Transportation and Distribution

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Transportation And Distribution
Transportation is a key logistics function. Efficient and effective management of transportation at each stage of the supply chain is crucial for both cost management and service level guarantees. We have already looked at the incidence of transportation costs on overall supply chain performance in chapter 3 when we discussed the design aspects of logistics networks. Cost remains one of the key concerns regarding transportation management. The 12th Annual State Of Logistics Report ( USA ) provides a figure of total business logistics costs of US$1.006 billion or 10.1 percent of nominal US GDP. Transportation costs alone were 5.9% of GDP (Wilson & Delaney,2001). At the level of the firm, transportation costs are considered to be between 6 to 12% of final revenues (Purchasing 2001). Apart from the aspect of costs, transportation and distribution management affects the order fulfilment cycle time and is one of the main determinants of the service level and costs associated with the supply chain. The following figure shows the well known concepts of inbound logistics, processing or manufacturing and outbound logistics. The management of the supply chain requires a coordinated approach to manage all activities to provide the greatest value to the customer.

Figure Flow of product along the supply chain
Supply chain management is concerned with both inbound logistics and outbound logistics In general terms, we can refer to outbound logistics as management of distribution and it covers both transportation and warehousing decisions. ransport Modes

Transportation is the physical activity which provides the time and place utility of a product. We are familiar with the various transport modes and how each differ from the other in terms of service and cost characteristics. Without repeating what we have already learned in transport systems and logistics, we only recall that any or a combination of several modes of transport can be used for inbound transportation and distribution of the product. Chopra and Menidl (2001) provide the following list of different transport modes: * air

* package carrier
* truck
* rail
* water
* pipeline
* inter-modal
In most cases, trucking or road freight provide the most flexible means of distribution of finished products to retail locations, which are usually close to urban demand centres. The supply chain, however, would utilise several of these modes to effect the transportation function at various stages of the supply chain. Traditionally, sea or water transport have been the backbone of international trade and sea transport remains the major mode of transport for both inbound and outbound goods when the supply chain extends spatially overseas. In recent years there has been a tremendous growth in air freight and products with short shelf lives and high value are increasingly moving by air. One supply chain which is very much dependent on time definite air freight services is the high tech industry. The rationale of using a quick and reliable, time definite service as opposed to a long sea voyage should be readily apparent to you when you consider the focus of modern supply chain management. Inbound Transportation

Inbound transportation decisions are often neglected in supply chain management literature. There could be several reasons for this. The principal reason appears to be connected with the nature of the product usually related with inbound transportation. These are usually raw materials and components with very little unit value compared to the final finished product. The total incidence of inbound cost on the final revenue is usually lower than that of outbound freight. A KMPG survey on consumer markets reveals inbound costs to be less than 5 percent for 66 percent of respondents with 35 percent reporting a cost of less than 1 percent. This including international sourcing (KMPG 2002). The same report says that outbound...
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