Intro to Logistics

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1. Did it surprise you that logistics can be such an important component in a country’s economic system? Why or why not? Logistics plays a key role in the economy in two significant ways. First, logistics is one of the major expenditures for businesses, thereby affecting and being affected by other economic activities. In the United States, for example, logistics contributed approximately 10.3 percent of GDI in 1996. U.S. industry spent approximately $451 billion on transportation of freight and about $311 billion on warehousing, storage and carrying inventory. These and other logistics expenses added up to about $797 billion. Second, logistics supports the movement and flow of many economic transactions; it is an important activity in facilitating the sale of virtually all goods and services. To understand this role from a systems perspective, consider that if goods do not arrive on time, customers cannot buy them. If goods do not arrive in the proper place, or in the proper condition, no sale can be made. Thus, all economic activity throughout the supply chain will suffer. One of the fundamental ways that logistics adds value is by creating utility. From an economic standpoint, utility represents the value or usefulness that an item or service has in fulfilling a want or need. There are four types of utility: form, possession, Time, and place. The later two, time and place utility, are intimately supported by logistics. And the below information clarifies how logistics industry already affected economics: Industry reports suggest that in the year 2002, revenues earned by the logistics industry equaled USD$910 billion. As much as USD$571 billion was earned as revenue from transportation, USD$ 298 billion was earned from warehousing, USD$41 billion was from services related to logistics industry. Federal Reserve recorded a growth of 4% in the gross domestic product or the GDP in the year 2004, owing to revenues earned by the logistics industry. With the...