While it is much easier to connect companies and customers by means of e-commerce transactions and the Internet, still physical delivery relies on effective management of a transportation system. On average, transportation operation costs constitute 30% of logistics costs. Thus, the role of transportation in logistics systems is crucial. There is an apparent interconnectedness between transportation and logistics while performance of logistic activities is impossible without transportation management. Vice versa, proper logistics system enahcnes traffic environment and transportation development (Thompson and Taniguchi, 2001).
As such, the notion of supply chain management assumes planning and managing all logistics, sourcing, procurement, and conversion operations. Supply chain managers coordinate their actions and collaborate with channel partners, including intermediaries, suppliers, third-party service providers, and customers. In addition, the practice of supply chain management integrates supply-and-demand management among various companies. Thus, supply chain management assumes management of business relationships among a main company and all its outside supply chain partners (Krumwiede and Sheu, 2002).
Cost efficient and effective logistics management requires the establishment of an economical and responsive transportation network. It enables a company to reduce costs, implement strategic changes and advance customer service levels without disrupting an overall supply chain flow. End-to-end network visibility is an initial step in setting up a responsive transportation network. The point is that visibility enables companies to centralize their production operations to lower-cost areas without affecting customer service levels. Visibility enables transparent monitoring and appropriate management of all the uncertainties within the network and keeping inventory levels low. A primary task in setting up an economical transportation network is realizing an essential role of transportation. Rather than taking this component as a source of cost and risk, logistics managers should treat it as the largest component of the cost structure of within the entire logistics structure. According to Chang (1998), transport accounts for about 30% of the total spending on logistics operations, which equals to the amount of inventory and warehousing altogether.
Supply chain managers of competitive companies have acknowledged transportation as a strategic driving force that ensures cost savings and creates value within the supply chain. Cutting-edge technologies allow supply chain managers to deploy sophisticated tools for monitoring, control, and optimization of transportation networks. In particular, successful companies utilize “the Cloud” as means of effective implementation. According to 2014 survey by Bloomberg, 73% supply chain managers have reconsidered their stance on a strategic role of transportation and identified transportation as a key focus within the logistics management. Rather than merely financial drain associated with pallets, warehouses, and trucks, over the decades transportation has transformed into an organizational tool that continuously generates operational efficiency and enhances the bottom line and ensures additional value for shareholders (Goldsby, Iyengar, and Shashank, 2014).
Still, transportation is among strategically important activities within the framework of inbound and outbound logistics. An effective management of this component is closely linked with planning inventory, forecasting of a demand side, as well as storing and delivering goods as well as delivering them. Such interrelationship features effective logistics management that optimizes all the processes and minimizes the incurred costs. The supply chain strategies seeking to eliminate transportation costs assume shipping orders to customers in large volumes through the slow means of transportation. At that, transportation presents a sizeable expense for a company. Given that, supply chain managers manage the interrelationships among logistical actions and costs, including transportation, warehousing, inventory, customer service, and information exchange. At that, they do their best to optimize the performance of the whole logistics system rather than advancing its separate components.
This is rather important while a supply chain involves a network of companies working together to deliver goods and service to end users and consumers. While most companies do not have their own supply chains, they rely on outside suppliers (Rogers and Tibben-Lembke, 1998).
As an integral part of Supply Chain Management, Logistics Management emphasizes on how and when a company gets raw materials, intermediate products, and end goods from its respective origins to needed destinations. Herewith, transportation services present an essential link between the constituents of the supply chain. As such, transportation assumes physical connection between the companies within the supply chain. The ‘nodes’ are the locations in a supply chain network, while the connections are the ‘links.’ The logistics managers ensure proper matching of outbound and inbound deliveries by coping with delays and problems within a supply chain, eliminating transportation disruptions, settling equipment failures and side (force majeure) circumstances (Goldsby, Iyengar, and Shashank, 2014).
Transportation management assumes comprehension of a company’s spatial dimension. This means understanding geographical scope and relationships reflecting the juxtaposition of a company regarding their materials sources, operated markets, and rivals. At that, transportation serves as a strategically important connection between spatially (geographically) separated units within a company’s internal organization (including warehouses and plants), and between the external units (including suppliers and customers).
Effective transportation management ensure minimizing time and cost required to fulfill spatial relationships of a company. Herewith, it is noteworthy that today’s logistics structure relies on advanced trucking industry and efficient motor carrier transportation that assumes such innovative techniques such as Efficient Consumer Response (ECR) and JIT. A strategic transportation’s function consists in creating place utilities for the produced and distributed commodities. A consumer driven economy urges companies to provide a vast choice of competitive products that need intensive distribution. That is why effective management of the trucking industry is essential within supply chain network. Therefore, transportation makes an integral and strategically important component of an overall production process (Drucker, 2001).
While transportation generates time and place utility, its proper management affects wider business decisions of a company. Customer delivery requires timelines that are not possible without proper management of the use of trucks. In their turn, product-related decisions require efficient transportability with the consideration of a product’s physical attributes and features, as well as the cost and availability. In terms of market decisions, the transportation features of a product define the optimal place of its future sales. Regarding purchasing decisions, transportation considerations define the place and the items (a product) available for purchase. Location decisions assume that the mode of transportation operations entirely depend on a core business operations performed by a company. For instance, proximity to highway services is a decisive factor in locating new manufacturing facilities. Finally, pricing decisions suggest that transportation has a bearing on corporate pricing decisions, in particular for companies that deploy cost-oriented pricing policy (Cooper, Lambert, and Pagh, 1997).
Even though many take transportation for granted, its strategic role is critical for corporate performance and therefore necessitates proper management within the entire supply chain system. While many perceive transportation management as a separate component within the logistics framework, in practice it is an integral part of the whole supply chain network while any disruptions and mismanagement automatically affect the entire system. Considering this, proper management of transportation operations and connections within both internal and external organization are of critical operational importance. Proper transportation management directly affects cost, market, location and delivery decisions. It is also important for establishing strategic links and partnerships with suppliers and customers (Taniguchi, Thompson, and Yamada, 2001).
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- Chang, Y.H. (1998) Logistical Management. Hwa-Tai Bookstore Ltd., Taiwan.
- Cooper, M.C., Lambert, D.M. and Pagh, J.D. (1997). Supply chain management: more than a new name for logistics, International Journal of Logistics Management, Vol. 8, No. 1, 1-13.
- Drucker, P.F. (2001) Management Challenges for the 21st Century. Harper Business.
- Goldsby, T., Iyengar, D., & Shashank, R. (2014). Definitive Guide to Transportation: Principles, Strategies, and Decisions for the Effective Flow of Goods and Services, Pearson FT Press.
- Krumwiede, D.W. and Sheu, C. (2002). A model for reverse logistics entry by third-party providers, Science Direct, Vol. 30, 325-333.
- Rogers, D.S. and Tibben-Lembke, R.S. (1998). Going backwards: reverse logistics trends and practices. The University of Nevada, Reno.
- Taniguchi, E., Thompson, R.G. and Yamada, T. (2001). Recent advances in modelling City Logistics. In E. Taniguchi and R.G. Thompson (eds.), City Logistics II. Institute of Systems Science Research, Japan, 3-33.