The term “transportation” refers to the movement of product from one point to another as it moves from the beginning of a supply chain to the customer. In the United States, for example,
freight transportation costs amount to about 6% of the GDP (Gross Domestic Product).
Any supply chain’s success is closely linked to the appropriate use of transportation. Logistics companies effectively use responsive transportation systems to lower overall costs. They employ “Cross-docking” – a process, in which product is exchanged between trucks so that each truck going to a retail store has products from different suppliers. Today, the growth in shipments to and from China is creating both problems and opportunities for logistics companies. Many large corporations have already invested in
buying offices in China and India.
There are two key players in any transportation that takes place within a supply chain. The shipper is that party that requires the movement of the product between the point of origin and the
point of consumption. The carrier is the party that moves or transports the product.
The modes of transportation include water, rail, intermodal, truck, air, pipeline and package carriers. Water is typically the least expensive mode, but is also the slowest, whereas air and package carriers the most expensive and the fastest.
Rail and water are best suited for low-value and large shipments that do not need to be moved in a hurry. Air and package carriers are best suited for small, high-value, emergency shipments. Intermodal carriers are faster than rail and water, but more expensive.
Logistics firms should take into consideration a combination of a) transportation costs; b) inventory costs; c) the level of responsiveness to the customers’ requirements. Managers should consider an appropriate combination of company-owned and outsourced transportation to meet their needs. Managers must also
use the information technology available to help decrease cost and improve responsiveness in their transportation networks. For example, satellite-based communication systems allow carriers to communicate with each other.