7.7 Logistics and transportation
11 min read•august 21, 2024
Logistics and transportation are vital components of marketing strategy, ensuring products reach customers efficiently and cost-effectively. This topic explores the intricate network of activities involved in moving goods from production to consumption, impacting customer satisfaction and brand reputation.
From to , logistics encompasses various elements that shape a company's competitive advantage. Understanding these concepts is crucial for marketers to optimize product availability, pricing strategies, and customer service while navigating the challenges of global trade and evolving consumer expectations.
Overview of logistics
- Logistics encompasses the planning, implementation, and control of the flow and storage of goods, services, and information from point of origin to point of consumption
- Plays a crucial role in marketing by ensuring products reach customers efficiently, impacting customer satisfaction and brand reputation
- Effective logistics management contributes to competitive advantage through cost reduction, improved service quality, and enhanced responsiveness to market demands
Definition and importance
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- Coordinated movement of resources, information, and finances across the supply chain
- Impacts customer satisfaction by ensuring timely and accurate delivery of products
- Contributes to cost reduction and operational efficiency in business operations
- Enables companies to respond quickly to market changes and customer demands
- Supports global trade by facilitating the movement of goods across international borders
Key components of logistics
- oversees the movement of goods through various modes
- Warehousing and inventory control optimize storage and stock levels
- processes customer orders from receipt to delivery
- Packaging and materials handling ensure product protection and efficient movement
- track and coordinate logistics activities
- handles returns, repairs, and recycling of products
Supply chain management
- Broader concept encompassing the entire network of organizations involved in producing and delivering a product
- Integrates various business functions including procurement, production, and distribution
- Focuses on optimizing the flow of goods, information, and finances across the entire supply chain
Role in marketing strategy
- Supports product availability ensuring products are in the right place at the right time
- Influences pricing strategies by managing costs associated with production and distribution
- Enhances customer service through reliable and efficient delivery processes
- Facilitates market expansion by enabling efficient distribution to new geographical areas
- Supports product customization and personalization through flexible supply chain processes
- Contributes to brand differentiation through superior logistics performance
Supply chain integration
- Vertical integration involves controlling multiple stages of the supply chain (backward or forward integration)
- Horizontal integration focuses on collaborating with partners at the same level of the supply chain
- Information sharing across the supply chain improves visibility and decision-making
- aligns supply chain activities with demand
- shifts inventory management responsibility to suppliers
- Supply chain risk management identifies and mitigates potential disruptions in the supply chain
Transportation modes
- Selection of transportation modes significantly impacts logistics costs and performance
- Different modes offer varying trade-offs between speed, cost, capacity, and flexibility
- Intermodal transportation combines multiple modes to optimize efficiency and cost-effectiveness
Road vs rail
- Road transportation (trucking)
- Offers flexibility in route selection and door-to-door delivery
- Suitable for short to medium distances and smaller shipment sizes
- Higher cost per ton-mile compared to rail
- Vulnerable to traffic congestion and weather conditions
- Rail transportation
- Cost-effective for long-distance, high-volume shipments
- Lower environmental impact compared to road transportation
- Limited flexibility in terms of routes and destinations
- Requires intermodal transfers for door-to-door delivery
Air vs sea
- Air transportation
- Fastest mode for long-distance and international shipments
- Ideal for high-value, time-sensitive, or perishable goods
- Highest cost per unit of weight among all modes
- Limited capacity compared to sea transportation
- Sea transportation
- Most cost-effective for large volume, long-distance international shipments
- Slowest mode of transportation with longer transit times
- Offers the highest capacity for bulk and containerized cargo
- Subject to port congestion and weather-related delays
Intermodal transportation
- Combines multiple transportation modes to optimize efficiency and cost
- Utilizes standardized containers for easy transfer between modes
- Reduces handling and potential damage to goods during transfers
- Leverages the strengths of different modes (speed of air, cost-effectiveness of sea)
- Requires coordinated planning and scheduling across different carriers
- Enables door-to-door service while optimizing costs and transit times
Warehousing and distribution
- Critical components of logistics that bridge the gap between production and consumption
- Facilitate inventory management, order fulfillment, and value-added services
- Play a key role in balancing supply and demand fluctuations
Warehouse types and functions
- Public warehouses offer storage services to multiple companies
- Private warehouses are owned and operated by a single company for its own goods
- Bonded warehouses store imported goods before customs duties are paid
- Cold storage warehouses maintain temperature-controlled environments for perishables
- facilities focus on rapid transfer of goods without long-term storage
- Fulfillment centers specialize in processing and shipping individual customer orders
- Functions include:
- Receiving and inspecting incoming goods
- Storage and inventory management
- Order picking and packing
- Value-added services (kitting, labeling, light assembly)
Distribution center operations
- Serve as hubs for receiving, storing, and shipping products to customers or retailers
- Utilize advanced material handling equipment (conveyor systems, automated storage and retrieval systems)
- Implement warehouse management systems (WMS) for inventory tracking and order processing
- Employ various picking strategies (wave picking, zone picking, batch picking)
- Optimize layout and slotting to improve efficiency and reduce travel time
- Implement quality control measures to ensure
- Manage returns and reverse logistics processes
Inventory management
- Balances the costs of holding inventory against the risk of stockouts
- Aims to maintain optimal inventory levels to meet customer demand while minimizing costs
- Utilizes various techniques and technologies to forecast demand and control stock levels
Just-in-time inventory
- Minimizes inventory levels by synchronizing deliveries with production schedules
- Reduces carrying costs and improves cash flow by holding less inventory
- Requires close coordination with suppliers and reliable transportation
- Increases vulnerability to supply chain disruptions
- Implemented successfully by companies (Toyota) to improve efficiency
- Challenges include potential stockouts and increased
Safety stock vs cycle stock
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- Extra inventory held to buffer against uncertainty in demand or supply
- Protects against stockouts caused by unexpected spikes in demand or supply delays
- Calculated based on factors like demand variability, lead time, and desired service level
- Trade-off between holding costs and stockout costs
-
- Regular inventory that turns over in the course of normal business operations
- Replenished in cycles based on economic order quantity (EOQ)
- Balances ordering costs against holding costs
- Affected by factors like lot sizes, production runs, and transportation efficiencies
- Inventory management strategies aim to optimize the balance between safety stock and cycle stock
Last-mile delivery
- Refers to the final stage of delivery from the distribution center to the end customer
- Critical in shaping customer experience and satisfaction in e-commerce
- Presents significant challenges in terms of cost, efficiency, and environmental impact
Challenges and solutions
- High costs due to inefficient routing and multiple stops
- Solution: Route software and of deliveries
- Failed deliveries and reattempts increasing operational costs
- Solution: Flexible delivery options (lockers, pickup points) and real-time tracking
- Traffic congestion in urban areas causing delays
- Solution: Off-peak deliveries and use of alternative vehicles (bicycles, electric vehicles)
- Environmental concerns related to emissions
- Solution: initiatives and use of electric or hybrid vehicles
- Customer expectations for fast and free delivery
- Solution: Tiered delivery options and subscription-based delivery services
E-commerce impact
- Surge in online shopping has dramatically increased last-mile delivery volumes
- Shift towards omnichannel retail requiring integration of online and offline logistics
- Increased pressure for faster delivery times (same-day, next-day delivery)
- Rise of crowd-sourced delivery platforms (Uber Eats, DoorDash) for local deliveries
- Growing importance of reverse logistics to handle e-commerce returns
- Emergence of innovative delivery methods (drones, ) to meet demand
Reverse logistics
- Manages the flow of goods from the point of consumption back to the point of origin
- Crucial for customer satisfaction, cost recovery, and environmental sustainability
- Increasingly important in the e-commerce era with high return rates
Returns management
- Establishes policies and procedures for handling product returns
- Implements efficient processes for receiving, inspecting, and sorting returned items
- Determines appropriate disposition (resell, refurbish, recycle, or dispose)
- Utilizes technology to streamline returns processing and tracking
- Analyzes return data to identify patterns and improve product quality or marketing
- Balances customer-friendly return policies with cost management
Recycling and sustainability
- Incorporates environmentally friendly practices into reverse logistics operations
- Implements recycling programs for products at the end of their lifecycle
- Designs products for easy disassembly and recycling (Design for Environment)
- Recovers valuable materials from returned or end-of-life products
- Collaborates with specialized recycling partners for proper disposal
- Contributes to corporate social responsibility and sustainability goals
- Complies with environmental regulations and extended producer responsibility laws
Technology in logistics
- Drives efficiency, visibility, and automation across the supply chain
- Enables real-time tracking and decision-making in logistics operations
- Facilitates integration and coordination among supply chain partners
GPS and tracking systems
- Provide real-time visibility of shipments and vehicles
- Enable accurate estimation of arrival times and proactive problem-solving
- Improve route optimization and fuel efficiency
- Enhance security by monitoring cargo location and detecting unauthorized movements
- Integrate with transportation management systems for comprehensive logistics control
- Support compliance with regulations (hours of service for drivers)
Warehouse management software
- Optimizes warehouse operations and inventory management
- Directs put-away, picking, and packing processes for improved efficiency
- Provides real-time inventory visibility and location tracking within the warehouse
- Integrates with other systems (ERP, TMS) for seamless information flow
- Supports advanced picking methods (voice picking, pick-to-light)
- Generates performance metrics and reports for continuous improvement
- Enables automated replenishment and demand forecasting
Cost considerations
- Critical factor in logistics decision-making and overall profitability
- Requires balancing service levels with cost efficiency
- Influences strategic decisions on network design and transportation mode selection
Transportation costs
- Typically represent the largest portion of logistics costs
- Include fuel, labor, vehicle maintenance, and carrier fees
- Vary based on mode of transportation, distance, and shipment characteristics
- Affected by factors like fuel prices, regulations, and market conditions
- Can be optimized through strategies like:
- Consolidation of shipments
- Negotiation of long-term contracts with carriers
- Use of transportation management systems for route optimization
- Modal shifts to more cost-effective options where appropriate
Inventory carrying costs
- Represent the expenses associated with holding inventory
- Include storage costs, insurance, taxes, and opportunity cost of capital
- Typically estimated at 20-30% of inventory value annually
- Can be reduced through strategies like:
- management
- Improved demand forecasting
- Vendor-managed inventory programs
- Optimized safety stock levels
- Must be balanced against the risk and cost of stockouts
Global logistics
- Involves managing the flow of goods, information, and finances across international borders
- Presents unique challenges and complexities compared to domestic logistics
- Requires understanding of diverse cultural, legal, and economic environments
International shipping regulations
- Compliance with customs regulations and documentation requirements
- Adherence to international trade agreements and tariff schedules
- Understanding of Incoterms (International Commercial Terms) for clear allocation of costs and risks
- Compliance with product safety and labeling requirements in different countries
- Adherence to environmental regulations and restrictions on hazardous materials
- Navigation of export/import licensing requirements for certain goods
Cross-border logistics challenges
- Currency fluctuations impacting costs and pricing strategies
- Language barriers in communication with international partners
- Longer and more variable lead times due to distance and border crossings
- Increased complexity in inventory management across global supply chains
- Political and economic instability in certain regions affecting supply chain reliability
- Cultural differences influencing business practices and customer expectations
- Need for localization of products and packaging for different markets
Logistics performance metrics
- Essential for measuring efficiency, identifying improvement areas, and benchmarking performance
- Should align with overall business objectives and customer requirements
- Require consistent measurement and regular review for continuous improvement
On-time delivery
- Measures the percentage of shipments delivered within the promised timeframe
- Critical for customer satisfaction and supply chain reliability
- Calculated as: (Number of on-time deliveries / Total number of deliveries) x 100
- Factors affecting on-time delivery:
- Transportation delays
- Order processing efficiency
- Inventory availability
- Weather conditions and natural disasters
- Strategies for improvement:
- Real-time tracking and proactive problem-solving
- Buffer time in schedules for unexpected delays
- Collaboration with reliable carriers and suppliers
Order accuracy
- Measures the percentage of orders fulfilled without errors
- Encompasses correct items, quantities, and condition upon delivery
- Calculated as: (Number of error-free orders / Total number of orders) x 100
- Impacts customer satisfaction and reduces costs associated with returns and rework
- Factors influencing order accuracy:
- Warehouse picking and packing processes
- Inventory management systems
- Quality control measures
- Clear communication of order details
- Improvement strategies:
- Implementation of barcode scanning and RFID technology
- Regular staff training and performance monitoring
- Double-checking procedures for high-value or critical items
Future trends in logistics
- Rapid technological advancements are reshaping the logistics landscape
- Focus on sustainability and environmental impact is driving innovation
- Changing consumer expectations are pushing for faster, more flexible delivery options
Autonomous vehicles
- Self-driving trucks and delivery vehicles poised to revolutionize transportation
- Potential benefits include:
- Reduced labor costs and driver shortages
- Improved safety through elimination of human error
- Increased efficiency with 24/7 operations
- Optimized fuel consumption and reduced emissions
- Challenges include:
- Regulatory hurdles and legal frameworks
- Public acceptance and safety concerns
- Infrastructure requirements for widespread adoption
- Cybersecurity risks and potential for system failures
- Major companies (Tesla, Waymo) investing heavily in autonomous vehicle technology
Drone delivery
- Unmanned aerial vehicles (UAVs) for last-mile delivery of small packages
- Advantages include:
- Rapid delivery to remote or congested areas
- Reduced traffic congestion and carbon emissions
- Lower operating costs for certain types of deliveries
- Ability to reach areas with poor road infrastructure
- Challenges and considerations:
- Regulatory restrictions on airspace usage
- Limited payload capacity and range
- Weather sensitivity and potential for accidents
- Privacy concerns related to drone operations
- Companies (Amazon Prime Air, Google Wing) conducting pilot programs and seeking regulatory approval
Key Terms to Review (28)
Automated guided vehicle (AGV): An automated guided vehicle (AGV) is a type of mobile robot used in industrial applications to transport materials and goods within a facility without human intervention. AGVs navigate through predefined paths or routes using various technologies like lasers, magnets, or cameras, making them essential for improving efficiency and reducing labor costs in logistics and transportation systems.
Autonomous vehicles: Autonomous vehicles are self-driving cars or trucks equipped with technology that allows them to navigate and operate without human intervention. These vehicles use a combination of sensors, cameras, and artificial intelligence to understand their environment, making real-time decisions for safe travel. The rise of autonomous vehicles is transforming logistics and transportation by enhancing efficiency, reducing human error, and improving delivery times.
Carbon footprint reduction: Carbon footprint reduction refers to the strategies and actions taken to decrease the total amount of greenhouse gases emitted directly or indirectly by an individual, organization, or process, typically measured in carbon dioxide equivalents. This concept is crucial in logistics and transportation, as these sectors are significant contributors to global carbon emissions. By focusing on carbon footprint reduction, businesses can not only improve their environmental impact but also enhance operational efficiency and potentially lower costs.
Collaborative Planning, Forecasting, and Replenishment (CPFR): Collaborative Planning, Forecasting, and Replenishment (CPFR) is a business practice that combines the intelligence of multiple trading partners in the supply chain to improve the accuracy of demand forecasts and optimize inventory management. By sharing information and collaboratively developing plans, businesses can reduce uncertainties, enhance product availability, and minimize costs associated with excess inventory and stockouts. CPFR helps align supply chain processes, making logistics and transportation more efficient.
Consolidation: Consolidation refers to the process of combining multiple logistics and transportation activities or entities into a single, more efficient operation. This can lead to improved efficiency, reduced costs, and better resource utilization by maximizing capacity and minimizing unnecessary movement of goods. In logistics, consolidation often involves gathering shipments from different suppliers or locations to create larger shipments that can be transported more economically.
Cross-docking: Cross-docking is a logistics practice where products are received at a warehouse or distribution center and immediately sorted for distribution to retailers or customers without being stored. This method enhances the efficiency of supply chain operations by minimizing storage time, reducing inventory costs, and speeding up the delivery process. It connects various elements of logistics, such as transportation, inventory management, and order fulfillment, enabling a smoother flow of goods from suppliers to end-users.
Customs clearance: Customs clearance is the process of obtaining permission from the relevant customs authorities to allow goods to enter or exit a country. This involves submitting necessary documentation and paying any applicable duties or taxes, ensuring compliance with laws and regulations regarding imports and exports. The smooth functioning of customs clearance is crucial for efficient logistics and transportation, impacting supply chains and trade flow.
Cycle Stock: Cycle stock refers to the portion of inventory that a business keeps on hand to meet regular sales demand. It is used to satisfy customer orders during a typical selling period and helps maintain smooth operations by ensuring that products are readily available without overstocking, which ties up capital and increases holding costs.
Delivery lead time: Delivery lead time refers to the amount of time it takes from when an order is placed until the product is delivered to the customer. This term is crucial in logistics and transportation as it impacts customer satisfaction, inventory management, and overall supply chain efficiency. Shorter lead times can enhance customer loyalty, while longer lead times may result in lost sales or dissatisfaction.
DHL: DHL is a global logistics company that provides international shipping and courier services. It specializes in express parcel delivery, freight transportation, and supply chain solutions, making it a key player in logistics and transportation worldwide. With a presence in over 220 countries and territories, DHL is recognized for its efficient and reliable services that cater to both businesses and individual customers.
Drone delivery: Drone delivery refers to the use of unmanned aerial vehicles (UAVs) to transport goods directly to consumers. This innovative approach to logistics aims to enhance the efficiency and speed of last-mile delivery, addressing challenges like traffic congestion and high shipping costs. As technology advances, drone delivery is becoming a viable option for businesses looking to improve their supply chain management and customer satisfaction.
FedEx: FedEx, short for Federal Express, is a global courier delivery services company known for its overnight shipping services and ability to deliver packages quickly and efficiently. The company's emphasis on logistics and transportation has made it a leader in the express shipping industry, connecting businesses and consumers across the globe.
Freight regulations: Freight regulations refer to the legal and administrative frameworks that govern the transportation of goods by various modes, including road, rail, air, and sea. These regulations are essential for ensuring safety, efficiency, and compliance with standards across the logistics and transportation sectors. By establishing guidelines on weight limits, packaging requirements, and documentation, freight regulations aim to protect both shippers and carriers while facilitating the smooth movement of goods in domestic and international trade.
Green logistics: Green logistics refers to the efforts and practices aimed at minimizing the environmental impact of logistics activities, including transportation, warehousing, and distribution. It encompasses strategies that promote sustainability by reducing waste, lowering carbon emissions, and optimizing resource use. By integrating eco-friendly practices into logistics operations, businesses can enhance their overall efficiency while contributing to environmental conservation.
Information Management Systems: Information management systems are organized systems for collecting, storing, managing, and delivering information, particularly in the context of business operations. These systems play a crucial role in logistics and transportation by facilitating efficient data flow, inventory tracking, and communication between various stakeholders, enabling better decision-making and enhancing operational efficiency.
Inventory carrying costs: Inventory carrying costs refer to the total expenses incurred by holding and storing unsold goods over a specific period. These costs can include storage fees, insurance, spoilage, and opportunity costs associated with tied-up capital. Understanding these costs is crucial for businesses as they impact pricing strategies, profit margins, and overall supply chain efficiency.
Just-in-time inventory: Just-in-time inventory is a management strategy that aligns raw-material orders from suppliers directly with production schedules. This approach minimizes inventory levels, reduces waste, and lowers costs by receiving goods only as they are needed in the production process. It is closely related to supply chain efficiency, operational responsiveness, and lean manufacturing practices, creating a seamless flow of materials and products.
Last-mile delivery: Last-mile delivery refers to the final step of the logistics process where a product is transported from a distribution center or warehouse to the end customer's doorstep. This stage is crucial in ensuring that customers receive their orders in a timely and efficient manner, impacting overall customer satisfaction. The effectiveness of last-mile delivery can greatly influence the success of e-commerce businesses and is often considered one of the most challenging aspects of logistics due to factors like urban congestion, varying delivery locations, and customer expectations.
Optimization: Optimization refers to the process of making something as effective, efficient, or functional as possible. In the context of logistics and transportation, it involves strategically managing resources, routes, and processes to minimize costs and maximize service levels, ensuring that goods are delivered in the best possible manner while maintaining high customer satisfaction.
Order Accuracy: Order accuracy refers to the precision and correctness with which customer orders are fulfilled, ensuring that the right products, quantities, and specifications are delivered to the customer. This concept is crucial in maintaining customer satisfaction and loyalty, as inaccuracies can lead to delays, additional costs, and a negative perception of a company's reliability. High order accuracy is a key indicator of efficiency within the supply chain and logistics processes.
Order Fulfillment: Order fulfillment is the complete process of receiving, processing, and delivering customer orders. This includes everything from inventory management to picking, packing, and shipping the products to the customer. Effective order fulfillment is crucial for maintaining customer satisfaction and involves various components like logistics and warehousing to ensure timely delivery.
Reverse logistics: Reverse logistics refers to the process of moving goods from their final destination back to the manufacturer or a designated location for the purpose of recapturing value or proper disposal. This process is essential in reducing waste, managing product returns, and facilitating recycling and refurbishing efforts. It enhances customer satisfaction by addressing product returns efficiently and can also contribute to cost savings and improved supply chain efficiency.
Safety Stock: Safety stock is a reserve inventory that businesses maintain to protect against stockouts caused by uncertainties in demand or supply chain disruptions. This additional inventory acts as a buffer, ensuring that companies can fulfill customer orders even when there are unexpected spikes in demand or delays in replenishment. By having safety stock, businesses can maintain service levels and reduce the risk of lost sales or dissatisfied customers.
Supply chain management: Supply chain management involves the coordination and management of a network of interconnected businesses involved in the provision of products and services. This includes everything from sourcing raw materials to manufacturing, distribution, and retail. Effective supply chain management ensures that products are delivered to the right place, at the right time, and in the right condition, impacting overall business efficiency and customer satisfaction.
Transportation costs: Transportation costs refer to the expenses incurred in moving goods from one location to another. These costs can significantly affect the overall supply chain management, influencing pricing strategies, logistics decisions, and the competitiveness of businesses. A clear understanding of transportation costs is vital for optimizing logistics and ensuring efficiency in distribution.
Transportation Management: Transportation management refers to the planning, execution, and optimization of the movement of goods and materials from one location to another. It plays a crucial role in logistics, ensuring that products are delivered efficiently and cost-effectively while meeting customer demands. Effective transportation management integrates various modes of transportation, including road, rail, air, and sea, to facilitate smooth supply chain operations.
Transportation Management System (TMS): A Transportation Management System (TMS) is a software platform designed to facilitate the planning, execution, and optimization of the physical movement of goods. It helps businesses manage their transportation operations more effectively by providing tools for route planning, carrier selection, freight auditing, and tracking shipments. A TMS plays a crucial role in logistics by ensuring that products are delivered efficiently and cost-effectively while improving overall supply chain visibility.
Vendor-managed inventory (VMI): Vendor-managed inventory (VMI) is a supply chain initiative where the supplier takes responsibility for managing and replenishing inventory levels at the customer's location. This approach allows suppliers to monitor inventory levels in real-time, ensuring optimal stock levels and reducing the risk of stockouts. By having direct access to inventory data, suppliers can make informed decisions about replenishment, leading to improved efficiency and collaboration in logistics and transportation.