Transportation & Logistics

The Role of Moving Goods within Supply Chain

Written by: Casey Jenkins , Owner of Eight Twenty-Eight Consulting LLC

Transportation and logistics are massive topics within supply chain, as the movement of goods has a global footprint. While it’s a common misconception that supply chain IS transportation or logistics, the reality is that transportation is a component of supply chain and the executional role of moving goods from raw materials to the end user. Acting as the connector and the “how” of moving products from one point to the next, transportation and logistics are key strategic components of an efficient and effective supply chain operation. Therefore, understanding these executional activities within the broader operation is vital.

As we all know, manufacturing, warehousing, and distribution are now global enterprises with products deriving from and moving about all over the world. Previously, transportation was often seen as an afterthought or an area where time can be cut out of within the supply chain planning process (and I say that with experience of doing it myself). However, as the business landscape has shifted, and more companies are focusing on the reduction of cost, increased speed, and higher customer service levels, the transportation component is crucial and impacting for successful supply chain execution. Within an organization, the choices made around transportation directly impact the supply chain’s performance. This includes mode, routing, scheduling, speed, service levels, etc. Understanding the trade-offs between various transportation and logistics choices is key for supply chain optimization.

DIFFERENCE BETWEEN TRANSPORTATION AND LOGISTICS

While the terms “transportation” and logistics are often used interchangeably, they refer to different aspects of the supply chain process. Understanding the difference between these two concepts is crucial for anyone involved in the movement of goods on both a domestic and global scale.

“Logistics is the business function responsible for transporting and delivering products to the right place at the right time throughout the supply chain (Sanders, 143).” It’s a broader term that encompasses transportation, but also includes the planning and coordination of other activities involved in moving goods between various points in the chain. “In essence, it is about movement and storage of product inventories throughout the chain (Sanders, 143).” Therefore, logistics includes transportation as an activity within the logistics process, but also includes storage, material handling, packaging, inventory control, order fulfillment, information flow, and facility location. This process isn’t just facilitated in a forward process either, it also includes the reverse flow or reverse logistics. When operating in a global environment, this process can be complex as it becomes “the worldwide management of order processing, inventory, transportation, and the combination of warehousing, materials handling, and packaging, all integrated throughout a network of facilities (Hult, 113).” It’s important to note that logistics has an impact on the organization, as the goal of logistics is to support the other functional areas by ensuring that both upstream and downstream inventories are received when they should be. Logistics impacts procurement, manufacturing, warehousing, distribution, inventory management, and the costs associated with those functional areas as well.

Transportation is a more specific and executional component of logistics and supply chain. Acting as the agent that physically moves goods from one location in the chain to another, it leverages various modes of freight in order to transfer products. Focusing on the delivery aspect of the supply chain, transportation is a subset of logistics that aims to move goods efficiently and cost-effectively, while also considering the span and complexity of an organization’s supply chain network. Within this chain wide network consideration, “transportation must deal with both economies of scale (the larger the amount shipped at one time the lower the per unit cost) and economies of distance (the longer the distance moved at one time the lower the per unit cost) (Sanders, 151).” The challenge is to “find an optimal balance between the economies of scale and distance, while maintaining customer service levels (Sanders, 151).” This dictates mode selection or combination of modes in an effort to achieve the balance between costs and benefits.

The key differences between transportation and logistics include:

• Scope of Activities. Transportation is primarily concerned with the physical movement of goods. Logistics covers a wider range of activities including planning and coordination of transportation, inventory movement, warehousing, and distribution.
• Focus. Transportation focuses on the tactical aspects of moving goods from one location to another. Logistics focuses on the execution of the supply chain strategy.
• Cost Management. Logistics aims to optimize overall supply chain costs, where transportation is just one part of that cost component. Transportation costs are often a significant portion of total logistics costs, but logistics costs are more inventory focused and associated with the costs of moving and storing inventory throughout the chain.
• Role in the Supply Chain. Logistics is the overarching framework that integrates transportation with other supply chain activities to create a seamless flow of goods.

MODES OF TRANSPORTATION

As stated, the logistics network consideration, coupled with the balance of cost and customer service, determines the mode selection. Within supply chain, the ability to efficiently connect locations geographically dispersed provides a competitive advantage for organizations operating on a global scale. Acting as the connector component within both the supply chain and logistics processes, transportation is the function that enables the flow of goods.

From a general perspective there are six categories of transportation modes. Each category does have its own nuances and characteristics that can be considered when making mode selection decisions:

1. Over the Road (Truck). For domestic shipping, over the road (or truck) transport is one of the most common and more flexible modes. Offering door-to-door service, trucks are able to carry a wide range of goods and sizes of goods via different equipment types. OTR offers flexibility in scheduling, routing, frequency of delivery, and even speed for shorter hauls, while also providing options for how the freight is delivered considering these benefits. The most common equipment types include dry van, flat bed, refrigerated, lowboy, step deck, and tanker. Other equipment types include double drop for moving taller loads, and special designs for unique cargo types (cars, machinery, etc.).
2. Water. Water transportation has a huge advantage in its ability to transport bulk commodities at a cost-effective price. However, water is also can be one of the slower modes of shipping. Water transport can be both domestic and international. Domestic water transport can include inland, coastal and intercoastal, and lake movements. International water transport is typically via ocean. Focusing specifically on international or ocean transport, this method is commonly used for high-volume global shipments where vessels sail from port to port. Common vessel types include bulk and neo-bulk, container, roll-on/roll-off, special vessels, and lighter-aboard-ship vessels. Vessel type can be dependent upon the product, but one of the more common that we’re all probably used to seeing are container ships. Containerships offer larger carrying capacities and transport containers of varying sizes: 20’, 40’, and 45’ in both standard and high cube (HC) are the most common. These vessels stack containers below and above deck for optimal space use and diverse size accommodations. As a lower per unit cost of service, part of the shipment cost can be spread across the units.
3. Air. Air is a faster method of transportation and is commonly used to support just-in-time or critical time-in-transit systems. However, the high cost associated with air transport limits its use to situations where speed is critical. Air transport is also often combined with OTR transport for last-mile delivery. While speed and service are more of a priority with air transportation, there are often cargo size and commodity restrictions, limiting the ability to bulk transport in this method. Therefore, this service is primarily characterized by speed and servicing high value/low volume customers.
4. Rail. Rail is typically more cost-effective than road transport for long-distance bulk shipments, as it is designed for moving heavy loads on longer hauls. Commonly seen in industries such as mining, agriculture, and some manufacturing industries, rail is suited for moving large and heavy items at a lower cost over land. While beneficial from an economy of scale perspective, rail is often a longer transit than other modes. It is also restricted to the infrastructure, often making it combined with another mode of transportation to make final delivery to customers.
5. Pipeline. I can honestly say this is one that I’ve not yet had the pleasure of getting to facilitate within a supply chain, but this one is specific to liquids and gases. Because it is so specialized and relies on a very specific infrastructure (pipeline), this is the most efficient and cost-effective means of moving large volumes of liquids and gases over long distances.
6. Multimode. As already mentioned, in most logistics operations, a combined use of modes is required in order to effectively deliver products. Since each mode has constraints, it’s almost impossible to rely solely on one mode. Along with that, “a combination of a few modes provides optimal cost and customer service (Sanders, 153).” Combining modes is often required because of the supply chain network design and the different logistical components of it.

Each mode plays a role in a supply chain, and the choice of mode is usually dictated based upon the logistics activities that follow the overarching network design. By understanding the strengths and limitations of each mode, as well as how to effectively combine modes and how to leverage modes for different parts of the chain, the balance of an organization’s overall supply chain strategy will be achieved.

TRANSPORTATION & LOGISTICS AS PILLARS OF SUPPLY CHAIN MANAGEMENT

While the differences between logistics and transportation were discussed, as well as the modes of transportation as a means to connect various aspects of the supply chain, how do transportation and logistics act as pillars? The activities associated with logistics, and transportation specifically, are interconnected with all of the other functional areas from procurement to the end customer. Let’s look at a few examples of how transportation and logistics activities are interwoven into each stage of an organization’s supply chain.

1. Procurement & Inbound Logistics (Upstream). Starting at the top of the chain, raw materials, components, or even finished products from suppliers are procured. Transportation plays a critical role in this stage by facilitating the inbound movement of these goods from suppliers to manufacturing facilities or distribution centers. Efficient transportation within procurement ensures that materials arrive on time, preventing any production delays? and reducing the need for excess inventory. An example of this is JIT (just-in-time) which relies heavily on precise transportation schedules to minimize inventory levels while ensuring that production lines are continuously supplied. Any disruption in transportation at this stage can lead to costly inefficiencies (stoppage of production lines, for example). Along with the physical movement, the associated costs within this stage (freight charges and tariffs) are attached to the unit as it will flow through the rest of the chain. Procurement teams must work closely with providers to negotiate favorable terms, optimal shipping routes, and best modes to balance costs, speed, and reliability.
2. Manufacturing & Production (Upstream). Within some manufacturing and production environments, multiple tiers of suppliers or sub-assemblies can exist to produce a final good. Transportation is vital in these scenarios for coordinating the movement of parts and sub-assemblies between different production facilities. Many of these production set-ups span globally, meaning that components can be sourced or produced will be reliant on various modes and routes in order to ensure all necessary parts arrive at the right place and time to enable seamless production processes. Transportation also can impact the overall efficiency of a manufacturing operation in that lead times in transit can impact the safety stock or buffer levels to avoid delays or shutdowns in production lines. This can lead to an increase in inventory with carrying costs. Conversely, reliable and fast transportation allows for leaner inventories, reducing costs. On the outbound side of manufacturing and production, the flow of finished goods is dictated by transportation and logistics activities to get products to customers. This requires careful coordination to align production schedules with transportation to meet customer demand.
3. Distribution & Outbound Logistics (Downstream). Obviously, a logistics activity itself, but also a key component to supply chain, distribution is where finished goods are transported to distribution centers, wholesalers, retailers, or directly to consumers. Outbound logistics is heavily dependent on transportation, as it involves the delivery of products to their final destinations. The efficiency of transportation in distribution can significantly impact a company’s ability to meet customer expectations. In today’s fast paced, customer-centric environment, consumers expect rapid delivery times and real-time tracking of their orders. Companies that can optimize their transportation process to offer faster and more reliable delivery services gain a competitive edge in the market.
4. Warehousing & Inventory Management (Upstream/Downstream, depending). Transportation is very closely linked with warehousing and inventory management, which are two critical components of the overarching logistics and supply chain umbrella. The efficiency of transportation directly influences how companies manage their inventory levels and warehouse operations. Warehousing acts as a hub where goods are stored, sorted, and prepared for distribution. However, warehousing design and location are often determined by transportation considerations (I can speak to this as I just finished a project doing this). Within the warehouse, inventory is housed. Inventory management involves balancing the need to meet customer demand with the cost of holding inventory. Transportation plays a role in this balance by influencing lead times and order quantities. It also impacts the speed and accuracy of order fulfillment, requiring close coordination between warehouses and transportation providers.
5. Retail & Final Delivery (Downstream). I separated this out from the warehousing component because the final stage of a supply chain is the delivery of goods to retailers or direct to consumers. Now, I recognize that warehouses may perform this, however, as the business landscape has shifted, the emergence of last-mile delivery has made this a separate component to supply chain. In both retail and final delivery, transportation plays a crucial role in maintaining product availability. Retailers often rely on efficient transportation networks to replenish inventory regularly and within short notice. Last-mile delivery is often the most complex and expensive part of the transportation process, as it involves delivery of multiple packages to multiple destinations, often within tight timelines (shout-out to Amazon for my same day delivery though). It’s also a customer facing activity in this area of the supply chain.

CONCLUSION

Transportation and logistics are key functions of supply chain, acting as the backbone that connects every stage from production to final delivery. While often conflated, transportation serves as the physical execution of logistics, moving goods efficiently within an organization’s network. On the other hand, logistics encompasses a broader scope and acts as the executional component of supply chain management. Integrating transportation with other activities such as warehousing, inventory management, and distribution, logistics seeks to get products to where they need to be when they need to be there.

?References:

1. Hult, Thomas G., Closs, D., & Frayer, D. (2014). Global Supply Chain Management: Leveraging Processes, Measurements, and Tools for Strategic Corporate Advantage. McGraw-Hill.
2. Meredith, J. R. & Shafer, S. M. (2016). Operations and Supply Chain Management for MBAs. John Wiley & Sons, Inc.
3. Sanders, N. R. (2021). Supply Chain Management: A Global Perspective. Third Edition. John Wiley & Sons, Inc.
4. Thompkins, J. A. & Harmelink, D (2004). The Supply Chain Handbook. Thompkins Press.

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Casey Jenkins, owner and CEO of Eight Twenty-Eight Consulting LLC, is a supply chain and process improvement advisor and educator. Offering advisory, educational, and project-based services, she adeptly combines education and experience to solve complex supply chain problems. Reach out today to find out how to Take Your Company to the Summit.