How Logistics Productivity Improvement Affects the Economy as a Whole as well as the Position of Individual Consumer?

Generally logistics refers to the inbound and outbound flow and storage of goods , services, and information within and between organisations. The Council of Supply Chain Management Professionals (CSCMP), which is the pre-eminent professional organisation for academics and practitioners in the logistics field, formed in 1963, defined logistics management as ” that part of supply chain management that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods ,services, and related information between the point of origin and the the point of consumption in order to meet customers requirements “.

Logistics Productivity Improvement and the Economy

Logistics has become an enormously important component of the gross domestic product (GDP) of industrialized nations and thus affects the rate of inflation, interest rates, productivity, energy costs and its availability and other aspects of the economy as well. Ever changing business environment due to globalization, lead time reductions, customer orientation, and outsourcing has contributed to the interest in logistics. The increase in global production sharing, the shortening of product life cycles, and the increase of global competition all underline logistics as a strategic source of competitive advantage. Moreover, in order to remain in competitive marketplace and earn reasonable profits, organizations interest in logistics has been increased. Logistics operations have become more efficient due to technological advancements which make it possible to deliver goods on time while reducing the cost involved.

Global market access has been improved over the time with the advancement in technology and trade liberalization resulting in the economic growth and development of the countries.… Read the rest

Concept of Shipping Conferences in Logistics

The conferences are association of companies, resembling an ordinary cartel or trust, formed to control supply and prices and to limit entry into the trade. The Royal Commission of 1909 defined Shipping ring or conference as ‘a combination, more or less close of shipping companies formed for the purpose of regulating or restricting competition in the carrying trade on a given trade route or routes’. Shipping Conferences are formed only in a line trade and not in the tramp service, because the former is a more stable and regular organisation. Since the conferences are made for particular routes only, a shipping company may join many conferences on different routes. Likewise, the shipping companies may not join conference of a particular route and carry on independent business. The organisation of conferences varies. It may be completely formal or informal. A conference may have liners of various nationalities as its members and their purpose of alliance might differ from conference to conference.

To conclude that shipping conferences has two main objectives:

  1. To regulate competition between its members.
  2. To protect its members as a body against outside competition from tramps or non conference lines.
Advantages of Shipping Conferences
  1. Prevention of competition and protection of weaker lines: The organisation of conference regulates the competition among the liners by entering into agreements on subjects like fixation of rates, allocation of traffic and other sailing conditions. It curtails the unhealthy competition among the liners and protects the weaker liners, which otherwise would have been ousted in free competition.
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Competition in Shipping Industry

Shipping is a competitive industry. The demand for shipping services is a derived one. Shipping services do not have alternative applications. So amongst ship owners competition arises to corner the existing traffic. The causes for the competition are as follows:

  • Freedom of use of a certain highways: The permanent way of ocean being a gift of nature, which is free. It is open to all persons and countries of the world without acquiring any rights to float the ships and steamers. Except for some restrictions in coastal waters of the countries, the ship are free to move anywhere on the sea and it invites international competitors.
  • Small investment: Shipping requires small investment to start the sailings. The capital investment in construction of permanent way, signals, bridges, tunnels, culverts and platforms etc is not there in purchasing a steamer or a ship. The facilities of loading, unloading and harboring are maintained by the port authorities and therefore no investment is to be made by the ship owner. Such facilities become available on payment of port dues. The initial investment being small, it invites many competitors from different corners of the world.
  • Greater mobility of ships: The ships have a great range of mobility. First, the ocean highways are very extensive and entire world routes are available for movement. They are not limited to some routes as is the case with inland waterways and railways. Secondly, the ships are not tied with a particular route like the railways. If one route becomes unremunerative they can be floated on other routes without any loss of capital or time.
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Warehousing Function of Logistics

A warehouse is a location with adequate facilities where volume shipments are received from a production center, broken down, resembled into combinations representing a particular order or orders and shipped to the customer’s location or locations. The rationale for establishing a warehouse in a distribution network is the creation of a differential advantage for the firm. This advantage accrues from achieving a lower overall distribution cost and/or obtaining service advantage in a market area.

The concept of a distribution warehouse or a distribution center is vastly different from the earlier concept of a godown for storage. The need of that system is sue to

  • Ensuring protection against delays and uncertainties in transportation arising from a variety of factors.
  • Eliminating lack of sophistication in production control and consequent uncertainties in the availability of product at the desired time and place.
  • Providing for adjustment between the time of production and the time of use because production and use can be seldom synchronized.
  • Serving as a reservoir of goods, receiving surplus goods when production exceeds demand and releasing them when a scarcity of goods is anticipated.

The modern distribution center or distribution warehouse is a pivot in the physical distribution system. So according to this system movement is the primary objective of a warehouse. As per this new concept a warehouse is a location where inputs (incoming factory shipments) are converted into outputs (outward shipments representing orders of customers). This conversion takes place without consuming too much time.

Thus a warehouse may be defined as a location of temporary storage facility and from where they are dispatched with the main objective of maintaining the flow of goods throughout the system.… Read the rest

Total Cost Approach to Logistics

Total cost approach to logistics is the key to managing the logistics function. Management should strive to reduce the total cost of logistics rather than the cost of each activity. So logistics must be viewed as an integrated system rather than the individual system, because reduction in one cost invariably lead to increase the cost of other components. Effective management and real cost savings can be accomplished only by viewing logistics as an integrated system and minimizing its total cost given the firms customer service objectives. So the main costs which are involved in logistics function are:

  1. Customer service level costs
  2. Transportation costs
  3. Warehousing costs
  4. Order processing and information costs
  5. Lot quantity costs
  6. Inventory carrying costs
Customer Service Level Costs

Most business people find it difficult, if not impossible to measure this cost. The cost associated with alternative customer service levels is the cost of lost sales( not only the margin lost by not meeting current sales demand, but the present value of all future contributions to profit forfeited when a customer is lost due to poor availability, long lead times, or other service failures).

By comparing total logistics system costs, management can make knowledgeable judgment about the likelihood of recovering, through increased sales, the increase in total system costs brought about by an increase in customer service levels. Of course, management could also reduce spending in some other to component of the marketing mix – promotion, for example – in order to maintain profits with a similar sales volume.… Read the rest

Export/Import Transportation Systems

The transportation industry is a complex of institution that includes not only the carriers themselves (the ocean shipping companies, airlines, and truckers), but also the supporting terminal operators, freight forwarders, customhouse brokers, ship brokers, financial houses, insurance firms, and engineering and manufacturing concerns, There is also an array of governmental agencies, that oversee the operations of the industry and control the rates charged and services provided. Changes in any of these institutions or their foreign counterparts have ramifications on the rest of the industry and affect the service provided to the shipper of goods in international trade.

Physical distribution managers have an array of alternative methods or modes of transportation for the movement of goods across borders and within countries. Various forms of sea, air, and land transportation may be available for use singly or in combination. The manager’s choice is influenced by the specific product and market characteristics. Large, bulky, low-unit-value items and basic commodities may not be capable of economically using some forms, such as air transport, except for special shipments. On the other hand, fresh flowers and perishable foods may require either fast shipment or special storage facilities. High-value items such as jewellery may be shipped by a variety of methods, but their margins permit movement by high cost rapid transportation and at less risk of theft.

Market Location and Transport Systems

The market location affects the types of transportation that are available. Contiguous markets frequently can be efficiently serviced by truck or rail as might be the case for US manufactures shipping to Canada or Mexico, or for most European producers selling to other continental companies.… Read the rest