Transportation expenditure
Introduction
In logistical operations, transportation expenditure consumes the largest single portion of the
budget. Before the deregulation, transportation services were uncompetitive due to their
inflexibility nature however currently they have been integrated to the overall supply chain
setups and logistics operations systems.
The distance, volume, liability, density, stowability, handling and other market factors make up
the transportation costs which determine the prices that buyers are subject to. It’s the duty of the
logistics managers to be aware with all the structures of the transportation costs drivers as the
basic rate facilitator. Traffic administrators are responsible for all operational management which
includes consolidation, auditing, control, negotiation and the administration of claims. The use of
Transportation Management System facilitates the operations of the logistics manager.
Customer satisfaction is paramount to the second level of the company commitments. To be
competitive a company must be able to balance its capabilities in providing reliable service to its
customers. This entails timely orders and convenience of basic services. Managing customer
expectations through effective communication and responsiveness to customer queries. Failure to
satisfy customers mostly stem from lack of information and knowledge of customer
expectations, poor communication or compromised product standards. The expectations of the
customers must be monitored and addressed effectively. A customer relationship strategy must
be developed and implemented to help in creating good customer relationships.
Summary 2
Warehousing enhances the efficiency of the marketing, manufacturing and the distribution
systems efficiencies. The primary functions of warehousing have evolved from stock inventory
to more economic benefits such as consolidation, break-bulk, seasonal storage, sorting, reverse
logistics among other services of spot –stocking, value added services and full-line stocking.
Distribution centers together with warehouses handle such tasks as inbound shipment and storage
handling in different areas of storage such as bulk, long-term, picking, packing and staging the
shipments to different customers. Other services offered include balancing the speculation on
demand and supply of extended storage activities.
The classification of warehouses is based on ownership. A public warehouse operates
independently and offers a variety of value added services for hire while a private warehouse is
operated by a company and the company owns the merchandise and also the warehouse. A
contract warehouse offers long term tailored services to a limited group of customers while an
integrated warehouse incorporates several ownership options. During planning and initiation
process, several managerial decisions like site selection, product mix, design, handling and
expansion layouts, security, safety, warehouse management systems and maintenance features
are considered. All these systems ensure smooth operations of the warehouse management and
operations systems that are necessary for efficient operations and handling procedures for
standard warehouses.
Inventory forms the second largest component of costs from the costs associated with
transportation. As the products move along the supply chain and closer to the customer the more
risks of increased costs associated with wrong delivery in the distribution chain generally
increases. Other risks associated with stock outs in lost sale revenues due to lack of stock and
Summary 3
other risks such as obsolescence, damage, pilferage generally increases. The cost of
transportation and inventory ties in a lot of capital in business operations of the customers.
Balancing demand and supply, decoupling, geographical specialization and buffering uncertainty
makes it prudent to maintain a good inventory system. A good inventory system will minimize
overall supply chain costs and with associated trade- offs.
Lead time management, safety stock and in-transit stock management are the major inventory
elements from a logistics perspective in supply chain management. The use of EOQ formula
when determining the tradeoff between the storage costs and the ordering costs should be
analyzed and appropriate decisions made. The safety stock depends on the lead time and the
planning logistics. Reactive logistics is suitable with low volume, high performance and high
demand cycle of uncertainty as it generally postpones the inventory speculation risks. High
volume items that have stable demand need inventory planning logistics that offer effective
inventory management as they thrive in environment with improved information and which take
advantages of the economies of scale factors. Adaptive logistics utilizes the two alternatives but
it depends on the product and the market conditions. Collaboration offers all the parties in the
supply chain management to gain more efficiency and effectiveness in inventory management
systems.
The need to develop a relationship with a customer whether they are intermediate, internal or end
users is fundamental to a functional logistics system. Marketing concepts emphasizes the
foundation for customer commitments with the customer needs as a fundamental focus on the
products and services as the primary requirements in the contexts of the customer. It’s part of the
marketing concept to develop relationships with the customers than to generally perfect
individual preferences.
Summary 4
Logistics links the participants of the supply chain to the integrated operations. Logistics
operation is a major expenditure in most businesses and also in the supply chain management.
Logistics is rated in terms of its availability, reliability and its operational performance. It
provides basic customer service at the lowest costs and also maintains the relationship with the
customers while exacting the cost implications as its logistic value proposition. Logistics has a
functional role in establishing networks, formulating and sharing information, while arranging
transportation and deploying inventory. Handling warehousing needs, materials, packaging and
performing other complex is part of logistical operations. It also handles detailed operations such
as analyzing the impact of one work area to the others while also supporting the overall logistical
competency.
The development of the integrated management concept is the key to the improvement of the
productivity processes. It focuses on quality improvement at all levels and creates value between
and within individual companies and linking them to the integrated supply chain. (Calantoine,
2011)
The primary logistics operations are customer relationship management, procurement and
manufacturing support. The information flows from these areas are managed by the logistics
department that integrates all the information and coordinates all the critical activities. The
synchronization of the supply chain and the operation focus forms part of the logistics
performance cycle. It’s also part of the primary analysis unit in logistical design operations.
It links the nodes, levels and the allocation of essential assets like manufacturing support,
procurement and customer basic requirements. There are similarities and differences in
performance cycles and understanding them is the key to proper planning and controlling of the
Summary 5
entire supply chain integration. Logistics operations are well operated under the backdrop and
dynamics of the performance cycles.
The primary goal of logistics operations is to achieve consistent service at minimum possible
costs. The major challenge is basically to develop a supply chain that is efficient and effective in
handling logistical operations consistently. Delays or faster delivery times can cause unnecessary
expenses to performance cycles. Late or early deliveries are not desirable or even acceptable in
effective performance cycles. Foundations of logistical disciplines add value to the supply chain.
Supply chain is one of the strategies that integrate all the requirements that are necessary to
satisfy the customers while the logistical process manages the inventory process through the
supply chain.
Summary 6
References
Calantoine, R. J. (2011) Estimation of Global Logistics Expenditure Using Neutral Networks:
Unpublished research, Michigan State University, and global.msu.edu.
