Interaction between related activities such as the offsetting of higher costs in one area with reduced costs or other benefits in another. In air freight, for example, the classic “Tradeoff” is one of time (quick delivery) versus money (greater expense).
Total logistics costs consider the whole range of costs associated with logistics, including transport and warehousing costs and inventory carrying, administration, and order processing costs. Administration and order processing costs are relative to the total volume being handled. However, for the same volume being handled, transport and warehousing costs will vary according to the adopted distribution strategies. The above graph portrays a simple relationship between total logistics costs and two important cost components; transport and warehousing. Based upon the growth in the shipment size (economies of scale) or the number of warehouses (lower distances), a balancing act takes place between transport costs and warehousing (inventory carrying) costs. There is a cutting point representing the lowest total logistics costs, implying an optimal shipment size or number of warehouses for a specific freight distribution system. Finding such a balance is a common goal in logistical operations. It depends on numerous factors, such as if the good is perishable, the required lead time, and the market density.
Effective Supply Chain Management results in an opportunity to discover the best tradeoffs for your clients. Processing, planning, implementing and controlling your business ensures efficiency and cost effectiveness. The process or steps that change your product from its raw materials into the finished product is your supply chain. Managing that chain of products, and ensuring the efficiency of the steps to achieving successful delivery, is called Supply Chain Management (SCM). Here are some potential benefits to your clients that effective and efficient SCM can provide:
- Reduced Costs: Improving your bottom line can result in bringing the costs down for you and for your consumer.
- Better delivery: As you research and improve transportation methods, the delivery of your product to the end user will improve.
- Enhanced Product Conformity/Reliability: Improvements to your product based on research, design improvement and adherence to standards results in better reliability and performance.
- Better Service: As you explore methods to better serve your customers, overall public perception of your product will improve.
- Customer Satisfaction: Your customer will be more impressed with your product, and therefore more apt to continue to purchase, use and enjoy it.
- Better Technology: When you add technology to the development of your product, you improve the technology of the end product itself.
- Better Availability: As you increase your methods of delivery, shelf stocking, sales, and product distribution, your customer benefits because your product is there when he needs it, where he needs it.
Cohesive and efficient SCM results in improved products for your customers. That is the bottom line that all organizations need to remember when considering logistical tradeoffs.
The framework that we use with companies uses the following attributes:
- Asset Management Efficiency
Once you understand what you are trying to optimize, you can move on to prioritizing and measuring.
Reliability is the ability to consistently deliver what the customer orders when the customer expects it in perfect condition (Perfect Orders). Reliability allows you to look at your business through the lens of your customer.
A company once that touted a 97% fill rate. However, when we looked at the Perfect Order metric, they were just below 30%. Over 70% of the time, they were not meeting customers’ expectations.
Responsiveness is a measure of how fast an order is fulfilled. This starts with the customer order and ends with the customers’ acceptance. Amazon recently announced the investment of $800M to reduce 2-day delivery down to one day. Do your customers expect to get their product fast once they have ordered? How much are you investing?
Agility is the ability to respond to unplanned external factors and manage risk. Agility measures upside and downside adaptability and value at risk. External factors might be a host of things such as unplanned changes in demand, severe weather, congestion at ports, shortage of raw materials, etc. Agility is about planning for the unplanned and being able to respond when disruptions occur.
Agility shouldn’t only focus on the sales side of the business but also returns. Does your company risk a product recall on the products you manufacture or distribute? How would you support it if it did?
Cost is exactly what is says, however we are looking at more than just COGS. We want to look at total Supply Chain costs. This includes COGS + all other Supply Chain costs (direct and indirect).
Asset Management Efficiency
The last area deals with how effectively your company is managing financial resources. In this area we look at Cash-to-Cash cycle, Return on Supply Chain Fixed Assets, and Return on Working Capital.
Intermodalism involves the organization of a sequence of modes between an origin and destination, including the transfer between the modes. Its main goal is to connect transportation systems that could not be connected otherwise because they are not servicing the same market areas due to their technical characteristics. However, each segment is subject to a separate ticket (for passengers) or a contract (for freight) that must be negotiated. Mutimodalism is simply an extension of intermodalism where all the transport and terminal sequences are subject to a single ticket or contract (bill of lading) that can be assumed by a single integrated carrier.
The differences between intermodalism and multimodalism appear to be subtle, but they are fundamental. Although multimodalism may look more efficient at first glance since less transactional costs are involved for the user, it is not necessary the most efficient and sustainable. A multimodal transport service provider will be inclined to use its routes and facilities during the transport process, which are not always the most convenient. The main purpose of a 3PL is to maximize the use of its assets, which could be at odds with the benefits of its users.
Transmodalism involves connecting different segments of the same mode between an origin and a destination. It tries to reconcile different modal services on the same network. There is no specific term if transmodalism takes place as a single or separate ticket or contract. Transmodalism is common for air transportation since passengers can easily book a ticket between two locations, even if it involves transiting through an intermediary airport and using separate carriers. The strategies of air carriers particularly relied on transmodalism with the setting of major hubs that maximize the number of city-pairs serviced. For freight transportation, transmodalism is more challenging since it was conventionally complex to switch load units within the same mode because of the large amount of handling required. Paradoxically, it is the development of intermodalism that has favored the setting of transmodalism since it incited the development of long-distance transportation services and an increase of container volumes to be handled across the same mode.
For maritime shipping, transmodalism took shape in the setting of intermediate hubs such as Singapore, Dubai, and Panama, connecting deepsea and feeder services. For rail, the North American rail system and its landbridge are interconnected at major transmodal hubs such as Chicago. The Eurasian landbridge is emerging on transmodalism as well.
Advantages of Multi-modal Transportation
The economic and commercial advantages of multi-modal transportation aie enonnous and it helps in making international trade competitive due to reduction in the overall transportation cost. Some of the benefits of multi-modal transportation could be listed follows:
- Reduces transportation cost.
- Helps faster cargo flow.
- Enhances export potential.
- Facilitates of export of non-traditional goods.
- Reduces uncertainty in transportation cost.
- Reduces congestion.
- Reduces inventory levels by stable supply of imports.
- Facilitates optimumutilization of national infrastructure.
- Reduces paper works by simplifying custom procedures.
- Effect improvement of GNP through more economic activity on national highways and sea/land interface.