6.1 The role of transportation in logistics
We can conceptualise a company's integrated logistics system as being a series of fixed points located spatially between the buyer and seller, where the goods come to rest. The role of transportation is to facilitate the flow of goods between these fixed points and to bridge the buyer-seller gap. Hence, knowledge of the transportation system is extremely important for the efficient and economic operation of a company's logistics function. Transportation adds value to the company by creating time and space utility; the value added is the physical movement of goods to the place desired and at the time desired (Coyle, Bardi & Langley 1996, p318).
In today's global business, supply chains are becoming increasingly longer and transportation needs to connect buyers and sellers who may be tens of thousands of miles apart. This increased spatial gap results in greater transportation costs and time, which in turn necessitates higher inventory and storage costs. Freight movement has been observed to absorb between one-third and two-thirds of total logistics costs (Ballou 2004, p164).
In an integrated logistics system, the choice of transportation service directly impacts on inventory and storage costs. For example, if a company switches from rail to air transportation to move finished goods from a factory to the customer, it would incur lower inventory and storage costs. This advantage will of course be at the expense of higher transportation costs. Hence the company has to make the transportation decision taking into account the total cost or systems approach, which considers all the elements of the integrated logistics system.
Reading 6.1
Lalani, N (May 1999), 'Transportation management and operations for the 21 st century', ITE Journal, p. 18.
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