IMPORTANCE OF LOGISTICS

IMPORTANCE OF LOGISTICS

Economic development through an efficient infrastructure 

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There was a time when companies used to develop a product range, plan their distribution channels, schedule marketing campaigns and deliver the final packaged items to their retailers themselves; a simple supplier-managed end-to-end supply chain, requiring a little more from logistics service providers than movement of products from factory to distribution centre to retail outlet. Over time, the scope of customer needs has broadened.

Today, logistics operations have become much more complex as companies find it extremely difficult to maintain their competitive advantage purely on the basis of innovative strategies relating to the product, price, place, or promotion. Since these competitive advantages can easily be imitated, the emphasis now is on building a sustainable competitive advantage through logistics as a means to successfully differentiate oneself from competition.

Formally logistics services can be defined as, “The process of planning, implementing and controlling the efficient flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.”  

(Source – Council of Logistics Management). Simply put, it is having the right type of product or service at the right place, at the right time, for a right price and in the right condition.

The main aim of logistics services is to improve the performance of a company’s warehousing, inventory management and distribution network. Logistics solutions enable the centralisation, management and distribution of high-impact, high-value products. Globally, centralised points of distribution enable quicker time to market, resulting in reduced costs and increased market share. Typical functions include procurement /purchasing, inward transport, receiving, warehousing, stock control, order picking, materials handling, outward transport, physical distribution management, recycling, returns, and waste disposal.

The major benefits of efficient and effective logistics operations are:

(1) cost savings by centralising inventory management by reducing the number of inventory holding locations, as well as the size and value of the inventory held, 

(2) faster order fulfilment by relying on a global transportation network and logistics inventory management system, giving them the ability to access and dispatch inventory 24 hours a day, 365 days a year,

(3) improved cash flow by using bonded warehouses for testing and storage, providing the option to defer customs duties and taxes and 

(4) flexibility to efficiently change distribution patterns for new products, based on ever changing customer demands.

The global logistics market has grown tremendously over the years generating total revenues of $3,566 billion ($3.6 trillion) a little over a year ago, representing a compound annual growth rate of six per cent from 2004–08. The industry is predicted to grow at a rate of two per cent over the next five years, expected to reach $4,000 billion ($4 trillion) by the end of 2015.

Although the revenues of the top 10 logistics companies increased by five per cent during 2008, reaching $284.6 billion, in spite of the global financial slowdown, their operating profit decreased by 0.5 per cent to $15 billion. The effect on their bottom line was more dramatic, as net profits decreased by 40.8 per cent to $5.7 billion, yet the logistics industry fared better than many other sectors of the economy and DHL did better than most logistics companies, registering revenues of $46 billion last year.

Logistics management firms nowadays face several challenges, which may be local or global in scope. While the need for integration of logistics activities and lack of qualified human resources are the primary challenges faced at the local level, the global challenges include those arising due to greater distances, modes of transport, documentation, coordination of intermediaries, cultural and political differences, globalisation, need for flexibility and speed (at the same time), need to integrate supply chain activities, and challenges due to emphasis of companies on green logistics.

The major customer groups or key market segments served by the logistics industry are: 

(1) parcel/documents express delivery services, 

(2) freight by air, ocean, road or rail, 

(3) warehousing and distribution and 

(4) supply chain solutions. 

Logistics providers also focus on selected industry sectors where they have developed expertise so that customers benefit from working with specialists – not just in logistics, but also in their particular marketplace. Thus building long-term partnerships and working closely with customers to provide them with real competitive advantage.

As mentioned above; a prerequisite to the development of any economy is an efficient logistics and transportation system and the driver of an efficient logistics and transport system is an efficient freight forwarding sector. Pakistan’s freight forwarding, logistics and transport sector had been virtually non-existent, so about five years ago the government was approached for exploring the merits of addressing this sector. It was evident that to support the growth of Pakistan’s economy this sector would need a focused development effort.  

Additionally it was also realised that a properly articulated and efficient logistics and transport sector could provide services to not only Pakistan’s economy (with a population of 170 million) but also to Central Asia (with a combined population of 60 million), as well as the larger population of Western China.

The country’s international freight forwarding sector  was totally fragmented with no direction, no official  recognition and no access to formal financing, warehousing was non-existent and trucking was totally in  the informal sector having no corporate structure, no access to formal financing and no cross border transport opportunities due to the absence of necessary  legislation and transit mechanisms.

If the country’s international freight forwarding, logistics and transport sectors were to move forward then we would need to institutionalise our existence on a much larger canvass supported with appropriate international linkages. Therefore, the need to create the necessary institutions was the big initial challenge.

Few of the challenges faced by the logistics industry of Pakistan are:

(1) Lack of quality infrastructure.

(2) Railroad transportation is the cheapest form of transportation for distances over 450 km. However, railroads are not extensively used due to the lack of enough intermodal connections with railroads in maritime ports and inland distribution centres. Ports have not developed enough infrastructures for an efficient connection with railroad and truck transportation systems. In addition to this, the lack of efficiency in customs inspection means that the average stay of containers in the ports is double the international average.

(3) The lack of a border crossing agreement for trucks causes delays and inefficiency in import/export processes.

(4) Too many regulations, import/export procedures, and required documents make international trade very slow and costly.

(5) The lack of trained staff means that companies cannot estimate correctly their inventory and cargo movements according to customer demand.

(6) Lack of coordination between the different participants in the supply chain.

(7) A high crime and insecurity index, both in facilities and transportation systems.

(8) Limited use of information technologies by small and medium-sized companies. Most of them see the technologies as an expense, instead of an investment. There is not much promotion on the benefits of using advanced technologies, and there is a backlog in affordable staff training for small companies.

(9) Lack of certainty in the business environment inhibits investments and project development and stifles the country’s efficiency and economic growth.

The future of global forwarding unit in Pakistan is extremely bright. The reason is because our success depends on customers. Forecasting is done according to what they (our customers) tell logistics providers. If they see prosperous opportunities for their exports and imports on their raw material, then this also influences players’ success rate. Few companies like DHL have invested immensely in their offices and warehouse infrastructures due to this reason. These are all long term investments that will eventually payoff.

THE GLOBAL COMPETITIVENESS REPORT 2013 - 2014

Did you know?

The Global Competitiveness Report 2013-2014 assesses the competitiveness landscape of 148 economies, providing insight into the drivers of their productivity and prosperity. The Report series remains the most comprehensive assessment of national competitiveness worldwide.

The Global Competitiveness 2013 -2014

TERMINALS

Terminals are the nodes in a carrier system and perform various duties to facilitate the movement of their passengers or freight. All modes of transportation have their own terminals in one context or another. There are some value added activities at the terminals.

          First, the common activities that provided at the terminals are called concentration or consolidation. This activity takes the small shipments or the smalls group of passengers and combine it becomes to the large shipment. Second, the terminals value added activities are called dispersion or break-bulk. This activity are opposite to the consolidation activity, which are in this activity, they separate the large units of freight or passengers into a small shipment, normally this happen for delivery the cargo or passenger to the final destination.

          Third, the shipment services are also performed at the terminals. These involved the storage of freight or accommodating passengers in transit, the protection of freight or passengers from the elements and routing and billing (ticketing). This activity mostly likely keeps the cargo for a while during the transit to another mode of transportation.

          Next, terminals are used to provide vehicle services include equipment maintenance and the storage of equipment until it is needed. Lastly, terminals can provide shipment process services such as weighing services, custom inspections, claim processing, and interchange operations.

TYPE OF TERMINAL

The terminals for each modes of transportation are different. For the rail modes of transportation, the terminal is called a hump or marshaling yard. Water modes terminals called port which consist of harbor and port. Harbor is the place provided the water portion for the staging, loading and unloading activities of ships, while port is the place that provides space for freight and the loading and unloading equipment.

The APM rail terminal

Water port terminal

For airplane modes of transportation, the terminals are called airport. Which the activity same like water port, it has the area for staging the aircraft during loading and unloading the passenger or cargo. Next for pipelines terminals, it has storage facilities, gathering lines, truck lines, and pumping stations.

Pipeline Terminal

Airport Terminal

For truck road, the terminals are divided by two which for motor carrier (truckload) and motor carrier (less-truck load). For truckload terminals, it consists of one shipment between one consignor and one consignee. Then the facilities provided are dispatching, maintenance and fuel & maintenance service. For the less-truckload terminals, it consists of direct contact with both shippers and receivers. The facilities provided are the pickup and/or delivery of goods. This terminal also called as a pickup and delivery (PUD) terminals or satellite or end-of-the-line (EOL) terminal.

Example of Motor Carrier Terminal

ABOUT TRANSPORTATION

TRANSPORTATION

From the perspective of a production facility , transportation is critical to the distribution of material from the sources to the production sites and form these sites to and within the market centers. To condense the magnitude and complexity of the transportation industry for tutorial purpose. Highlights on its legal forms , auxiliary users , transfer facilities and  intermodal movement. Transportation management consists three element , infrastructure  , vehicles and operations. The elements must be managed effectively by transportation managers in achieving the 7 R’s of logistics. The seven R’s defines logistics as ensuring the availability of the right product, quantity, condition, place, time, consumer and cost. In operating and infrastructures requires licensing, procedures and maintenance and other operations activities.

Legal Forms of Transportation

The legal forms of carriers in transportation industry are common, contract carriers, exempt carriers and private carriers. Each legal category has a unique role within the logistics system.

Public (for hire)

·         The for hire carriers are no longer regulated on an economic basis by the federal government and cannot be easily categorized into a specific types because carriers provide many types of services,

·         The carter carriers also known as air taxis use small to medium sixe aircraft to transport people or freight.

·         The supplemental carrier has no time schedule or designated route. 

Common Carriers

• ·         Carriers in this legal classification are available to all users at published rates.

• ·         All tariffs are approved by the cognizant regulatory agencies.

• ·         Agrees to serve all who apply without undue preference, prejudice or discrimination.

• ·         Provides adequate facilities and services at reasonable rates.
• ·         Published rates and charges.
• ·         Accepts liability for goods tendered to it.
• ·         Assumes fairly intensive economic and safety regulations.
• ·         Operate all modes of transportation.
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Contract Carriers

• ·         Carriers in this legal classification perform selected transportation functions.

• ·         Rate differentials for the same type of service are allowed however these rates must be republished and made a matter of public record.

• ·         Regulatory bodies issue permits for contract carriers but the permits are generally less restrictive than those issued for common carriers.

• ·         Offers a specialized service in terms of equipment or product.

• ·         Enjoys geographic flexibility and latitude in serving customers.

• ·         Contract carriers include motor, water and air carriers.

Exempt Carriers

• Transportation companies in this classification primarily move unprocessed products such as agricultural products and fish. 

•  Exempt carriers are exempt from economic restrictions by regulatory bodies.

• ·         Requires no economic regulation.

• ·         Can enter or exit the market freely.

• ·         Negotiates its own rates and can discriminate.

• ·         Assume fairly intensive safety regulation.

• ·         Is so classified because of the product carried, territory served or Organization formed.

• ·         Exempt carriers generally include motor and water carriers.

Private Carriers

•   A private carriers is a firm that transports company personnel or freight to support primary business.
•   Operated by the producer or distributor of the cargo.
• Private carrier is not legally for hire by outside organization .
• Provides transportation service only for the firm the carrier and the owner of the goods are identical.
•   Requires no economic regulation.
• Assume fairly intensive safety regulation
• Transport only goods that are incidental to the primary business of the firm.    
• Private carriage involves ownership, leasing or a combination thereof and can include all modes of transportation.

  

Auxiliary Users

This category of transportation organizations exists to provide companies with economic advantages and the most responsive services that meet their specific needs from the various elements and modes of the transportation system.

Freight Forwarders

• ·         Commonly called forwarders are the travel agents of the freight world.
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• ·         When you have cargo that need to be moved anywhere, they consider the origin, destination and its special handling characteristics and arrange for the transportation.
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• ·         They find the most efficient, cost-effective mode of transport and routing.
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• ·         Provide a major service to their customers by consolidating small shipments into a large one for long-distance movement.
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• ·         While providing lower line-haul rates and faster service for shippers, they retain a portion of the differential between vehicle-load and less than-vehicle-load rates to defray the expenses of their operations and to earn a profit.
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Shipper Association

 

• ·         Similar in function to freight forwarders, are actual voluntary organizations composed of members with mutual commercial interest who use the service to take advantages of the economies of consolidation.
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• ·         These association members are usually firms shipping similar items between common origins and destinations.
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• ·         Shipping association are organizations usually not for-profit in which shipper join together to get better negotiating leverage against carriers.
• ·         This way, even smaller shippers can get lower rates as if they were a large shipper.
• ·         Member of these associations are usually small shippers, though some can still be quite large.
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Third Party Providers

• ·         Third party providers of logistics service exhibit some of the characteristics of auxiliary users.
• ·         They provide an increasing variety of services to their client firms example are usually manufacturers, including warehousing, order processing, data transmission, and shipping including the purchase of transportation.
• ·         Basic issues in dealing with third party logistics providers are :
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  Control

·         Control refers to the ability to make the contractor behave and if they were within the company.

·         It should never be assumed that a contractor is going to behave exactly as the principal (the company hiring the contractor) would wish.

  Compensation

·         Compensation refers to the amount and manner in which the contractor is paid.

·         Some may be paid on commission, while others are paid an amount regardless of performance.

·         Ideally all contractors would paid on performance but when this is difficult costly or impossible to measure others forms of payment would be required.

Transfer Facilities

1. ·         This type of activities has been regarded by some as an element of materials handling.
2. ·         For tutorial purposes, transfer facilities will by virtue of their role in the logistics system be addressed here as adjunct to the transportation modes.
3. ·         Transfer facilities can be best characterized by the nature of the freight or items they are designed to accommodate.
4. ·         They include terminals foe assembling, sorting, transferring or distributing packaged freight, terminal for handling and transferring containers used in coordinated transportation services specialized bilk commodity terminal dedicated to particular commodities ranging from grain to oil and carrier yards, terminal and ports for combining or separating carrier equipment.
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Packaged Freight Terminal

1. ·         Carriers that transport small shipment such as those engaged in highway and air operations may utilize terminals to consolidate, mix or deconsolidate packaged freight shipments.
2. ·         Small shipment or packaged sorting facilities typically employ mechanical devices and computer-controlled sorting mechanisms.
3. ·         Their automated sorting equipment is normally located at centralized hub point on their route systems so that they can gain maximum productivity from their investment.
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Container Terminal

1. ·         The growth of coordinated transport or the use of the two or more modes in transportation of single shipment has led to use of large containers that are compatible with two or more modes of carriage.
2. ·         The transfer of a 40 ft x 8 x 8.5 ft (26,580 kgs payload potential) container from one mode to another typically requires the use of crane capable of lifting up to 38,480 kgs.
3. ·         The larger terminal located in the United States and other international ports are capable of transferring large containers from trucks to ship to trucks.

Bulk Commodity Terminal

1. ·         Transportation, storage and handling of commodities in unpackaged form (example gain, coal, petroleum) has become a sizable economic activity.
2. ·         It requires facilities for assembling, transferring and breaking bulk commodities in great quantities at high speeds.
3. ·         Such facilities often have the ability to transfer such commodities between vehicles of two cooperative transportation modes.

Carrier Equipment Transfer Facilities

1. ·         Rail, highway and water carriers operate terminals for the transfer of cars, trailers, barges and respectively.
2. ·         The development of the Interstate Highway system and the improvement of the tributary roads have enabled motor carriers to haul heavier loads and more trailers per powered vehicles between terminals.