The Role of Transportation in
Logistics Chain for further Improvement
Subroto Kumar Ghosh
Research Scholar
University Department of Commerce & Business
Management
Ranchi University, Ranchi
Dr. Dilip Kumar Sahu
Assistant Professor
Department of Commerce, J. N. College, Dhurwa,
Ranchi
Abstract
The
operation of transportation determines the efficiency of moving products. The
progress in techniques and management principles improves the moving load,
delivery speed, service quality, operation costs, the usage of facilities and
energy saving. Transportation takes a crucial part in the manipulation of
logistic. Reviewing the current condition, a strong system needs a clear frame
of logistics and a proper transport implements and techniques to link the
producing procedures. The objective of the paper is to define the role of
transportation in logistics for the reference of further improvement. The
research was undertaken to define and comprehend the basic views of logistics
and its various applications and the relationships between logistics and
transportation.
Key
words
Transportation
system, Logistics, Components, Inter relationships.
1.
Introduction
Since
logistics advanced from 1950s, due to the trend of nationalization and
globalization in recent decades, the importance of logistics management has
been growing in various areas. For industries, logistics helps to optimize the
existing production and distribution processes based on the same resources
through management techniques for promoting the efficiency and competitiveness
of enterprises.
The
key element in a logistics chain is transportation system, which joints the
separated activities. Transportation occupies one-third of the amount in the
logistics costs and transportation systems influence the performance of
logistics system hugely. Transporting is required in the whole production
procedures, from manufacturing to delivery to the final consumers and returns.
Only a good coordination between each component would bring the benefits to a
maximum.
The
paper focuses on:
v Development
of logistics
v Transport-related
sectors based on a historical review
v Interrelationships
of transportation and logistics
v Benefits
of transportation to logistics activities and vice versa
v Major
logistics activities and concepts
v Potential
further development of logistics systems.
2.
Overview of Logistics
2.1
Definitions
Logistics
is
·
Part of the supply chain process that
plans, implements, and controls the efficient, effective forward and reverse
flow and storage of goods, services, and related information between the point
of origin and the point of consumption in order to meet customers’
requirements.
·
Describing the entire process of
materials and products moving into, through, and out of firm. Inbound logistics
covers the movement of material received from suppliers. Materials management
describes the movement of materials and components within a firm. Physical distribution
refers to the movement of goods outward from the end of the assembly line to
the customer. Finally, supply-chain management is somewhat larger than
logistics, and it links logistics more directly with the users’ total
communications network and with the firm’s engineering staff.
·
Process of moving and handling goods and
materials, from the beginning to the end of the production, sale process and
waste disposal, to satisfy customers and add business competitiveness.
·
Process of anticipating customer needs
and wants; acquiring the capital, materials, people, technologies, and
information necessary to meet those needs and wants; optimizing the goods- or
service-producing network to fulfill customer requests; and utilizing the
network to fulfill customer requests in a timely way.
·
Customer-oriented operation management.
2.2
Components of Logistics System
The
closely linked components of the logistics system are:
1. Logistics services
2. Information systems
3. Infrastructure/resources
§ Logistics
services support the movement of materials and products from inputs through
production to consumers, as well as associated waste disposal and reverse
flows. They include activities undertaken in-house by the users of the services
(e.g. storage or inventory control at a manufacturer’s plant) and the
operations of external service providers. They comprise physical and
non-physical activities (e.g. transport, storage and supply chain design,
selection of contractors, freightage negotiations respectively). Most activities
of logistics services are bi-direction.
§ Information
systems include modeling and management of decision making, and more important
issues are tracking and tracing. It provides essential data and consultation in
each step of the interaction among logistics services and the target stations.
§ Infrastructure
comprises human resources, financial resources, packaging materials,
warehouses, transport and communications. Most fixed capital is for building
those infrastructures. They are concrete foundations and basements within
logistics systems.
2.3
History and Advancement of Logistics
The probable origin of the term logistic is the
Greek logistikos, meaning ‘skilled in calculating’. It was initially developed
in the context of military activities in the late 18th and early 19th centuries
and it launched from the military logistics of World War II. It was initially a
military activity concerned with getting soldiers and munitions to the battlefront
in time for flight. Military typically incorporate the supply, movement and quartering
of troops in a set. The main background of its development is that the recession
of America in the 1950s caused the industrial to place importance on goods circulations.
Now it is seen as an integral part of the modern production process.
Business logistics was not an academic subject until
the 1960s. A key element of logistics, the trade-off between transport and
inventory costs, was formally recognized in economics at least as early as the
mid-1880s. Based on the American experience, the development of logistics could
be divided into four periods, which are represented as Figure 1.
Figure 1. Logistics
historical development
Before the 1950s, logistics was under the dormant
condition. Production was the main part of the managers concerned, and industry
logistics was once regarded as “necessary evil” in this period. During the
1950s to and 1960s, applying new ideas of administration on business was a
tendency.
Due to petroleum price rise in 1973, the effects of
logistics activities on enterprises grew. Slow growth of market, pressure of
high stagflation, release of transportation control, and competitions of the
third world on products and materials all increased the significance of logistics
system on planning and business at that time.
The further tendency of logistics in the early 21st
century is logistics alliance, Third Party Logistics (TPL) and globalized
logistics. Logistics circulation is an essential of business activities and
sustaining competitiveness, however, to conduct and manage a large company is
cost consuming and not economic. Therefore, alliance of international industries
could save working costs and cooperation with TPL could specialize in logistics
area.
2.4 The Technology Revolution
The logistics boom was fueled further in the 1990s by the
emergence of Enterprise Resource Planning (ERP) systems. These systems were
motivated in part by the successes achieved by Material Requirements Planning
systems developed in the 1970s and 1980s, in part by the desire to integrate
the multiple data bases that existed in almost all companies and seldom talked
to each other, and in part by concerns that existing systems might have
catastrophic failures as a result of not being able to handle the year 2000
date. In spite of some significant problems in getting the ERP systems
installed and working, by 2000 most large companies had installed ERP systems.
The result of this change to ERP systems was a tremendous improvement in data
availability and accuracy. The new ERP software also dramatically increased
recognition of the need for better planning and integration among logistics
components. The result was a new generation of "Advanced Planning and
Scheduling (APS)" software.
Many of the concepts and tools developed at Georgia Tech
were central to the emergence of the new generation of optimization-based (APS)
software. However, it also became clear that to truly take advantage of the
remarkable advances in computing and to address the problems of integration
among logistics components required a broader focus than existed in any of the
existing logistics related centers at Georgia Tech. It also became clear that
there was a tremendous need to better link research, education and practice.
These were the prime motivators for the merger of the Georgia Tech research and
Professional Education efforts into The Logistics Institute in 1992.
The widespread recognition of the term "supply
chain" has come primarily as a result of the globalization of
manufacturing since the mid 1990s, particularly the growth of manufacturing in
China. U.S. imports from China grew from about $45 billion per year in 1995 to
more than $280 billion per year in 2006. The focus on globalization accented
the need for logistics strategies to deal with complex networks including
multiple entities spanning multiple countries with diverse control. There has
been an increasing trend to use the term supply chain to refer to strategic
issues and logistics to refer to tactical and operational issues. This growing
association of supply chain with strategy is reflected in the Council of
Logistics Management's changing its name to the Council of Supply Chain
Management Professionals in 2005. They make the distinction that
"Logistics is that part of the supply chain process that plans,
implements, and controls the efficient, effective forward and reverse flow and
storage of goods, services, and related information between the point of origin
and the point of consumption in order to meet customers' requirements"
while "Supply Chain Management is the systemic, strategic coordination of
the traditional business functions and the tactics across these business
functions within a particular company and across businesses within the supply
chain for the purposes of improving the long-term performance of the individual
companies and the supply chain as a whole."
The Georgia Tech supply chain and logistics effort has grown
and expanded its scope over the years so that it now includes broad expertise
in supply chain strategy and supply chain management to compliment its
traditional focus on the engineering issues in supply chain and logistics.
These efforts have expanded globally with an established program in Singapore
and developing programs in a variety of other countries. The name "Supply
Chain and Logistics Institute" reflects the breadth and depth of the
Institute's expanding mission of developing technology and people to address
the rapidly evolving engineering and management needs of the supply chain and
logistics field.
2.6 The Future of Supply Chain and
Logistics
Since the 1980s, computer technology has advanced at such a
phenomenal rate that it is currently far ahead of the ability of the supply and
logistics field to adequately utilize the new technologies. Given the extent of
Internet usage today, it is hard to believe that Microsoft's Internet Explorer
1.0 was released in 1995. The communication capabilities have fundamentally
changed the way we think about communications and information sharing. However,
supply chain and logistics planning is still primarily based on the distributed
models that came as the result of personal computers. There is no question that
academic research can enable a new generation of supply chain and logistics
planning technology based on centralized planning with distributed collaboration.
These technology advances can provide tremendous value in addressing
traditional supply chain and logistics areas such as warehousing and
distribution, transportation, and manufacturing logistics. However, there are
also many non-traditional areas such as health care logistics and humanitarian
logistics which can get great value from building on the concepts and
technologies that have already proven successful in the traditional supply
chain and logistics areas. Finally, there are extremely valuable insights to be
gained by systematically studying the supply chain and logistics performance of
companies across multiple industries and countries. All of these are activities
where the Supply Chain & Logistics Institute, in conjunction with our
industry partners, will continue to provide a leadership role in research and
education.
3.
Interrelationship between Transportation and Logistics
Without
well-developed transportation systems, logistics could not bring its advantages
into full play. A good transport system in logistics activities could provide better
logistics efficiency, reduce operation cost, and promote service quality. The improvement
of transportation systems needs the effort from both public and private sectors.
A well-operated logistics system could increase both the competitiveness of the
government and enterprises.
3.1
Transport Costs and Goods Characters in Logistics
Transport
system is the most important economic activity among the components of business
logistics systems. Around one third to two thirds of the expenses of enterprises’
logistics costs are spent on transportation. According to the investigation of National
Council of Physical Distribution Management (NCPDM) in 1982 (Chang, 1988), the
cost of transportation, on average, accounted for 6.5% of market revenue and 44%
of logistics costs.
BTRE
(2001) indicated that Australian gross value added of the transport and storage
sector was $34,496 million in 1999-2000, or 5.6% of GDP. Figure 2 shows the components
of logistics costs based on the estimation from Air Transportation Association
(Chang, 1988).
Figure 2. Cost ratio of
logistics items
This
analysis shows transportation is the highest cost, which occupies 29.4% (one-third)
of logistics costs, and then in order by inventory, warehousing cost, packing cost,
management cost, movement cost and ordering cost. The transportation cost here includes
the means of transportation, corridors, containers, pallets, terminals,
labours, and time. This figure signifies the cost structure of logistics
systems and the importance order in improvement processing. The improvement of
the item of higher operation costs can get better effects. Hence, logistics
managers must comprehend transport system operation thoroughly.
Transport
system makes goods and products movable and provides timely and regional
efficacy to promote value-added under the least cost principle. Transport
affects the results of logistics activities and, of course, it influences
production and sale. In the logistics system, transportation cost could be
regarded as a restriction of the objective market. Value of transportation
varies with different industries. For those products with small volume, low
weight and high value, transportation cost simply occupies a very small part of
sale and is less regarded; for those big, heavy and low-valued products, transportation
occupies a very big part of sale and affects profits more, and therefore it is more
regarded.
3.2
The Effects of Transportation on Logistics Activities
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 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.
Warehousing
services between plants and marketing outlets involved separate transport.
Merchandising establishments completed the chain with delivery to the consumers.
The manufacturers limited themselves to the production of goods, leaving marketing
and distribution to other firms. Warehousing and storage can be considered in terms
of services for the production process and for product distribution. There have
been major changes in the number and location of facilities with the closure of
many single user warehouses and an expansion of consolidation facilities and
distribution centres. These developments reflect factors such as better
transport services and pressures to improve logistics performance.
3.3
The Role of Transportation in Service Quality
The
role that transportation plays in logistics system is more complex than carrying
goods for the proprietors. Its complexity can take effect only through highly quality
management. By means of well-handled transport system, goods could be sent to the
right place at right time in order to satisfy customers’ demands. It brings
efficacy, and also it builds a bridge between producers and consumers.
Therefore, transportation is the base of efficiency and economy in business
logistics and expands other functions of logistics system. In addition, a good
transport system performing in logistics activities brings benefits not only to
service quality but also to company competitiveness.
3.4
Importance of Logistics Management
Meeting customer demand and providing superior service is one of the most important benefits of good logistics management. Consumers demand better service and this mandate has ripple effects up the supply chain, creating a need for shippers to provide fast, accurate and quality service. Logistics management is responsible for satisfying customer demands.
Logistics management is also important for creating visibility into a company’s supply chain. Advanced transportation management systems (TMS) analyze historical data and track real-time movement of goods into and out of a business. Logistics managers can use this information for process optimization and avoiding potential disruptions. TMS data analysis keeps a company’s supply chain moving more efficiently, all while gaining operational insight.
Proper logistics management drives increased revenue. Improved customer service can bring a good reputation to a company’s brand and generate more business, and supply chain visibility creates opportunity for major cost savings in operations. Logistics management will give a company control over inbound freight, keep inventory at optimal levels, organize the reverse flow of goods, and utilize freight moves on the proper transportation modes – all of which can cut costs significantly.
4.
DISCUSSIONS AND CONCLUSIONS
4.1
Discussions
Integration
of logistics and e-business is the future trend. In order to get more
advantageous position and build a complementary and dependent relationship,
networking industries, such as Amazon, Flipkart, Jabong, Myntra, Yahoo, e-Bay
etc, usually cooperate with logistics industries. The integration could reduce
the middle-level procedures. The producers could immediately give the products
over to the terminal customers. This could reduce expenses and also administer
sources more efficiently.
Companies
do not have to take the costs of inventory and warehouse, and therefore they
become modernized industries of low cost, more efficiency and division of
specialty. For example, customers could get ordered goods from convenience
stores. Through e-logistics, the competition condition of industries could be
promoted in knowledge economics.
The
integration and promotion of business activities have to involve transportation
systems at various stages. The integration of various applications brings the
convenience through promoting the system of information flow and business
operations. Customers and firms could make business more efficient and easier
through the help of e-commerce and the Internet. However physical delivery
still relies on the transportation system to finish the operations. The cost of
transportation operation may be one-third of logistics costs. Meanwhile,
transportation systems and techniques are needed in almost every logistics
activity. Thus the reform of business patterns has to consider transportation
systems.
4.2
Conclusions
(1)
Logistics system has a more and more important position in the society
activities.
(2)
Transportation and logistics systems have interdependent relationships that
logistics management needs transportation to perform its activities and
meanwhile, a successful logistics system could help to improve traffic
environment and transportation development.
(3)
Since transportation contributes the highest cost among the related elements in
logistics systems, the improvement of transport efficiency could change the
overall performance of a logistics system.
(4)
Transportation plays an important role in logistics system and its activities
appear in various sections of logistics processes. Without the linking of
transportation, a powerful logistics strategy cannot bring its capacity into
full play.
(5)
The review of logistics system in a broad sense might help to integrate the
advantages from different application cases to overcome their current
disadvantage.
(6)
The review of transport systems provides a clearer notion on transport
applications in logistics activities.
(7)
The development of logistics will be still vigorous in the following decades
and the logistics concepts might be applied in more fields.
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