Page 184 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 8: Transportation

Notes
Example: A shipment of 800 miles will cost less than two shipments (of the same combined
weight) of 400 miles.
Transportation economy of distance is also referred to as the tapering principle since rates or
charges taper with distance. The rationale for distance economies is similar to that for economies
of scale. Specifically, the relatively fixed expense incurred to load and unload the vehicle must
be spread over the variable expense per unit of distance. Longer distances allow the fixed
expense to be spread over more miles, resulting in lower overall per mile charges.
These principles are important considerations when evaluating alternative transportation
strategies or operating practices. The objective is to maximize the size of the load and the
distance that it is shipped while still meeting customer service expectations.

Self Assessment

State whether the following statements are true or false:

4. A less common transportation function is a permanent storage.
5. Economy of Distance refers to the characteristic that transportation cost per unit of distance
decreases as distance increases.

6. Shorter distances allow the fixed expense to be spread over more miles, resulting in lower
overall per mile charges.

8.3 Participants

Transport transactions are often influenced by five parties: the shipper (the original party), the
consignee (destination party or receiver), the carrier, the government, and the public.

Figure 8.1: Participants in Transportation

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

8.3.1 Relationship between the Shipper, the Consignee and the Public

Figure 8.1 illustrates the relationship between these parties. They may be related by ownership
in some situations, such as when company-owned vehicles are used to transport goods between
two company locations. In many cases, however, the parties are independently owned and
operated. In order to understand the complexity of the transportation environment, it is necessary
to review the role and perspective of each party.

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