Unit 2: Supply Chain& Logistics Management (KMBN OM01)

Unit – II
Syllabus
Unit 2 (8 hours)
Logistics : Evolution, objectives, components and functions of logistics management, distribution
related issues and challenges; gaining competitive advantage through logistics management,
transportation- functions, costs, and mode; network and decision, containerization, cross docking.

Logistics as a part of SCM

Dictionary meaning – Branch of military science, which includes procuring, maintaining & transporting
material, personnel & facilities.

The term ‘Logistics’ stems from the Greek word ‘Logisticos’ meaning ‘the science of computing and
calculating’.

As per Council of Logistic Management-

Logistic is part of supply chain process that plans, implements & controls the efficient, effective flow &
storage of goods, services & related information from point of origin to point of consumption, in order
to meet the customer requirements.

Definition of logistics- Logistics is the process of strategically managing the procurement, movement
and storage of materials, parts and finished inventory (and the related information flows), through the
organization and its marketing channels, in such a way that current and future profitability are
maximized through the cost-effective fulfillment of orders.

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.

Key Points-

1.
(a) Organising the supplies and services is termed as logistics.
(b) In recent years, changes in business environment, have forced companies, to pay
particular close attention toward better performance of logistics function, in order to
improve customer service at the lowest possible operating costs.
(c) 30 to 40% of consumer prices of products are due to physical distribution costs. As such
physical distribution i.e. logistics becomes most important area of cost control and saving
on this account, means a lot in competitive conditions.
2.
(a) Typically FMCG companies in India have a pipe line of between 9 to 16 weeks from
factory to consumer.
(b) Every day which can be reduced in this pipe line is money saved for re-investment.

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3. Effective mgmt. Of physical distribution i.e. logistics can help company, to gain an advantage
over competitor through better customer service and / or lower operating cost.
4.
(a) Recently physical distribution mgmt. i.e. Logistic Management has been expanded in to
broader concept of SCM.
(b) SCM starts earlier than physical distribution, attempting to procure right inputs, (raw
materials components and equipment) converting them efficiently in finished products
and dispatching them to final destination.

Evolution of Logistics:

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 Years 30 “Military logistics” After the Second World War, the interest of business by the
logistics process arises and an analogy is established between military logistics and technical
material supply and military logistics is begun to be related to industrial production.
 Years 50 “Conceptualization of logistics” Logistics becomes more important due to the
transition that goes through the most developed countries, from an economy characterized by
excessive demand to an economy with excess supply, with these being their main characteristics:
 First developments of the total cost of logistics operations.
 It focuses on the concern to satisfy the customer.
 Distribution channels are of particular importance. You want to sell any product anywhere.
 Increase new products, as a result the product lines are originated.
 60 Years “Outsourcing” Logistics took a new approach where “outsourcing” was the most
appropriate mechanism to reach customers, since it had as its main objective the subcontracting
of other companies because the flow of goods or information was efficient and reached all parts
that were within the reach of the company. 
 Years 70 “The concept of trial logistics”
 Customer service becomes an indispensable requirement to continue competing with market
leaders.
 Progress in the concept of physical distribution.
 There are periods of recession and growth in the world economy.
 Development of the inventory management strategy.
 The technology for the industrial revolution that occurred during these times began to emerge,
and the cost of information technology was reduced to improve the quality, which brought about an
improved mechanism for the supply of the goods Or information accurately and precisely at the time the
customer made their order, this mechanism is called “Just in Time”, that is just in time
 Since the 80’s “Modification of preferences”
 The energy crisis of the moment drives the movement towards the improvement of transport
and storage.

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 Just in Time’s approach was modified by Quick Response (QR) and Efficient Consumer
Response (ECR) with the sole purpose of seeking a precise delivery with the exact amount, when
and where needed, to meet To the customer.
 Changes in supply chain preferences where special attention is paid to suppliers, distributors
and customer service, defining the end-user’s demand.
 Inventories, total logistics costs are reduced, and delivery times are shorter.
 Logistics operations are energy-intensive: environmental-ecological concern is born.
 1990 “Promotion of logistics” Logistics went on to become a more integrated process in terms
of its external and internal environment, in other words, its internal processes within the
company were managed according to the relationships that were with its customers and
suppliers. This process of integration causes logistics management to begin with a strategic plan
regarding the design of how to reach the final customers, in order to go out and minimize
competition, establishing efficient plans for the supply of the products.  Technology continues
to position itself in conventional Logistics processes and Distribution channels
 Outsourcing services
 Demand for logistics services expands

Day by day it is observed that to put into practice a good business logistics management is essential, it
has developed over time and is now a basic aspect. A perfectly designed logistics project is the most
strategic tool to compete with the demanding current market, achieving customer loyalty.

Classification of Logistical Activities:

Logistics (or Logistical Activities) may be broadly classified into two categories:
I. Inbound logistics; which is concerned with the smooth and cost effective inflow of materials and
other inputs (that are needed in the manufacturing process) from suppliers to the plant. For proper
management of inbound logistics, the management has to maintain a continuous interface with suppliers
(vendors).
II. Outbound logistics (also called physical distribution management or supply chain management); is
concerned with the flow of finished goods and other related information from the firm to the customer.
For proper management of outbound logistics, the management has to maintain a continuous interface
with transport operators and channels of distribution.

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Objectives of Logistics Management:

Logistics management is significant for the following reasons:

(i) Cost Reduction and Profit Maximization: Logistics management results in cost reduction and
profit maximization, primarily due to:
1. Improved material handling
2. Safe, speedy and economical transportation
3. Optimum number and convenient location of warehouses etc.

(ii) 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.

(iii) Competitive Edge: Logistics provide, maintain and sharpen the competitive edge of an enterprise
by:
1. Increasing sales through providing better customer service
2. Arranging for rapid and reliable delivery
3. Avoiding errors in order processing; and so on.

(iv) 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.

(v) 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.

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COMPONENTS AND FUNCTIONS OF LOGISTICS:

COMPONENTS OF LOGISTICS:

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FUNCTIONS OF LOGISTICS: Logistics is a process of movement of goods across the supply chain
of a company. However, this process consists of various functions that have to be properly managed to
bring effectiveness and efficiency to the supply chain of the organization.

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.

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.

Warehousing: Warehousing is the process of storing of finished goods until they are sold. It plays a
vital role in logistics operations of a firm. The effectiveness of an organization’s marketing depends on
the appropriate decision on warehousing. In today’s context, warehousing is treated as switching facility
rather than a storage of improper warehousing management. Warehousing is the key decision area in
logistics. The major decisions in warehousing are:
 Location of warehousing facilities
 Number of warehouses
 Size of the warehouse
 Warehouse layout
 Design of the building
 Ownership of the warehouse

Transportation: For movement of goods from the supplier to the buyer, transportation is the most
fundamental and important component of logistics. When an order is placed, the transaction is not
completed till the goods are physically moved to the customer’s place. The physical movement of goods
is through various transportation modes. In logistics costs, its share varies from 65 to 70 percent in the
case of mass-consumed, very low unit-priced products. Firms choose the mode of transportation
depending on the infrastructure of transportation in the country or region. Cost is the most important
consideration in the selection of a particular mode of transport. However, sometimes urgency of the
good at the customer end overrides the cost consideration, and goods are sent through the fastest mode,
which is an expensive alternative.

Material Handling and storage system: The speed of the inventory movement across the supply chain
depends on the material handling methods. An improper method of material handling will add to the
product damages and delays in deliveries and incidental overheads. Mechanization and automation in
material handling enhance the logistics system productivity. Other considerations for selection of a
material handling system are the volumes to be handled, the speed required for material movement and
the level of service to be offered to the customer. The storage system is important for maximum space
utilization (floor and cubic) in the given size of a warehouse. The material handling system should
support the storage system for speedy movement (storage and retrieval) of goods in and out of the
warehouse.

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Logistical Packaging: Logistical or industrial packaging is a critical element in the physical distribution
of a product, which influences the efficiency of the logistical system. It differs from product packaging,
which is based on marketing objectives. However, logistical packaging plays an important role in
damage protection, case in material handling and storage space economy. The utilization of load has a
major bearing on logistical packaging with regard to the packaging cost.

Information: Logistics is basically an information-based activity of inventory movement across a

supply chain. Hence, an information system plays a vital role in delivering a superior service to the
customers. Use of IT tools for information identification, access, storage, analysis, retrieval and decision
support which is vital among the functions of logistics is helping business firms to enhance their
competitiveness.

DISTRIBUTION RELATED ISSUES AND CHALLENGES:

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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.

These advantages can be observed in three ways-

1. Value Advantages: It is considered 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
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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.

2. 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.

3. Competitive Advantage: 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.

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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.

TRANSPORTATION FUNCTION, COST AND MODES:

INTRODUCTION

Transportation is an essential and major sub function of logistics that creates time and place utility in
goods. Transportation management covers the area of Shipment Scheduling / Routing, Freight Cost,
Carrier Selection, Shipment Tracking and Parcel Management. It helps us to make the best use of
available resources and keeps informed on all transportation process.

COST STRUCTURE

Basically there are two cost contents involved in transportation process:

1. Fixed Cost: Fixed cost is the expenses related to the procedural part like cost of documents, salaries
of personnel, rent of the office etc. As per the product needs and the environments, loading and
unloading charges are included in fixed cost.

2. Variable Cost: Among all logistic factors variable cost consumes main expenses. It concentrates on
the product related and market related aspects:

i) Product related aspects are the physical attributes of products, like:

– Density – e.g. density of sand is more than Cotton

– Size / Shape – Transportation cost per unit weight decreases with the size of the consignment.
– Space filling capacity – e.g. space-filling capacity of iron flat is more than that of chairs or
tables.
– Difficulties in handling – e.g. product like electronic items like TV are difficult to handle
since they are easily get damaged.
ii) * Market related aspects are:

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– Distance to be traveled to customer – The cost decreases with increase in the distance.
– Government regulations, Octroy, Road Taxes, Tolls, etc.
– Intra-mode / Inter-mode
– Freight Traffic
– Domestic / International Transport
– Season Effect

Major Cost elements are

 Tariff of Transportation Mode

 Transit Time Cost

 Obsolescence and Deterioration Costs

 Protective Packaging Costs

 Transit Insurance Cost

 Miscellaneous Costs (Local Taxes, Octroi, Toll Taxes etc.)

FUNCTIONS OF TRANSPORTATION

1) Movement of Products :
The fundamental function of transportation is to move the products from one place to another. The
upward and downward movements of products in the value chain are facilitated by transportation.
Transportation is important for moving the material to the next stage of manufacturing process and also
closer to the customer. The material can be in the form of components, assemblies, materials, work-in-
progress, finished products.
2) Storage of Products :

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Storing the product in the vehicles for temporary purpose can be seen as another function of
transportation. It can be seen as a costly source of storage but it is less expensive than the cost of
unloading the material in a warehouse for few days and again loading it. Vehicles are used as temporary
storage facility because sometimes the need of storing the in-transit shipment, generally for few days,
arises. Another situation where the transportation vehicle can be used as a storage facility is when the
space in the warehouse is limited.
3) Economic Utility:
As per the economic theories, creating place utility (right place) for the products, distributed and
produced by the firm, can be seen as the main function of transportation. When the goods are placed
where they are to be consumed, it is regarded as place utility. Apart from having the products at the right
place, it is also important to have the product at the right time (time utility) and in right form (form
utility). Moreover, the products should be owned by or in custody of the person who really wants to
consume these products creating 'possession utility'. All the discussed utilities depend the efficiency and
effectiveness of transportation.
4) Geographic Specialisation :
When the products are produced in that nation, region, or city which suits best as per the capital, talent,
labour, raw material, and other resources of the company, it as regarded as 'geographic specialisation'.
Some level of economic inefficiency can be resulted when such specialisation does not occur. In other
words, when a certain region, nation, or city is not able to produce certain products because of its misfit
with some of the factors then the extra resources and efforts need to be applied.
For example, if area A is specialised in product X then it needs to depend on other areas for fulfilling its
need of things other than the product A.

5) Large-Scale Production :
In order to enable the large scale production, any firm will be requiring the collection of different types
of raw material, spare parts, equipment, items from number of sources and from number of locations.
Similarly, after producing the product it should be distributed to a large geographical market at a
reasonable cost. Therefore, transportation is a very crucial element for carrying out a large-scale
production.

Main Functions are

Product Movement: Transportation facilitates the movement of raw material, semi-finished items,
WIP, finished goods, packaging material, rejected material.

Product Storage: Transportation provides temporary storage in stationary vehicles or Vehicles kept
moving on a circuitous route. Though the product storage is expensive in a transport vehicle, but this is
adopted in case of:

1. when unloading and loading is more expensive than storage.

2. when storage space is limited.

Participants in Transportation :
Following are the participants that together facilitate the transportation activities :

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1) Shipper and Consignee :

The objective of moving the goods from their origin to their destination within the stipulated time and at
the lowest possible expense is shared by both the shipper and the consignee. Certain pick-up time,
delivery time, zero loss and damage, precise and prompt information transaction, and predictable transit
time should be included in these services.

2) Carrier :
The intermediary between the consignee and the shipper is known as carrier. Maximising the revenue
from the transaction and minimising the cost of carrying out the transaction are the main motives of the
carrier. Another objective of the carrier is to minimise the cost of moving the product such as labour,
fuel, vehicle cost etc. While maximizing the prices being charged from the shipper and consignee. The
latter objective is aimed at earning more profits.

3) Government :
As the transportation has a huge impact on the performance of the economy, it becomes a very crucial
factor; thus, government has a higher level of interest in it. In order to maintain a sustainable economic
development, a stable and efficient transportation is important. The efficient movement of goods to all
the markets is facilitated by the transportation and hence the availability of the product can be ensured at
a reasonable price. Some governments participate more actively in different activities and practices
associated with transportation. This can be in the form of ownership, regulations, and promotions.

4) Public :
The main concerns of common public related to the transportation are its cost effectiveness,
accessibility, and different safety and environmental standards. The need of transportation facilities is
determined primarily due to the public because of the fact that they require different goods at least
possible cost at their doorstep. Because of different types of interaction between the above mentioned
participants, the relationship is quite complex among them. There can be different types of conflicts
which can result among the parties with micro-interest government, and the public. Thus, in order to
have a smoother process, some kind of regulations is mandatory.

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SELECTION OF CARRIERS / MODAL CHARACTERISTICS:

In selection of a transportation mode, the transportation managers consider the following criteria.

1. Cost: It includes freight charges, warehousing, buffer stick, broker fees, custom charges octroy
etc. Generally cost per mile is considered which is should be economical.
2. Transit Time: It is the time from the shipment of goods to the receipt of goods at the destination.
It should be as less as possible.
3. Speed: Methods of working for the delivery of goods to the customers place should ensure the on
time delivery.
4. Safety: Safety of goods at every level from start to the end of delivery should be ensured. Proper
packaging should be done to avoid any damage to quality or quantity of goods.
5. Claims Record: Claims against damages, pilferage or theft of goods should be available. Though
the supplier gets money back but the customer remains unsatisfied in such cases.
6. Responsiveness: Transporter has to respond the changing needs of the supplier and he should be
able to handle various products.
7. Capability: Transporter should be in a position to deliver the goods at any remote areas. He
should have large number of geographic service points.
8. Accessibility: Transporter should be easily accessible by providing door-to-door pick up and
delivery.
9. Reliability: It is the meeting of schedule on time as per requirement of the customer. Faster the
mode reliability increases, but it has to be weighed against cost.

MODES OF TRANSPORTATION

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1. Airlines/Airways: Among all the other modes of transport, the least hazardous mode can be
considered as the airways. The cost of air transportation is quite high; thus, it is mainly used for the
transportation of high valued perishable products with limited life span. The facility of air cargo is
mainly concentrated near the gateway airports e.g, Delhi, Mumbai, Kolkata, Chennai, and Bangalore.
About 87% of the total air cargo is handled by these airports in India. Anticipating the growing needs of
cargo airways and passenger airways, the Government of India is inviting the interested private players
in the air transport services and its associated services such as airports.

When goods are transported by air, the mode of transport is called airways. Air transport is mainly used
for international transport and in emergency rather than in normal times.

Advantages:

1. It is the fastest mode of transportation.

2. Fixed costs are lower than rail or road or pipeline.
3. It brings distant markets closer.
4. It overcomes the hassle and cost of setting up depots and service centers overseas.
5. Full potential of peak seasonal demand can be exploited.
6. Makes test marketing easy – Products can be shipped directly from the factory

Disadvantages:

1. Most expensive – Operating costs are highest.

2. Generally used to transport small volume items.
3. Certain categories of items are not allowed
4. Require secondary mode of transport to deliver to ultimate customer

2. Water Transport/Seaways: In order to ship heavy, non-perishable, and low value goods (such as
coal, grain, ore, and petroleum products), the cheapest mode of transportation can be seen as waterways.
There is a huge capacity in case of water carriers. Products weighing a minimum of ten times the weight
of one rail car can be transported by waterways powered by towboats, tugboats, barges which move in
inter coastal canals and inland rivers. In fact the vessels which run in oceans can have thousands of
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containers. There are a number of markets which are not connected with the waterways without the use
of railroad or trucks.

When goods are transported through the water medium by a ship, it is called seaways transportation.This
mode of transportation is the link between countries separated by water. Water transport is classified
into deep-water transportation and inland water transportation on lakes, rivers or canals.

Advantages:

1. Water transport has low capital costs and low operating costs.
2. Heavy and bulk goods of large quantities are transported by this mode.
3. Private or ‘for hire’ shippers available in water transport.

Disadvantages:

1. Water transport is limited due to availability of harbor.

2. Water transport is the slowest mode of transportation.
3. Require secondary mode of transport to deliver to ultimate customer.
4. Deep-water ships designed for ocean and lakes are limited to shallow-water ports.
5. Shallow water vessels like diesel-towed barges are flexible but are limited by their range of
operations and speed.

3. Railways: One of the principal carriers of men and material in the country is railways which plays a
very significant role in the trade and commerce activities of the country. It supplies essential
commodities. to different locations by transporting across the length and breadth of the country. The
industrialisation and development of many nations have been carried forward with the help of railways.
During the initial phase of industrialisation many countries were depending upon the railways as it was
the main source of transportation which was available for moving the raw material and finished products
from one place to another. Chemicals, heavy material, farm products, automobiles, and also the low
value products are transported by railways. They have greater efficiency in case of truckloads which can
be shipped at a relatively cheaper price through railways in comparison to smaller modes of
transportations. A relatively lesser handling is required in transporting the goods through railways. In
order to facilitate easy loading and unloading of material, different firms establish their facilities near to
the rail lines.

Advantages:

1. Railways is comparatively fastest mode of transport

2. Railways is an inexpensive mode of transportation
3. Railways are suitable for large quantities.
4. Railways provide door deliveries for industries.

Disadvantages:

1. Unreliable mode – especially for high value goods and directly usable consumer goods.
2. Railways lack flexibility of high-speed delivery.
3. Railways require modal combination alongwith roadways.
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4. Rail network needs a high capital investment due to right of way, switching yards, terminals.

4. Roadways: For the agricultural and industrial development of any nation, the most important mode
can be seen as the road transport. This method is quite useful in reaching to short and medium distances,
even to those places where other modes of transportation do not have their reach. The facility of door-to-
door service, which is not possible by other modes, is provided by road transport. In order to bring the
trade from the remote and rural areas to the urban and semi-urban areas, road transportation can be used.
With the help. of road transportation the basic infrastructure can be built to ensure the connectivity of
far-off villages with the rest of the nation. Because of the increased demand and a huge development in
industrial and agricultural sector, the significance of road transportation is quite vital for making the
product available at the place and time of consumption. In the transport network of the country, the role
of road transportation is quite dominant.

Advantages:

1. Speedy – Deliver the goods directly to the consignee very fast.

2. Highly flexible – handling different types of goods
3. Ultimate mode – consignment reaches the doorsteps of the customer.
4. Low capital cost as compared to railways.
5. Private or ‘for hire’ shippers available.

Disadvantages:

1. Higher operating costs – due to fuel requirement and higher labor requirement.
2. Occasional fuel shortages – leads to delay in delivery.
3. Strikes of carriers – due to disputes with government making the transportation idle.
4. Limited availability of trucks poses a constraint.
5. Octroi – posts are notorious for delays and harassment of carriers.
6. Restrictive permits for licenses – imposed by the government all over the country.

5. Pipeline

Pipeline mode of transportation facilitates the movement of liquids like oils; crude petroleum products
and water etc. In India more than 5,000 km of pipeline exists for crude and petroleum products. Slurries,
gases, vapors and solids in powder form are also transported in pipelines.

The use of pipeline for transportation of petroleum was first done by Samuel Van Syckel in the year
1870 in Pithole, Pennysyivania. The face of transportation was changed after twenty years by Standard
Oil Company of North-Western Pennysylvania. The pipeline transportation was first use for transporting
the petroleum but its scope is enhanced by using it for transporting many commodities such as coal in
slurry form, chemicals, natural gas, iron ore fines in slurry form, etc. Although the initial cost of setting
up the network of pipelines is quite high but later it helps in reducing the operating costs. Almost all
public and private sector petroleum refineries use the pipelines for the transportation of petroleum
products. These can be thought of as the most automated mode of transportation which mainly carries
the products of a shipper as it belongs only to a certain shipper. Mainly chemicals or petroleum products
are transported by the pipelines. There are numerous environmentalists who have. their concerns

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regarding the effect of pipeline on the environment such as harm to plants and animals due to
installation and leaks.

Advantages:

1. Pipelines are reliable mode – pilferage and loss of product is not possible.
2. Pipelines have low energy consumption.
3. Pipelines being under ground, space occupation is minimal.
4. Pipelines operate all the time except when it is shut down for maintenance.
5. No need to bring back empty container or wagon.

Disadvantages

1. Highest fixed costs – due to lying of pipeline but lowest operating costs.
2. Pipelines are fixed – so the accessibility of product is limited on the rout.
3. Only liquid commodity can be transported.

6) Ropeways :
Out of the total geographical area of India, over 16% is comprised of hilly locations. The problem of
transportation is quite prominent in these locations due to the long circuitous paths. Sometimes, the
transportation of essential commodities and other materials is quite vital due to their strategic
significance in the defence programs of the nation. Ropeways can be seen as the economical and faster
mode of transportation in the hilly areas, especially when the oil shortage is going on. The various
merits of ropeways are as follows :
 Lesser harm to the ecology.
 Shorter routes can be used to reach to the remote hilly locations.
 The cost of ropeway transportation is lesser than the other modes.
 Over short distance, thee transportation of bulky products is quite fast.

INTERMODAL TRANSPORTATION

Intermodal transportation is the use of more than one mode of transport to move a shipment to its
destination. Intermodal movements combine the cost and service advantages of two or more modes in a
single product movement. Benefits of long haul, short time & flexibility are optimized for achieving
overall cost reduction

Depending upon the type and amount of goods, time of delivery, and prices following three Intermodal
combinations are available:

1. Piggyback: It is coordination between railways and road transport. It is also called as TOFC
(Trailer on Flatcar) or COFC (Container on Flatcar). In piggyback the motor carrier trailer placed
on rail flatcar, which moves the trailer by rail for a long distance. Then the motor carrier moves
the trailer for short distance for deliveries. Here the placement of trailer on a railcar can lead to
damages.
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2. Fishyback: It is coordination between waterways and road transport. In fishyback the truck or
trailer rides on the ship for small portion of its journey. This service is provided in coastal waters
between Atlantic and Gulf ports.
3. Birdyback: It is coordination between airways and road transport. In birdyback the major portion
of journey is covered by airways then the cargo is transported by trucks or trailers.
4. Others: Water and railways, air and railways, air and waterways, pipeline and water, pipeline
and roadways etc.

INALND CONTAINER DEPOTS (ICDs)

ICDs are dry ports at a distance far away from the shoreline and handle all the import export formalities.
This a large warehouse where exporter books his cargo and completes all export formalities. Then ICD
moves the containers to natural seaport. The customs department, shipping companies, handling
agencies, banks, customs house agents and clearing and forwarding agents are all based at the ICDs.

Advantages / Uses

1. Connect major ports to hinterland i.e. land deprived of natural deep-water ports because of
geography.
2. Handle containers from road and rail to a container yard.
3. Performing activities like weighing, inspection of scales, damages and safety stickers.
4. Facilitate customs clearance and export import formalities.
5. Increase the export potential of industries in the hinterland and also simplifies import of goods
by hinterland.
6. Decongest major ports.

TRANSPORTATION NETWORK OPTIONS

1. Direct Shipping – From shipper directly to retailers.

2. Direct Shipping using Milk Runs – Single supplier to a number of retailers, deliver like a milkman.

3. All Shipping via CDC – Suppliers send the supplies to Central Distribution centers and distribution
center caters the needs of retailers.

4. All Shipping via CDC Using Milk Runs – Suppliers send the supplies to CDC and from CDC to
large number of suppliers.

5. Tailored Network – Tailor made network as per the company needs. One model for some logistical
mission and another model for some other mission.

Milk Run

Milk Run is a transportation network, in which Suppliers send the supplies to CDC and from CDC to
large number of suppliers. Milk Run reduces out bound transportation costs by consolidating small
shipments.

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CROSS DOCKING

Cross Docking is a new logistics technique used in the retail and trucking industries which means
receiving goods at one door and shipping to the other door almost immediately without putting them into
storage.

Advantages / Objectives

1. It helps to reduce operating costs by eliminating handling and storage of products.

2. It helps to reduce inventory level by direct shipment to the customers.
3. It helps to increase sales by providing on time delivery to the customers.
4. It encourages the electronic communication between the supplier and retailers.

TERMINAL DELAYS

Delays which take place at terminals due to documentation problems, congestion, poor unloading
facilities etc. Influence vehicle turnaround time. Adds cost to transportation, as vehicle is unutilized. E.g.
at sea port or airport cargos can get stuck.

NETWORK AND DECISION

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CONTAINERIZATION – CONCEPT:
Containerization is the international shipping practice of storing a number of pieces of freight within a
large container and transporting them as a single unit. This technique offers benefits to shippers,
including less cargo handling, greater cargo protection and reduced shipping costs. Standardized
containers, typically in 20- or 40-foot lengths, can be transported over long distances and transferred
between transportation modes more efficiently.

Advantages of containerization include:

 Less handling of cargo
 More protection against pilferage
 Less exposure to elements
 Lower shipping costs
Even if containerization conveys numerous advantages to freight distribution, it does not come without
challenges.

The main advantages of containerization are:

 Standardization. The container is a 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 a unique identification number and a size type code.
 Flexibility. It can be used to carry a wide variety of goods such as commodities (coal, wheat),
manufactured goods, cars, and 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.
 Costs. Lower transport costs due to the advantages of standardizat ion. Moving the same amount
of break-bulk freight in a container is about 20 times less expensive than conventional means.
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Containers enable economies of scale at modes and terminals that were not possible through
standard break-bulk handling.
 Velocity. Transhipment operations are minimal and rapid, and port turnaround times have been
reduced from 3 weeks to about 24 hours. Because of this transshipment advantage, transport
chains involved containers are faster. Containerships are faster than regular freighter ships.
 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 containerization. With the proper equipment, a container had can increase its
stacking density.
 Security and safety. The container contents are unknown to carriers since it can only be opened
at the origin (seller/shipper), at customs, and the destination (buyer). This implies reduced
spoilage and losses (theft).

The main drawbacks of containerization are:

 Site constraints. 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 the port are emerging with the introduction of larger containerships, particularly those of the
post-panamax class. A large post-panamax containership requires a draft of at least 13 meters.
 Capital intensiveness. Container handling infrastructures and equipment (giant cranes,
warehousing facilities, inland road, and rail access) are important capital investments that require
large pools of available capital. Further, the push towards automation is increasing the capital
intensiveness of intermodal terminals.
 Stacking. The complexity of the arrangement of containers, both on the ground and modes
(containerships and double-stack trains), requires frequent restacking, which incurs additional
costs and time for terminal operators. The larger the load unit or the yard, the more complex its
operational management.
 Repositioning. Because of trade imbalances, 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).
 Theft and losses. High-value goods and a load unit that can forcefully be opened or carried
away (on a 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), mainly because of
bad weather.

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