of suppliers in an area,
then transported to manufacturing facility.

Private
Warehouse owned by firms.
Firms decide what to store, types of
equipment.
Better utilization of workforce and expertise.
Generate income through leasing
Significant financial risk, cost to build and
operate is high.
Public
Organization lease services to companies.
Provide specialized services like break bulk,
repackaging, assembly, quality inspection
Better security.
Less cost incurred.

Risk pooling describes relationship between number of warehouses, system inventories and
customer service. Demand variance is reduced if one can aggregate demand into one place.
Square Root Rule can tell total inventory in future facilities based on number of warehouses that
exist now and that will exist in future:

In centralized warehousing:

• Safety stocks average levels are decreased.

• Responsiveness decreases as delivery times increase reducing ability of organized to meet
changes in demand.
• Customer services levels provided by warehouse suppliers also likely increases reducing
stock outs.
• Outbound transportation costs increase as shipments must travel farther, inbound costs
decrease since suppliers ship to fewer locations.
• Warehouse capital and operating costs decrease because fewer warehouses, fewer
employees, less maintenance costs.
According to Father of Location Theory, transportation costs alone should be minimized when
considering warehouse locations. Weber proposed optimum location would be found when sum
of inbound and outbound transportation was minimized.
Market positioned strategy locates warehouse close to customers to maximize customer service
levels, product positioned locates warehouses closes to sources of supply to minimize inbound
costs (good for many sources of supply), intermediate positioned strategy places warehouses
midway between sources of supply and customers.
Lean Warehousing:

• Crossdocking
• Reduce lot sizes and shipping quantities
• Meet customer and service quality
• Increased automation
• Increased assembly operations