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Archive of posts published in the category: Critical
Apr
9

The Critical Role of Transportation in Business and the Economy | Transportation and Logistics

Transportation is a major contributor to the economy and a competitive force in business. It is the activity that physically connects the business to its supply chain partners, such as suppliers and customers, and is a major influence on the customer’s satisfaction with the company. This chapter illustrates the role of transportation in the logistics function, the supply chain, and the larger economy.

This chapter is from the book

Transportation is among the more vital economic activities for a business. By moving goods from locations where they are sourced to locations where they are demanded, transportation provides the essential service of linking a company to its suppliers and customers. It is an essential activity in the logistics function, supporting the economic utilities of place and time. Place utility infers that customers have product available where they demand it. Time utility suggests that customers have access to product when they demand it. By working in close collaboration with inventory planners, transportation professionals seek to ensure that the business has product available where and when customers seek it.

Transportation is sometimes to blame for a company’s inability to properly serve customers. Late deliveries can be the source of service problems and complaints. Products might also incur damage while in transit, or warehouse workers might load the wrong items at a shipping location. Such over, short, or damaged (called OS&D) shipments can frustrate customers, too, leading to dissatisfaction and the decision to buy from a competitor for future purchases.

However, when a company performs on time with complete and undamaged deliveries consistently, this can instill customer confidence and gain business for the company. When a company instills confidence in service performance, it can make customers more reluctant to succumb to competitors’ bids to steal business away through clever promotions and reduced prices.

Aside from its service ramifications, transportation can also represent a substantial cost for the business. The cost of transportation can sometimes determine whether a customer transaction results in a profit or a loss for the business, depending on the expense incurred in providing transportation for a customer’s order. Faster modes of transportation generally cost more than slower modes. So although shipping an order overseas by airplane is much faster than transporting by ship, it can cost as much as 20 times more. Such a cost difference might not justify the use of the faster way of transporting the goods. Supply chain managers must therefore carefully consider the cost of transporting goods when determining whether to move product and how to move product in the most economical manner.

This book supports the learning objectives of the Transportation Management module (Learning Block 5) of the Council of Supply Chain Management Professionals (CSCMP) SCPro Level 1 certification. These objectives are stated as follows:

  1. Describe the basic concepts of transportation management and its essential role in demand fulfillment.
  2. Identify the key elements and processes in managing transportation operations and how they interact.
  3. Identify principles and strategies for establishing efficient, effective, and sustainable