Page 195 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes
Example: While steel blocks and rods have the same density, rods are more difficult
to stow because of their length and shape. Sometimes large numbers of items can be
‘nested’ that might otherwise be difficult to stow in small quantities, improving stowability.
Products with good stowability attract lower transportation rates.
 Handling: Special handling equipment may be required for loading or unloading trucks,
railway wagons or ships. By grouping together products, e.g. taping, boxing, or palletizing
products, for transport and storage, handling costs can be reduced.
 Liability: Liability includes susceptibility to damage, property damage to freight,
perishability, susceptibility to theft, susceptibility to spontaneous combustion or explosion,
and value per kilogram. Carriers insure their cargoes to protect against possible claims or
accept responsibility for any damage. Shippers can reduce their risk, and ultimately the
transportation cost, by improved protective packaging or by reducing susceptibility to
loss or damage.
 Market Factors: Since transportation vehicles and drivers must return to their origin,
either they must find a load to bring back (“back-haul”) or the vehicle is returned empty
(“deadhead”). When deadhead movements occur, labour, fuel, and maintenance costs
must be charged to the shipper. A “Balanced” move, where volume is equal in both
directions, is rarely possible because of factors such as demand imbalances in manufacturing
and consumption locations, seasonality, etc.

Example: The movement of fruits and vegetables coincide with the growing season.
These result in transport rates changing with direction and season.
Logistics system design must take this factor into account and add back-haul movement
where possible.
8.6.7 Total Transportation Costs

In addition to the basic cost charged for movement of goods, the total transportation cost reflects
a large number of other factors, such as transit time costs, obsolescence and deterioration costs,
protective packaging costs, and transit insurance costs, etc. These components are discussed
below.
 Transit Time Cost: This element reflects the temporal cost of transportation. From total
logistics costs point of view, cost of inventory in transit is a very significant factor. The
longer the transit time of a particular mode of transport, the inventory is inaccessible to
the user. This adds to the safety stock the company has to carry and the requirement of
working capital. The transportation cost must consider that if inventory is available after
a longer period of time, it will result in higher total costs.
 Obsolescence and Deterioration Costs: There are certain categories of products which are
perishable and delicate in nature, whose physical attributes deteriorate over a period of
time, gradually resulting into devaluation of the product. For instance, vegetables such as
tomatoes are transported from Punjab to Delhi; any delay in transit or poor stowing may
force the marketers to sell them at a less-than-desired price. Such a cost is classified as
obsolescence and deterioration costs during transportation.
 Protective Packaging Costs: For many products, there may be requirements of special
packaging. This cost is also a part of the total transport cost. For instance, if a product is
shipped using a container, it may require less protective packaging for safe shipment in
comparison being shipped in a truck. Another example is given later on for transportation
of glass in the rating system for goods transportation.

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