PU/FBA/Logistics & Supply Chain Management Transportation & Distribution Mgt.

, 2022

DEFINITION AND OVERVIEW OF TRANSPORTATION

1.0 CHAPTER HIGHLIGHTS

 Introduction
 Transportation Defined
 Terminologies
 The Role of Transportation in an Organization/Economy

1.1 INTRODUCTION
Efficient transportation systems are the hall mark of industrialized societies. The
transportation sector of most industrialized economies is so pervasive that we often fail to
comprehend the magnitude of its impact on our way ` life. In 1996, U.S. transportation
expenditures were approximately $455 billion of the nation’s total logistics costs, which
were estimated to be $797 billion.

Transportation mainly plays a major role in both inbound and outbound logistics. In
inbound logistics, transportation functions to ensure the availability of raw materials and
component parts (physical supply) for the purpose of production. The ability of
transportation in providing both place and time utility can result into serious implications
for the organization’s production effort.

Every business firm, regardless of what it produces or distributes, requires the movement
of goods from one point to another and, therefore, is involved in transportation.
Transportation essentially concerns the spatial dimension of the business firm. "The
spatial dimension refers to geographical relationships and reflects the juxtaposition of
firms with respect to their materials sources, markets, and competitors, plus the spatial
relations of the latter to their sources and markets". The purpose or function of
transportation is to serve as a connecting link between the spatially separated units within
a firm's own organization (such as between plants and warehouses) and between units of
the firm and units of other firms and individuals (such as suppliers and customers). Good
transportation has the effect of holding to a minimum the time and cost involved in the
spatial relationships of the firm.

It is imperative that we understand that the modern logistics structure rests on efficient
motor carrier transportation. Techniques such as JIT and Efficient Consumer Response
(ECR) would not be possible without the highly developed trucking industry.

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1.2 TRANSPORTATION DEFINED

In simple terms, Transportation implies the physical movement of products from where
they are produced to where they are needed. Other definitions also include, but not
limited to the following:

1. Transport or transportation is the movement of people and goods from one

location to another. Transport is performed by modes, such as air, rail, road, water
and pipeline. The field can be divided into infrastructure, vehicles, and operations.
2. Any means of conveying goods and people.

1.3 TERMINOLOGIES

1. Transport
 conveyance: something that serves as a means of transportation
 move something or somebody around; usually over long distances
2. Traffic - The aggregation of vehicles coming and going in a particular locality
during a specified period of time
3. Freight
 Any product being transported.
 Goods or cargo carried on a train, airplane, truck, or ship.
 Merchandise hauled by transportation lines.
 The amount payable for the carriage of goods.
4. Haul
 A long drive, especially transporting/hauling heavy cargo; To carry something;
to transport something, with a connotation that the item is heavy or otherwise
difficult to move; To pull or draw something heavy; To steer a vessel closer to
the wind; To shift fore (more towards the bow)
 the activity of transporting goods by truck
5. Shippers
 The person or organization that ships (sends) something
 Organization responsible for the packaging and shipping of a commodity.
 Any person or organisation paying for its cargo to be shipped from one place to
another.
 The sender of a freight shipment, usually the supplier, contractor, seller or
seller's agent.

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6. Routing - the process of selecting paths in a network along which to send network
traffic.
7. Scheduling - Setting an order and time for planned transportation
8. Utility - The ability of a commodity to satisfy needs or wants; the satisfaction
experienced by the consumer of that commodity/service (transportation).
9. Carrier
 a self-propelled wheeled vehicle designed specifically to carry something;
 a person or firm in the business of transporting people or goods
10. Forwarder
 An intermediary between carrier and owner of goods being transported, who
arranges for their carriage and provides incidental services to facilitate the
transport.
 Consultant in logistics and international traffic. The forwarding agent assists
the exporter in finding the most economic and efficient methods of transporting
and storing cargo.
 The party arranging the carriage of goods including connected services and/or
associated formalities on behalf of a shipper or consignee.

11. LTL - a small shipment that does not qualify for full truckload (FTL) rates based
on weight or volume, and normally has a longer delivery time due to consolidation
with other LTL (Less-than-truckload) shipments.
 The same as Less than Container Load, but in reference to trucks instead of
containers.

1.4 THE ROLE OF TRANSPORTATION

Transportation plays a connective role among the several steps that result in the
conversion of resources into useful goods in the name of the ultimate consumer. It is the
planning of all these functions and sub-functions into a system of goods movement in
order to minimize cost that maximize service to the customers that constitutes the concept
of business logistics. The system, once put in place, must be effectively managed.
Traditionally these steps involved separate companies for production, storage,
transportation, wholesaling, and retail sale, however basically, production/manufacturing
plants, warehousing services, merchandising establishments are all about doing
transportation. Production or manufacturing plants required the assembly of materials,
components, and supplies, with or without storage, processing and material handling
within the plant and plant inventory.

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1.4.1 Creating place and time utility

In economic theory terms, transportation's function is to create place utility for the goods
produced or distributed by the firm. The word "utility" means usefulness or ability to give
satisfaction. Place utility exists when goods are in the place where they can be consumed.
Goods that are not in the place where they are needed have less than full value and so
transportation creates value by creating place utility. Along with the necessity to have
goods in the right place, the goods must be there at the right time (time utility) and in the
right form. If a product is not available at the precise time it is needed, there may be
expensive repercussions, such as:
1. Lost sales resulting into lost profit
2. Customer dissatisfaction that may result into losing the customer. The most
serious implication can be the potency in losing future customers as a resulting of
customer complaints. These are of course, very difficult to calculate.
3. Production downtime, when the product is being used in the manufacturing
process.

1.4.2 Transportation affects major decisions in an organization

1. Market Decisions: Because transportation creates time and place utility, both
of which are necessary for economic exchanges to take place, its availability,
adequacy, and cost have an effect on several kinds of decisions made by a
business firm in addition to decisions related to managing the transportation
function itself. Customer delivery requirements often require the timeliness
which can only be achieved by the use of trucks.

2. Product Decisions: For those firms that deal in tangible products, one such
decision is the product decision, or the decision as to what product or products
to produce or to distribute. The transportability of a product in terms of its
physical attributes and the cost, availability, and adequacy of transportation
enters into any product decision.

3. Purchasing Decisions: What to purchase and where to purchase are also

affected by transportation considerations, regardless of whether the firm is a
manufacturer, wholesaler, retailer or service organization. The goods involved
may be component parts, raw materials, supplies, or finished goods for resale.

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The transportation characteristics of the goods, the availability, adequacy and

cost of transportation have a bearing on the "what and where" decision.

4. Location Decisions: Although decisions relative to where plants, warehouses,

offices, stores, and other business facilities should be located are influenced by
many factors, transportation availability, adequacy, and cost are extremely
important in such decision making. The core business of the firm will dictate
the mode of transportation services required. Proximity to highway services is a
key factor in the location decision for new manufacturing facilities. The
significance of the transportation factor varies widely from industry to industry,
but transportation requirements always need to be considered in location
decisions.

5. Pricing Decisions: Since transportation is a critical cost factor in business

operations, it can have a bearing on the pricing decisions made by business
firms, especially those firms that have a cost-oriented pricing policy. This does
not mean that in any individual firm there is an automatic cause-and-effect
relationship between transportation cost changes and the firm's prices, but
transportation cost is one of the factors that usually should be considered in
pricing decisions.

1.4.3 Transportation's Place in the Economy

1. Geographic specialization: There are many ways to categorize and describe the
economic importance of transportation. For society or the economy as a whole,
transportation makes possible geographic specialization or territorial division of
labor. Geographic specialization takes place when a nation or region or state or
city produces those products and services for which it is best suited in terms of
its capital, labor, raw materials and other resources and talents. If such
geographic specialization does not occur, then a nation, region, state, or city will
be forced to devote some of its resources and energies to the production of goods
and/or services for which it is not well suited thus resulting in economic
inefficiency and a lower standard of living for all concerned.

Transportation's role is critical but so accepted that it may be taken for granted.
Consider a simple example, where area A specializes in producing maize then
area A must rely on shipments from other areas for the things other than maize
that its population wants or needs. Area A must also depend on other areas to
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import the surplus of maize that A will produce. If, however, there is no
adequate transportation between A and the areas it wishes to trade with, or if
the transportation charges are so high as to make the price for the various
products involved too high, then trade between A and the other areas will not
take place and geographic specialization by A will be impossible.

2. Large-Scale Production: The role of transportation in large-scale production is

similar to that discussed in connection with geographic specialization in that the
availability of an adequate transportation system is a requirement to sustain
large-scale production. The benefits of large-scale production in terms of
economies of scale, production efficiencies and lower prices are well-known.
But large-scale production by a firm requires that raw materials, parts, and
supplies be collected from a variety of sources and a large geographic market for
the product(s) produced and be accessible at reasonable cost.

3. Land Values: Improvements in the transportation network are usually credited

with having a positive effect on the value of the land that is adjacent to or served
by the improvements. The principal factor is one of accessibility. If land is
suddenly accessible to a new transportation facility, an airport for example, the
value of the land will ordinarily increase because the land has been given greater
access to economic markets and hence is more useful. The same can be said if
land that is already served by some form of transportation, and transportation
access is improved, for example, when a new interstate highway interchange
supplements a conventional two-lane highway, accessibility of the land has been
increased and the time, effort, and, perhaps, the cost involved in getting to and
from the land have been reduced. This greater accessibility should result in an
increase in the value of the land.

4. Competition among Sellers: Transportation facilitates geographic

specialization, large-scale production and land accessibility by providing time
and place utility thereby permitting diversely located sellers of the same product
to compete in a given geographic market. Because goods can be transported
anywhere in the country, transportation availability tends to prevent captive
markets and local monopolies. The net effect is to keep prices lower than they
would be if access to markets were restricted due to the unavailability of
transportation services.

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