When it comes to selling physical products, transportation and logistics management can make or break a business. In most cases, the two go hand in hand, since logistics management includes managing transportation and its costs. However, for most companies, when you put the two together, it becomes a long chain of diverse tasks and duties that, when put together efficiently, get raw materials from point A to the customer at point B.
Transportation is simply the act of moving goods from one place to another. Logistics is broader, and includes all your procedures for making sure the right customers get the rights goods at the right time.
Understanding Transportation and Logistics Management
Transportation Definition: In business, at its most basic level, transportation is simply moving products and materials from one place to another. This includes shipment of raw materials to the manufacturer and movement of finished product to the customer. Transportation also includes the movement of parts to assembly areas as they are assembled.
Logistics Management Definition: Logistics management involves getting your products to your customers on time, in the correct quantities, in good condition at the right price. This includes overseeing transportation, as well as storage of materials, production and inventory management. Logistics also includes the packaging of products for storage and shipment. Logistics involves both internal and external distribution networks.
For most companies, the key to transportation and logistics is finding the right balance between efficiency and cost. Perhaps one of the most successful companies at doing this is Amazon, which has dozens of distribution centers across the United States and spends billions in developing state-of-the-art fulfillment centers to get its products to customers quickly while managing to make a profit.
How to Minimize Transportation Costs
The easiest way to minimize transportation costs is to eliminate unnecessary transportation. You can do this by finding closer suppliers. You can reduce transportation costs by consolidating shipments, buying partially assembled products from vendors and reducing the number of trips needed to ship in raw materials. Having work stations within the factory close to each other minimizes material transportation, which is a non-value-added labor cost. Consolidating transportation service providers increases the volume each transportation firm provides and can allow for a negotiated volume discount.
How to Minimize Logistical Costs
Logistical costs are directly reduced by just in time, or JIT, manufacturing. Use material resource planning or MRP systems to time orders so that a minimum of stock is on hand. Order parts in packaging that can be directly sent and stocked in the warehouse. This eliminates the wasteful process of receiving, unpacking and then labeling product for the company’s own inventory management system. Work with suppliers to have bar code labels or RFID chips that are cross-compatible, allowing the entire supply chain to use the same part numbers and equipment to track and manage inventory.
How to Mitigate Transportation and Logistical Risk
Consolidating shipments increases the risk of a lost shipment bringing a JIT assembly line to a standstill. A surprise shortage will shut down production. This means that JIT requires a secure supply chain. The orders must be able to be delivered quickly and rapidly, with a minimum risk of delays. This is the reason many JIT suppliers build factories or distribution centers close to their major suppliers.
If the supplier is close by, a shutdown of air traffic or a massive traffic jam across town will not prevent parts from being walked over. Suppliers that are not located close by must have multiple backup routes for their product. If the overnight delivery truck is unable to depart on time, there needs to be a mitigation plan in place, such as reserve vehicles or shipping companies on retainer that can send out another vehicle and team to unload the down vehicle, reload to the new vehicle, and then deliver the parts and material.