Page 180 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

Unit 8: International Transport System

From the viewpoint of supply chain, three factors related to performance are fundamental to the Notes
selection of the mode of transportation: speed, cost and consistency.
Speed of transportation is the time required to complete a specific movement. Speed and cost of
transportation are related in two ways:
1. Transport firms capable of providing faster service, typically charge higher rates; and
2. The faster the transportation service, the shorter the time interval during which inventory
is in transit and is unavailable.
Thus, a critical aspect of selecting the most desirable method of transportation is to balance
speed and cost of service.
Consistency of transportation refers to variations in time required to perform a specific movement
over a number of shipments. Consistency is a reflection of the dependability of transportation.
If transportation lacks consistency, inventory safety stocks will be required to protect against
unpredictable service breakdowns. The quality of transportation performance is critical to time-
sensitive operations. Speed and consistency combine to create the quality aspect of transportation.
In the design of a logistical system, a delicate balance must be maintained between transportation
cost and quality of service. The cost of transport is the payment for movement between two
geographical locations and expenses related to administration and maintaining in-transit
inventory. Logistical systems should be designed to utilize transportation that minimizes total
system cost.
Transportation cost, which is one of the major logistical costs, can be optimized through
movement consolidation. As a general rule, the larger the overall shipment and the longer the
distance it is transported, the lower the transportation cost per unit. In addition, the cost is also
directly related to the product characteristics. Innovative programmes to consolidate movement
by grouping small shipments through overall supply chain integration can lower transportation
costs significantly.

Note Transportation creates time and place utility in goods.

The term ‘transportation’ is derived from the Latin trans (“across”) and portare (“to carry”). In
fact, the backbone of the entire supply chain is the transportation management that makes it
possible to achieve the well-known seven ‘R’s– the right product in the right quantity and the
right condition, at the right place, at the right time, for the right customer at the right cost.

Did u know? Logistics costs are in the range of 12 to 15 percent of the GDP for a developing
country while it is around 18 to 20 percent for a developed country.

8.1 Basic Terms in Relation with Transportation

Some of the basic terms used while discussing transportation are given below:
Procurement (Purchasing): The inflow of materials to an organisation is usually initiated
when a procurement department sends a purchase order to a supplier. This means that the
purchase department finds suitable suppliers, negotiates the terms and conditions, organises
delivery, arranges insurance and payment, and does everything needed to get the materials
into the organisation. It is now recognised as an important link with upstream activities.

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