Logistics and Business Profitability

By : Rupal Chowdhary

Logistics and Business Profitability

To get success in the modern competitive market three things are very much important. 1. Tangible improvements in cost 2. Quality 3. Service

Logistics accounts for 20-25% of the cost doing business. Some of 20-25% business. the costs which is involved in logistics between two points are: are: 1. Extra inventory at the factory 2. Packing 3. Transport to dock and loading charges 4. Paper work 5. Transportation charges of ocean lines or airlines 6. Waiting to clear customs 7. Customer broker charges and oher paper work 8. Import duty 9. Repackaging if necessary 10. Inspection at the sales outlet

Activity centres of logistics
Transportation ( Inbound/Outbound)  Warehousing  Inventory  Material Management  Unitisation  Communications 

Elements of Logistics
Information Logistics link the customers and suppliers with the enterprise. enterprise. Information from the customers and suppliers flows in the form of sales activity, demand and orders. Paper based information orders. increases operating cost and reduces satisfaction level of the customers. customers. Electronic information reduces logistics expense as well as time and increase coordination by offering better information to the customers. customers. Three distinct elements that make up the system: system: 1. The input 2. The database and its associated manipulation 3. The output 

The input 

After carefully identifying those data items needed for planning and operating the logistics system, the data can be obtained from many sources i.e. customers, company records, published data and management

Database Management 

Converting data to information and managing it is termed as database management. It involves selection of these data to be stored and retrieved, choice of method of analysis and choice of basic data processing procedures to implement.

The output system 

The output may be in the form of performance statistics, status of inventories or order progress, transportation bills of lading and freight bills. bills.

It includes product movement, product storage and integration of international production and distribution operations. Major transporation principles  It involves economies of scale and economies of distance.  Manage the transportation mix

Importance of an effective transportation system
An efficient and inexpensive transportation system contributes the following 1. Greater Competition: With a poorly developed transportation system, the extent of market is limited to the areas immediately surrounding the point of production. 2. Economies of scale: Inexpensive transportation permits decoupling of markets and production sites. It lowers production cost and more intense utilization can be made of production facilities. 3. Reduced prices: Inexpensive transportation contributes to reduced product prices.

Service choice and their characteristics 

From among different modes of transport services available, the user selects a service or combination of services that provides the balance between the quality of service offered and the cost of that service. service.

Choice of the mode 

The choice is made on the basis of the following factors

Speed: Speedy transport is a necessity for the perishable products but it is significant for other products because of its effect on inventory. Speedy transport services have following advantages:  Speed tends to lessen the loss due to spoilage and theft.  Minimum inventory to be maintained  Rapid delivery shortens the period for demand forecast.  Rapid filling of customer orders. Cost: Rapid transportation results in a very high cost but it is offset by savings in packing needed to maintain ocean freight. Dependability: The buyer who can depend on delivery schedules can easily plan production schedules.

Services: Each transportation mode has developed a variety of service options to attract customers.
Arrangement for pick up and delivery.  Permit diversion of freight to a second market. Market location 

Some of the important attention areas while considering mode of transport 

Period of credit availed of. Value of goods in transit Insurance cost percentage Warehousing cost percentage Duty payable Economic order quantity Reorder point Stock out cost Packing cost Transport cost Average transit time

Air transportation   

Firms typically utilize scheduled or nonscheduled air cargo movements when justifies the high cost. Perishable products have the greatest potential for regular movements When the market period for a product is extremely such as high fashion clothing or fresh fruits. The fixed cost of air transport is low compared to rail, water and pipeline. However air freight variable cost is extremely high as a result of fuel, maintenance and the labour intensity .

Advantages of using air cargo 

Brings new markets within reach. Packing cost for air transport are relatively lesser than ocean transport. Helps in saving distribution costs. The minimization of distribution cost is linked with quicker delivery which in turn decreases cost of financing and stock holding. Air transport also spreads seasonal demand.   

Air transport extends the use of mobile production facility. The locking of funds in the inventory in the in transit is minimized and inventory turnover is fast.( extensive warehouse, reduces risk of stock piling, and thereby deterioration of the products. Delivers perishable products in the prime condition. Simplified documentation system is used   


Effective distribution systems should not be designed to hold inventory for an excessive length of time.However, time. inventory storage is justified at times. times.

Sign up to vote on this title
UsefulNot useful