Page 180 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 8: Transportation

transport is the high cost. However, this can be traded off for high speed, which allows other Notes
elements of logistical design, such as warehousing or inventory, to be reduced or eliminated.
Air transport still remains more of a potential opportunity than a reality. Although the mileage
is almost unlimited, airfreight accounts for significantly less than 1 percent of all intercity ton-
miles. Air transport capability is limited by lift capacity (i.e., load size constraints) and aircraft
availability. Traditionally, most intercity airfreight utilized scheduled passenger flights. While
this practice was economical, it resulted in a reduction of both capacity and flexibility.

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Caution The high cost of jet aircraft, coupled with the erratic nature of freight demand, has
limited the assignment of dedicated planes to all-freight operations.
However, premium air carriers such as Federal Express and United Parcel Service Overnight
provide dedicated global freight operation. While this premium service was originally targeted
at documents. It has expanded to include larger parcels.
For example, both United Parcel and Federal Express have extended their air freight service to
include overnight delivery from a centralized distribution centre located at their air hub. This is
an ideal service for firms with a large number of high-value products and time-sensitive service
requirements.
The fixed cost of air transport is low compared to rail, water, and pipeline. In fact, air transport
ranks second only to highways with respect to low fixed cost. Airways and airports are generally
developed and maintained with public funds. Likewise, terminals are normally maintained by
local communities. The fixed costs of airfreight are associated with aircraft purchase and the
requirement for specialized handling systems and cargo containers. On the other hand, air
freight variable cost is extremely high as a result of fuel, maintenance, and the labour intensity
of both in-flight and ground crews.
Table 8.1: Modal Comparison and Dominant Traffic Composition

Mode Nature of Traffic Composition
Rail Extracting industries, Heavy manufacturing, Agricultural commodities
Highway Medium and light manufacturing, Distribution between wholesalers and retailers
Water Mining and basic bulk commodities, Chemicals, Cement, Some agricultural products
Pipeline Petroleum, Coal slurry, No particular commodity
Air Emergency rather than regular basis

Source: Upendra Kachru, (2010), “Exploring the Supply Chain,” Excel Books

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Caselet Systemic Approach to a Better Transport System

he Theory of Constraints (TOC) is a business philosophy invented by Israeli physicist
and management specialist Dr Eliyahu Goldratt in the 1980s. The theory is all about
Tstriving to achieve the global objective or the “goal” of any system by understanding
and analysing the cause and effect relationships between the parts of the system and the
variations within it.
TOC advocates balancing the flow of a system instead of balancing the capacity. Though a
radical shift from the past, it worked so well that it became very popular. The same is the
Contd...

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