UNIT 2

Evolution of Logistics
The evolution of logistics in the 1990s can be traced back to ―physical distribution management‖ in the
1970s when there was no coordination among the various functions of an organization, and each was
committed to attain its own goal. This myopic approach then transformed into ―integrated logistics
management‖ in the 1980s that called for the integration of various functions to achieve a system-wide
objective. Supply Chain Management (SCM) further widens this scope by including the suppliers and
customers into the organizational fold, and coordinating the flow of materials and information from the
procurement of raw materials to the consumption of finished goods.
Logistics involves getting, in the right way, the right product, in the right quantity and right quality, in the
right place at the right time, for the right customer at the right cost. The logistic network consists of the
suppliers, the retailer and the users. The purpose of an integrated logistic network in a supply chain is to
fulfill customer orders through providing place utility to deliver products and services to end users. The
place utility is achieved by managing a number of key functions of a supply chain. The functions include:
 Demand management
 Inventory management
 Transportation
 Warehousing
 Order processing
 Information Management
Logistics is a key enabler of supply chain collaboration. Improving performance in this field allows
supply chains to increase their efficiency significantly and help to create innovations in different areas. In
this context, an important task is to find structures and approaches which enable all types of performance
management in logistics and supply chains for a better fulfillment of customer needs.
Objectives of Logistics
1. Cost Reduction and Profit Maximization
Logistics management results in cost reduction and profit maximization, primarily due to:
 Improved material handling
 Safe, speedy and economical transportation
 Optimum number and convenient location of warehouses etc.
2. Efficient Flow of Manufacturing Operations
Inbound logistics helps in the efficient flow of manufacturing operations, due to on-time delivery
of materials, proper utilization of materials and semi-finished goods in the production process and
so on.
3. Competitive Edge
Logistics provide, maintain and sharpen the competitive edge of an enterprise by:
 Increasing sales through providing better customer service
 Arranging for rapid and reliable delivery
 Avoiding errors in order processing and so on.
4. Effective Communication System
An efficient information system is a must for sound logistics management. As such, logistics
management helps in developing effective communication system for continuous interface with
suppliers and rapid response to customer enquiries.
 5. Sound Inventory Management
Sound inventory management is a by-product of logistics management. A major headache of
production management, financial management etc. is how to ensure sound inventory
management; which headache is cured by logistics management.
Components and Functions of Logistics Management
According to Phillip Kotler, ―Market logistics involve planning, implementing and controlling
physical flow of material and final (finished) goods from the point of origin to the point of use to
meet customer requirements, at a profit.‖
Logistics management consists of the process of planning, implementing and controlling the
efficient flow of raw-materials, work-in-progress and finished goods and related information-
from point of origin to point of consumption; with a view to providing satisfaction to the
customer.
Components of Logistics Management
Logistics management consists of three major components:
Order processing or Input
This component is the first process of logistics where information about the resources and
production is gathered based on which the products are manufactured. In the case of freight
forwarding, order processing refers to the step where the various source of vendors and
transportation are gathered for the importing or exporting of goods.
Inventory Management
Inventory management plays an important role in the supply chain management system. As the
name suggests, inventory management helps the logistics company in allocating the resources
like transport vehicles, labour and other resources according to the order received by the client.
This helps in making sure that no orders or freights are being left out or are being delayed for
delivery.
Freight transportation
This is the last and the major component of logistics management. After the order is processed
and the resources are allocated in order to transport the freight to the destination. Various routes
and types of transportation are analyzed to check which transportation and the routes will deliver
the product on or before the delivery time. There are tools and software which analyses these
factors with the help of artificial intelligence and machine learning tools and provide the best
plans to the logistics company.
These components together help in delivering the best quality goods to the consumers and is
delivered on time. These components help in reducing the additional costs and increasing the
productivity of the work, therefore the logistics company will be able to provide the best services
with great quality to their clients and consumers.
Functions of Logistics Management
(i) Network Design
Network design is one of the prime responsibilities of logistics management. This network is
required to determine the number and location of manufacturing plants, warehouses, material
handling equipment‘s etc. on which logistical efficiency depends.
(ii) Order Processing
 Customers‘ orders are very important in logistics management. Order processing includes
activities for receiving, handling, filing, recording of orders. Herein, management has to ensure
that order processing is accurate, reliable and fast.
Further, management has to minimize the time between receipt of orders and date of dispatch of
the consignment to ensure speedy processing of the order. Delays in execution of orders can
become serious grounds for customer dissatisfaction; which must be avoided at all costs.
(iii) Procurement
It is related to obtaining materials from outside suppliers. It includes supply sourcing, negotiation,
order placement, inbound transportation, receiving and inspection, storage and handling etc. Its
main objective is to support manufacturing, by providing timely supplies of qualitative materials,
at the lowest possible cost.
(iv)Material Handling
It involves the activities of handling raw-materials, parts, semi-finished and finished goods into
and out of plant, warehouses and transportation terminals. Management has to ensure that the
raw-materials, parts, semi-finished and finished goods are handled properly to minimize losses
due to breakage, spoilage etc. Further, the management has to minimize the handling costs and
the time involved in material handling.
(v) Inventory Management
The basic objective of inventory management is to minimize the amount of working capital
blocked in inventories; and at the same time to provide a continuous flow of materials to match
production requirements; and to provide timely supplies of goods to meet customers‘ demands.
Management has to maintain inventories of:
 Raw-materials and parts
 Semi-finished goods
 Finished goods
(vi) Packaging and Labeling
Packaging and labeling are an important aspect of logistics management. Packaging implies
enclosing or encasing a product into suitable packets or containers, for easy and convenient
handling of the product by both, the seller and specially the buyer.
Packaging facilities the sale of a product. It acts as a silent salesman. For example, a fancy and
decorative packaging of sweets, biscuits etc. on the eve of Diwali, makes for a good sale of such
items.
Labeling means putting identification marks on the package of the product. A label provides
information about – date of packing and expiry, weight or size of product, ingredients used in the
manufacture of the product, instructions for sale handling of the product, price payable by the
buyer etc.
(vii) Warehousing
Storage or warehousing is that logistical activity which creates time utility by storing goods from
the time of production till the time these are needed by ultimate consumers.
Here, the management has to decide about:
 The number and type of warehouses needed and
 The location of warehouses.
(viii) Transportation
Transportation is that logistical activity which creates place utility.
Transportation is needed for:
 Movement of raw-materials from suppliers to the manufacturing unit.
 Movement of work-in-progress within the plant.
 Movement of finished goods from plant to the final consumers.

Distribution Related Issues and Challenges in Logistics Management

Fuel Costs
One of the highest costs contributing to the ‗cutting transportation cost‘ concern is fuel prices.
Higher fuel prices are likely to increase transportation costs for US shippers this year by pushing
up fuel surcharges. Rising India diesel fuel prices are escalating surcharges added to freight rates,
which is reversing a two-year trend that cut into the revenue and earnings of truckers as fuel
prices plummeted.
Business Process Improvement
Notwithstanding the need for new technology, which we discuss in number eight on this list, it
has become an increasing challenge for the logistics industry to stay on top of new advances in
business processes. Taking advantage of these new opportunities sounds enticing but adoption
and onboarding can be overwhelming.
Improved Customer Service
Customers want full transparency into where their delivery is at all times. These days, the
location of a package is as interconnected as your social network. In fact, as customer
expectations have increased, their willingness to pay for fast shipping has decreased with just
about 64 percent of consumers unwilling to pay anything extra for less than two-day shipping.
Economy
With high fuel prices comes a greater credit crisis and rising inflationary demands that take a
greater toll on the US economy. This industry is then pressured by increasing compliance
regulations, declining demand, additional capacity with additional increases in key cost centers.
Driver Shortage & Retention
Hiring and retention remain an issue despite the lower demand mentioned above.
Government Regulations
Carriers face significant compliance regulations imposed by federal, state and local authorities.
Environmental Issues
The anti-idling and other emission reduction regulations brought about by state and local
governments has created concern that the compliance costs could exceed benefits.
Technology Strategy & Implementation
While the industry understands and supports many of the benefits of these technologies, some
questions remain as to how they will pay for it and who will help implement the improvements.

Gaining Competitive Advantage through Logistics Management

Effective logistics management can provide a major source of competitive advantage. The bases
for successes in the marketplace are numerous, but a simple model has been based around the
three C‘s – Customer, Company & Competitor. The source of competitive advantage is found
 firstly in the ability of the organization to differentiate itself, in the eyes of the customer, from its
competition and secondly by operating at a lower cost and hence at greater profit.
Seeking a sustainable competitive advantage has become the concern of every manager who
realizes the realities of the marketplace. It is no longer acceptable to assume that the goods will
sell themselves. An elemental, commercial success is derived either form a cost advantage or a
value advantage or, ideally both. The greater the profitability of the company the lesser is the cost
of production. Also a value advantage gives the product an advantage over the competitive
offerings. Successful companies either have a productivity advantage or they have a value
advantage or maybe a combination of the two.
There are two main vectors of strategic direction that need to be examined:
Productivity Advantage
In many industries there will be a competitor who will be a low cost producer and will have
greater sales volume in that sector. This is partly due to economies of scale, which enable fixed
costs to spread over a greater volume but more particularly to the impact of the experience curve.
It is possible to identify and predict improvements in the rate of output of workers as they become
more skilled in the processes and tasks on which they work. Bruce Henderson extended this
concept by demonstrating that all costs, not just production costs, would decline at a given rate as
volume increased. This cost decline applies only to value added, i.e. costs other than bought in
supplies. Traditionally it has been suggested that the main route to cost reduction was by gaining
greater sales volume and there can be no doubt about the close linkage between relative market
share and relative costs. However it must also be recognized that logistics management can
provide a multitude of ways to increase efficiency and productivity and hence contribute
significantly to reduced unit costs.
Value Advantage
It is a cliché that customers don‘t buy products they buy benefits. These benefits may be
intangible i.e. they relate not to specific product features but to such things as image and
reputation. Unless the product or service that we offer can be distinguished in some way from its
competitors there is a strong likelihood that the marketplace will view it as a ‗commodity‘ and so
the sale will tend to go to the cheapest supplier. Value differentiation can be gained in numerous
ways. When a company scrutinizes markets closely it frequently finds that there are distinct value
segments. In other words different groups of customers attach different levels of importance to
different benefits. The importance of such benefit segmentation lies in the fact that often there are
substantial opportunities for creating differentiated appeals for specific segments. Adding value
through differentiation is a powerful means of achieving a defensible advantage in the market.
Equally powerful as a means of adding value is service. Increasingly it is the case that markets are
becoming more service sensitive and this poses a challenge in management of logistics. It is
important to seek differentiation through means other than technology. A number of companies
have responded to this by focusing upon service as a means of gaining a competitive edge.
Service in this context relates to the process of developing relationships with customers through
the provision of an augmented offer. This augmentation can take many forms including delivery
service, after sales service, financial packages, and technical support and so on.
In commodity market situations where a company‘s products are indistinguishable from their
competitors‘ offerings the only strategy is to move towards being a cost leader or towards being a
 service leader. Often the leadership route is not available. This particularly will be the case in a
mature market where substantial market share gains are difficult to achieve.
Cost leadership strategies have been based upon the economies of scale, gained through greater
volume of sales. This is why market share is considered to be so important in many industries.
This cost advantage can be used strategically to assume a position of price leader and make it
difficult for high cost competitors to survive. This cost advantage can come through effective
logistics management. In many industries logistics cost represents such a large part of total costs
that that it is possible to make major cost reductions through fundamentally reengineering
logistics processes.
The other way to come out of the commodity quadrant of the matrix is to seek a strategy of
differentiation through service excellence. Customers on all industries are seeking greater
responsiveness and reliability from suppliers; they are looking for reduced lead times, just-in-time
delivery and value added services that help them do a better job of serving their customers.
GAINING COMPETITIVE ADVANTAGE THROUGH LOGISTICS
A firm can gain competitive advantage only when it performs its strategically important activities
(designing, producing, marketing delivering and supporting its product) more cheaply or better
than its competitors.
Value chain activity disaggregates a firm into its strategically relevant activities in order to
understand behavior of costs and existing and potential sources of differentiation. They are
further categorized into two types
(i) Primary: inbound logistics, operation outbound logistics, marketing and sales, and service
(ii) Support: infrastructure, human resource management, technology development and
procurement
To gain competitive advantage over its rivals, a firm must deliver value to its customers through
performing these activities more efficiently than its competitors or by performing these activities
in a unique way that creates greater differentiation.
Logistics management has the potential to assist the firm in the achievement of both a
cost/productivity advantage and a value advantage. The under lying philosophy behind the
logistics concept is that of planning and coordinating the materials flow from source to user as an
integrated system rather than, as was so often the case in the past, managing the goods flow as a
series of independent activities. Thus under a logistics management regime the goal is to link the
marketplace, the distribution network, the manufacturing process and the procurement activity in
such a way that customers are service at higher levels and yet at lower cost.
Transportation: Function, Cost & Mode of Transportation
Transport or Transportation is the movement of humans, animals and goods from one location to
another. In other words, the action of transport is defined as a particular movement of an
organism or thing from a point A to a Point B.
Modes of transport include air, land (rail and road), water, cable, pipeline and space. The field
can be divided into infrastructure, vehicles and operations. Transport enables trade between
people, which is essential for the development of civilizations.
Transport or Transportation is the movement of humans, animals and goods from one location to
another. In other words, the action of transport is defined as a particular movement of an
organism or thing from a point A to a Point B.
 Modes of transport include air, land (rail and road), water, cable, pipeline and space. The field
can be divided into infrastructure, vehicles and operations. Transport enables trade between
people, which is essential for the development of civilizations.
Transport infrastructure consists of the fixed installations, including roads, railways, airways,
waterways, canals and pipelines and terminals such as airports, railway stations, bus stations,
warehouses, trucking terminals, refueling depots (including fueling docks and fuel stations) and
seaports. Terminals may be used both for interchange of passengers and cargo and for
maintenance.
Function of Transportation
Transportation Functionality provides 2 major functions which are described below:
Product Movement
To move various types of product whether it is raw materials component, semi- finished goods,
finished goods, packaging material, scrap and so on. Transportation has become a very essential.
Infact if human beings are considered as a product. One can be amount of people transport from
one place to another by private and public carriers.
Transportation of a product involves the use of temporal resources. This is because a particular
product is inaccessible while it is in-transit. i.e while it is being transport from one place to
another place. These products are called in-transit inventories. These products are significantly
important because they influence a variety of supply chain decision. For e.g, if supply chain is a
considering a just in time strategy, or say. quick response strategy with regard to supply of goods
to the customer then this influences the time for which the goods should be in transit because the
goods have to reach quickly, or just in time to meet the requirement of the customer. Further, if
goods are dispatched only when a customer‘s requires them. Then such decision also affects the
amount of inventories that have to be stored at the distribution centers.
Transportation of product involves the use of financial resources. Expenses on transport result
from cost of driver, cleaner, casual laborer, taxes, administrative costs, and repairs/ maintenance.
In addition, if during transportation there is product loss or product damage, may be this expenses
have also to be taken into consideration.
Transportations of product also use environmental resources. Either directly or indirectly. In
direct terms, transportation uses a very large amount of energy in term of fuel and oil. Though
attempts are being made to make transport vehicles more fuel efficient. But consumption of fuel
and oil is not expected to decrease because of the ever-increasing global operation in indirect
term, transportation create environmental expenses in terms of congestion, air pollution, and
noise pollution.
Product storage
Though it is not very common, but one of the functions of transportation is also temporary
storage of goods. Of course, storing goods in vehicles is quite an expensive affair. However, in
case of goods have to be moved once again within just a few days. It is advisable to keep them
stored in transport vehicles themselves. This will avoid the cost of unloading and loading as well
as the possible damage to goods during such operation.
It may happen that a company has limited storage facility at a particular warehouse. Hence, when
the company loads the goods in to the transport vehicle to be sent to the warehouse. It may
request the transport company to take a longer route to reach the destination. This will act as
temporary storage for the goods.
TRANSPORT COSTS
Transport systems face requirements to increase their capacity and to reduce the costs of
movements. All users (e.g. individuals, corporations, institutions, governments, etc.) have to
negotiate or bid for the transfer of goods, people, information and capital because supplies,
distribution systems, tariffs, salaries, locations, marketing techniques as well as fuel costs are
changing constantly. There are also costs involved in gathering information, negotiating, and
enforcing contracts and transactions, which are often referred as the cost of doing business. Trade
also involves transactions costs that all agents attempt to reduce since transaction costs account
for a growing share of the resources consumed by the economy.
Frequently, corporations and individuals must take decisions about how to route passengers or
freight through the transport system. This choice has been considerably expanded in the context
of the production of lighter and high value consuming goods, such as electronics, and less bulky
production techniques. It is not uncommon for transport costs to account for 10% of the total cost
of a product. This share also roughly applies to personal mobility where households spend about
10% of their income for transportation, including the automobile which has a complex cost
structure. Thus, the choice of a transportation mode to route people and freight between origins
and destinations becomes important and depends on a number of factors such as the nature of the
goods, the available infrastructures, origins and destinations, technology, and particularly their
respective distances. Jointly, they define transportation costs.
Transport costs come as fixed (infrastructure) and variable (operating) costs, depending on a
variety of conditions related to geography, infrastructure, administrative barriers, energy, and on
how passengers and freight are carried. Three major components, related to transactions,
shipments and the friction of distance, impact on transport costs.
MODE OF TRANSPORTATION
Road transportation
Road infrastructures are large consumers of space with the lowest level of physical constraints
among transportation modes. However, physiographical constraints are significant in road
construction with substantial additional costs to overcome features such as rivers or rugged
terrain. While historically road transportation was developed to support non-motorized forms of
transportation (walking, domestication of animals and cycling at the end of the 19th century), it is
motorization that has shaped the most its development since the beginning of the 20th century.
Road transportation has an average operational flexibility as vehicles can serve several purposes
but are rarely able to move outside roads. Road transport systems have high maintenance costs,
both for the vehicles and infrastructures. They are mainly linked to light industries where rapid
movements of freight in small batches are the norm. Yet, with containerization, road
transportation has become a crucial link in freight distribution.
Rail transportation and pipelines
Railways are composed of a traced path on which wheeled vehicles are bound. In light of more
recent technological developments, rail transportation also include monorails and maglev. They
have an average level of physical constrains linked to the types of locomotives and a low gradient
is required, particularly for freight. Heavy industries are traditionally linked with rail transport
systems, although containerization has improved the flexibility of rail transportation by linking it
with road and maritime modes. Rail is by far the land transportation mode offering the highest
 capacity with a 23,000 tons fully loaded coal unit train being the heaviest load ever carried.
Gauges, however, vary around the world, often challenging the integration of rail systems.
Pipeline routes are practically unlimited as they can be laid on land or under water. The longest
gas pipeline links Alberta to Sarnia (Canada), which is 2,911 km in length. The longest oil
pipeline is the Transiberian, extending over 9,344 km from the Russian arctic oilfields in eastern
Siberia to Western Europe. Physical constraints are low and include the landscape and pergelisol
in arctic or subarctic environments. Pipeline construction costs vary according to the diameter and
increase proportionally with the distance and with the viscosity of fluids (from gas, low viscosity,
to oil, high viscosity). The Trans Alaskan pipeline, which is 1,300 km long, was built under
difficult conditions and has to be above ground for most of its path. Pipeline terminals are very
important since they correspond to refineries and harbors.
Maritime transportation
Because of the physical properties of water conferring buoyancy and limited friction, maritime
transportation is the most effective mode to move large quantities of cargo over long distances.
Main maritime routes are composed of oceans, coasts, seas, lakes, rivers and channels. However,
due to the location of economic activities maritime circulation takes place on specific parts of the
maritime space, particularly over the North Atlantic and the North Pacific. The construction of
channels, locks and dredging are attempts to facilitate maritime circulation by reducing
discontinuity. Comprehensive inland waterway systems include Western Europe, the Volga / Don
system, St. Lawrence / Great Lakes system, the Mississippi and its tributaries, the Amazon, the
Panama / Paraguay and the interior of China. Maritime transportation has high terminal costs,
since port infrastructures are among the most expensive to build, maintain and improve. High
inventory costs also characterize maritime transportation. More than any other mode, maritime
transportation is linked to heavy industries, such as steel and petrochemical facilities adjacent to
port sites.
Air transportation
Air routes are practically unlimited, but they are denser over the North Atlantic, inside North
America and Europe and over the North Pacific. Air transport constraints are multidimensional
and include the site (a commercial plane needs about 3,300 meters of runway for landing and take
off), the climate, fog and aerial currents. Air activities are linked to the tertiary and quaternary
sectors, notably finance and tourism, which lean on the long distance mobility of people. More
recently, air transportation has been accommodating growing quantities of high value freight and
is playing a growing role in global logistics.
Intermodal transportation
Concerns a variety of modes used in combination so that the respective advantages of each mode
are better exploited. Although intermodal transportation applies for passenger movements, such
as the usage of the different, but interconnected modes of a public transit system, it is over freight
transportation that the most significant impacts have been observed. Containerization has been a
powerful vector of intermodal integration, enabling maritime and land transportation modes to
more effectively interconnect.
Telecommunications
Cover a grey area in terms of if they can be considered as a transport mode since unlike true
transportation, telecommunications often do not have a physicality. Yet, they are structured as
networks with a practically unlimited capacity and very low constraints, which may include the
 physiography and oceanic masses that may impair the setting of cables. They provide for the
―instantaneous‖ movement of information (speed of light). Wave transmissions, because of their
limited coverage, often require substations, such as for cellular phone networks. Satellites are
often using a geostationary orbit which is getting crowded. High network costs and low
distribution costs characterize many telecommunication networks, which are linked to the tertiary
and quaternary sectors (stock markets, business to business information networks, etc.).
Telecommunications can provide a substitution for personal movements in some economic
sectors.
Transportation Network and Decision
Economic uncertainty, fluctuating fuel prices, increased safety and social regulation, escalating
customer expectations, globalization, improved technologies, labor and equipment shortages, a
changing transportation service industry…today‘s managers are faced with an array of challenges
and opportunities that contrast dramatically with those of a decade ago.
It is not surprising, then, that many managers have failed to fully adapt to the changing
environment, resulting in performance shortcomings and lost opportunities. Prominent among the
list of lost opportunities is fully leveraging the transportation function as a critical strategic
element within the supply chain.
Transportation plays a central role in seamless supply chain operations, moving inbound
materials from supply sites to manufacturing facilities, repositioning inventory among different
plants and distribution centers, and delivering finished products to customers. Benefits that should
result from world-class operations at the points of supply, production, and customer locations will
never be realized without the accompaniment of excellent transportation planning and execution.
Having inventory positioned and available for delivery is not enough if it cannot be cost
effectively delivered when and where needed.
Long-Term Decisions
At the highest strategic decision level, transportation managers must fully understand total supply
chain freight flows and have input into network design. At this level, long-term decisions related
to the appropriateness and availability of transportation modes for freight movement are be made.
Managers need to decide, for example, which primary mode of transportation is appropriate for
each general flow (i.e., inbound, interfacility, outbound) by product and/or location, paying
careful attention to consolidation opportunities where feasible.
Plans should indicate the general nature of product flows, including volume, frequency,
seasonality, physical characteristics, and special handling requirements. Strategic mode and
carrier-sourcing decisions should be considered part of a long-term network design, identifying
core carriers in each relevant mode to enhance service quality commitments and increase
bargaining power. Additionally, managers need to make decisions regarding the level of
outsourcing desired for each major product flow—ranging from providing the transportation
through the company‘s own assets (e.g., private fleets) to latch-key turnover of transportation
operations to third-party providers.
Network and lane design decisions at the strategic level should examine tradeoffs with other
operational cost areas such as inventory and distribution center costs. In conducting this analysis,
companies should keep in mind that networks need not be fixed or constant. Rather, substantial
service improvements and cost reductions can be achieved by critically examining existing
networks and associated flows. For instance, it may become apparent that stock locations can be
centralized by using contract transportation providers to move volume freight to regional cross-
dock facilities for sorting, packaging, and brokering small loads to individual customers.
The second level of decision-making regards lane operation decisions. Where network design
decisions are concerned with long-term planning, these decisions focus on daily operational
freight transactions. At this level, transportation managers armed with real-time information on
product needs at various system nodes must coordinate product movements along inbound,
interfacility, and outbound shipping lanes to meet service requirements at lowest total costs.
Decision-makers who are adept at managing information can take advantage of consolidation
opportunities, while ensuring that products arrive where they are needed in the quantities they are
needed just in time to facilitate other value-added activities. At the same time, they are realizing
transportation cost savings.
The primary opportunities associated with lane operation decisions include inbound/outbound
consolidation, temporal consolidation, vehicle consolidation, and carrier consolidation. If
managers have access to inbound and outbound freight movement plans, they can identify
opportunities to combine freight to build volume shipments. An inbound shipment may arrive
from a supplier located in Philadelphia, for example, on the same day that a production order
destined for a customer in Wilmington, Del., becomes available for movement. If this information
is known to transportation planners far enough in advance, arrangements could be made for the
inbound carrier to haul the outbound load back to Wilmington.
In many cases the inbound carrier would be willing to negotiate lower round trip rates to avoid
deadhead miles on the backhaul. This is particularly true if the carrier and/or driver are
headquartered in the Philadelphia area. If this happens to be a heavy traffic lane, the firm may
consider strategically sourcing a core carrier in this geographic region to capitalize on this
opportunity.
Similarly, less-than-volume-load (LVL) shipments moving to the same geographic region on
consecutive days may be detained until sufficient volumes exists to justify a full load on one
carrier with multiple stops (temporal consolidation). By avoiding the LVL terminal system, the
detained freight often arrives at the same time or earlier than the original LVL shipment—and at a
lower cost. Multiple, small shipments inbound from suppliers or outbound to customers in the
same geographic region scheduled for delivery on the same day may also be combined on one
vehicle at full-volume rates, paying stop-off charges but saving on multiple LVL rates (vehicle
consolidation).
Another consolidation opportunity springs from the core carrier concept. Assigning greater
shipping volumes to fewer carriers should result in lower per-unit transportation costs and higher
priority assigned to the shipper‘s increased freight. In addition to consolidating the carrier base,
the shipper can identify reliable carriers in need of backhaul miles.
For instance, a plastics distributor identifies carriers that operate a high percentage of deadhead
miles in lanes over which the firm regularly moves freight. The firm negotiates advantageous
rates with these carriers in exchange for guaranteed backhaul revenue miles. If the plastics firm
plans to move significant amounts of product from Texas to Florida, the transportation manager
will find a Florida carrier that moves a large volume of product from Florida to Texas. Given
sufficient planning information, the transportation manager can use guaranteed volumes on the
backhaul to negotiate attractive rates.
Choice of Mode and Carrier
A third level of transportation decision-making involves the choice of mode and carrier for a particular
freight transaction. Due to the blurring of service capabilities among traditional transportation modes,
options that in the past would not be considered feasible may now emerge as the preferred choice. For
example, rail container service may offer a cost-effective alternative to long haul motor transport while
yielding equivalent service. Similarly, package delivery carriers are competing with traditional LTL
operators. Truckload carriers, on the other hand, are increasingly bidding for low-volume shipments as
well as for overnight freight movements. For the shipper seeking 24-hour delivery, truckload carriers may
offer an alternative to air carriers at significantly lower rates—and, quite possibly, higher reliability.
In an integrated mode/carrier decision-making scenario, each shipment would be evaluated based upon
the service criteria that must be met, (for example, delivery date/time or special handling requirements) as
well as the movement‘s cost constraints. All core carriers, regardless of mode, that could possibly meet
the service and cost criteria would be pulled from the database. Managers would then choose the carrier
from this multi-modal set based on availability and existing rates.
Dock Level Operations
The final set of transportation decisions involves dock level operations, such as load planning, routing,
and scheduling. These activities encompass the operational execution of the higher-level planning
decisions. While the fundamental purpose of shipping docks may not have changed much over the years,
the manner in which work is done certainly has. One obvious change is the common usage of advanced
IT and decision support systems. These tools help the dock personnel to make better use of the
transportation vehicle space; to identify the most efficient routes; and to better schedule equipment,
facilities and drivers on a given day.
Transportation departments that avail themselves of better and more timely information can derive
significant benefits from more efficient and effective load planning, routing, and scheduling. For
example, if a vehicle is being loaded with multiple customer orders, dock-level managers must ensure that
the driver is informed of the most efficient route and that loads are placed in the order of the planned
stops. Transportation managers, even at the dock level, must develop expertise in using the information
tools available to aid in these decisions.
Successful managers today require a broad view of transportation management‘s role and responsibilities
in an integrated supply chain. Managers will continue to encounter significant challenges as their firms
proceed down the road toward supply chain integration, particularly as external environmental
characteristics such as fuel costs and the overall economy wax and wane.
Containerization
Containerization is a system of intermodal freight transport using intermodal containers (also called
shipping containers and ISO containers). The containers have standardized dimensions. They can be
loaded and unloaded, stacked, transported efficiently over long distances, and transferred from one mode
of transport to another—container ships, rail transport flatcars, and semi-trailer trucks—without being
opened. The handling system is completely mechanized so that all handling is done with cranes and
special forklift trucks. All containers are numbered and tracked using computerized systems.
Containerization originated several centuries ago but was not well developed or widely applied until after
World War II, when it dramatically reduced the costs of transport, supported the post-war boom in
international trade, and was a major element in globalization. Containerization did away with the manual
sorting of most shipments and the need for warehousing. It displaced many thousands of dock workers
who formerly handled break bulk cargo. Containerization also reduced congestion in ports, significantly
shortened shipping time and reduced losses from damage and theft.
The main advantages of containerization are:
(i) Standardization
Standard transport product that can be handled anywhere in the world (ISO standard) through specialized
modes (ships, trucks, barges and wagons) and equipment Each container has an unique identification
number and a size type code.
(ii) Flexibility
Can be used to carry a wide variety of goods such as commodities (coal, wheat), manufactured goods,
cars, refrigerated (perishable) goods. There are adapted containers for dry cargo, liquids (oil and chemical
products) and refrigerated cargo. Discarded containers can be recycled and reused for other purposes.
(iii) Costs
Lower transport costs due to the advantages of standardization. Moving the same amount of break-bulk
freight in a container is about 20 times less expensive than conventional means. The container enables
economies of scale at modes and terminals that were not possible through standard break-bulk handling.
(iv) Velocity
Transshipment operations are minimal and rapid and port turnaround times have been reduced from 3
weeks to about 24 hours. Containerships are faster than regular freighter ships, but this advantage is
undermined by slow steaming.
(v) Warehousing
The container is its own warehouse, protecting the cargo it contains. This implies simpler and less
expensive packaging for containerized cargoes, particularly consumption goods. The stacking capacity on
ships, trains (double stacking) and on the ground (container yards) is a net advantage of containers.
(vi)Security and safety
The contents of the container are unknown to carriers since it can only be opened at the origin
(seller/shipper), at customs and at the destination (buyer). This implies reduced spoilage and losses
(theft).

Drawbacks of containerization:
(i) Site Constrains
Containers are a large consumer of terminal space (mostly for storage), implying that many intermodal
terminals have been relocated to the urban periphery. Draft issues at port are emerging with the
introduction of larger containerships, particularly those of the post-panamax class. A large post-panamax
containerships requires a draft of at least 13 meters.
(ii) Capital intensiveness
Container handling infrastructures and equipment (giant cranes, warehousing facilities, inland road, rail
access) are important capital investments that require readily sources. Further, the push towards
automation is increasing the capital intensiveness of intermodal terminals.
(iii) Stacking
Complexity of arrangement of containers, both on the ground and on modes (containerships and double-
stack trains). Restacking difficult to avoid and incurs additional costs and time for terminal operators. The
larger the mode or the yard, the more complex the management.
(iv) Repositioning
Many containers are moved empty (20% of all flows). However, either full or empty, a container takes the
same amount of space. The observed divergence between production and consumption at the global level
requires the repositioning of containerized assets over long distances (transoceanic).
(v) Theft and Losses
High value goods and a load unit that can forcefully opened or carried away (on truck) implied a level of
cargo vulnerability between a terminal and the final destination. About 1,500 containers are lost at sea
each year (fall overboard), but these figures vary substantially depending on if a specific incident takes
place on any given year.
(vi) Illicit Trade
The container is an instrument used in the illicit trade of goods, drugs and weapons, as well as for illegal
immigration (rare). There are concerns about the usage of containers for terrorism but no documented use
has emerged.
Cross Docking
Cross-docking is a practice in logistics of unloading materials from an incoming semi-trailer truck or
railroad car and loading these materials directly into outbound trucks, trailers, or rail cars, with little or no
storage in between. This may be done to change the type of conveyance, to sort material intended for
different destinations, or to combine material from different origins into transport vehicles (or containers)
with the same or similar destinations.
Cross-dock operations were pioneered in the US trucking industry in the 1930s, and have been in
continuous use in less-than-truckload operations ever since. The US military began using cross-docking
operations in the 1950s. Wal-Mart began using cross-docking in the retail sector in the late 1980s.
In the LTL trucking industry, cross-docking is done by moving cargo from one transport vehicle directly
onto another, with minimal or no warehousing. In retail practice, cross-docking operations may utilize
staging areas where inbound materials are sorted, consolidated, and stored until the outbound shipment is
complete and ready to ship.
Advantages of Cross-docking:
 Streamlines the supply chain, from point of origin to point of sale
 Reduces labor costs through less inventory handling
 Reduces inventory holding costs by reducing storage times and potentially eliminating the need to
retain safety stock
 Products reach the distributor, and consequently the customer, faster
 Reduces or eliminates warehousing costs
 May increase available retail sales space
 Less risk of inventory handling
Disadvantages of cross-docking:
 Potential partners may not have the necessary storage capacities
 An adequate transport fleet is needed to operate
 A computerized logistics system is needed
 Additional freight handling can lead to product damage
 Labour costs are also incurred in the moving and shipping of stock
Factors influencing the use of retail cross-docks
 Cross-docking depends on continuous communication between suppliers, distribution centers,
and all points of sale
 Customer and supplier geography, particularly when a single corporate customer has many
multiple branches or using points
 Freight costs for the commodities being transported
 Cost of inventory in transit
 Complexity of loads
  Handling methods
 Logistics software integration between supplier(s),vendor and shipper
 Tracking of inventory in transit

Cross-dock facility design

Cross-dock facilities are generally designed in an ―I‖ configuration, which is an elongated rectangle. The
goal in using this shape is to maximize the number of inbound and outbound doors that can be added to
the facility while keeping the floor area inside the facility to a minimum. Bartholdi and Gue (2004)
demonstrated that this shape is ideal for facilities with 150 doors or less. For facilities with 150–200
doors, a ―T‖ shape is more cost effective. Finally, for facilities with 200 or more doors, the cost-
minimizing shape is an ―X‖. Cross docking is a logistics procedure where products from a supplier or
manufacturing plant are distributed directly to a customer or retail chain with marginal to no handling or
storage time. Cross docking takes place in a distribution docking terminal, usually consisting of trucks
and dock doors on two (inbound and outbound) sides with minimal storage space.