Transportation Cost in the Supply Chain | Free Essay Example

Transportation Cost in the Supply Chain

Words: 1682
Topic: Business & Economics
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Introduction

All organizations source various materials from different places. Therefore, they establish a department that does supply chain and logistics management. An effective logistics network management ensures that the controlling systems reduce various costs that are associated with supplies. Thus, products and services are availed whenever they are required in a manner that guarantees the sustainability of the increasing number of products that need to be availed in the market.

This strategy enhances the capacity of an organization to compete with other organizations in the same industry. For an organization’s supply network to deliver competitive advantage, it is necessary for it to reduce the overall cost of running the business.

Considering the availability of different modes of transportation in the supply chain, the most appropriate mode is the one that guarantees efficiency and effectiveness of the supply chains at minimal costs. From this perspective, this paper compares the cost of transporting goods by air and land travel.

Air Shipment of Commodities

Air shipment constitutes one of the biggest gifts of the 20th century. The Second World War led to the development of the global air transport, which all organizations have been utilizing to enhance their supply chain transportation goals (Leclerc, 2012). Compared to land travel, air transport does not require a surface track for its effective operations. In relation to other means of carriage, physical barricades are not important when it comes to air carriage.

Political boundaries are not also material to it. However, organizations that utilize it are required to adhere to international law. Air transport is highly attractive to an organization that seeks rapidity of service delivery. The air travel constitutes the highest-speed mode of transportation. However, World Industrial Reporter (2012) reveals how it requires particular preparations such as meteorological stations, searchlights, and wheeler links.

Land Transportation of Goods

Land transportation refers to the movement of goods and people to diverse locations on the land. It collectively refers to rail and road transport. Rail transportation refers to the traced paths on which wheeled locomotives ride. Locomotives consist of various vehicles that are pulled by a one-powered vehicle along a railway line. Following hi-tech improvements, rail carriage also incorporates the subway and the maglev systems. Organizations that deal with heavy works have been traditionally connected to railway systems.

However, containerization has improved the effectiveness of this mode of transport through road connection with railway-line stations. Rail transport is a mode of transport that possesses the highest capacity in terms of transportation of cargo in most nations. For example, in the US, the rail transport has recorded 23,000 tons of coal transportation on a single train unit (World Industrial Reporter, 2012).

Road transport consumes the largest space with reference to laying out transportation infrastructures. This mode of land transport possesses the least physical constraints. However, physiographical constraints are commonplace (Bullinger, Kuhner & van Hoof, 2002). During the development process of the road transportation, roads were designed to accommodate non-motorized forms.

However, more intense development of the mode emerged following the motorization of road transport. It offers the highest flexibility since vehicles can be multipurpose. Nevertheless, roads have the disadvantage of high maintenance costs. Roads are largely connected to small businesses that have a constant shipment of trivial consignments. However, containerization has resulted in connecting substantial businesses with road carriage mechanisms.

Costs that are involved in the Transportation of Goods by Air

Different modes of transport have different costs that are involved in the process of sourcing goods and materials until they are delivered to an organization. In terms of urgent commodities, air carriage constitutes the unsurpassed alternative for an organization.

The mode of transport also has low insurance costs. It is associated with tight inventory control. Warehousing costs are lost for this transport mode. Ensuring tight inventory control is important for an organization since it shields it from costs that are associated with the rapid replenishment of stocks. It also helps in the reduction of the cost of handling inventories such as damages and human resources.

Organizations are growing into immense complexities, which are constantly looking for mechanisms of becoming competitive. One of the ways of gaining a competitive advantage is by increasing customer satisfaction with the offered services by guaranteeing timely delivery of their cargo (Chopra & Meindl, 2004). The cost of unsatisfied customers is high in many organizations.

They negatively influence repeat sales or orders. Deploying air transport is important in the mitigation of these costs, which can impair an organization’s efforts of building its competitive advantage around increasing customer satisfaction via effective supply chains.

Although the indirect costs that are associated with air transport as discussed above are important in selecting an appropriate mode of transport in an organization’s supply chains, many organizations base their decisions on the right mode of transport from the context of the direct cost of transportation. Any air travel company charges this amount of money for the transportation of cargo from one location to another. Indeed, data on the cost of different modes of transport is only available for direct costs.

However, it is important to note that some organizations have air transport as their only option. For example, the supply chain for highly perishable products such as flowers and fresh vegetables to international markets mainly depends on air transport, although it may have high direct costs.

Operation costs in air transportation vary depending on weight of the cargo and the expected speed of delivery. Hence, heavy and time-sensitive cargo attracts the highest charges. Some airline organizations provide pick-up services to their clients depending on the customer’s shipment size.

Some other airlines extend the responsibility for transporting the cargo to one’s final destination from the airport. If the company provides the service, the total cost of transportation of goods is less than when an organization has to meet the budget. Many airlines also provide cargo-trucking services to their customers via web-based technologies without attracting any extra charges.

Costs that are involved in the Transportation of Goods by Land Travel

Land transport is an inevitable mode of transport for many organizations even those that ship their goods by air. For example, shipping by trucks to the airports is required even in the supply chains that involve highly perishable farm produce. Thus, any comparison can only be made where large distances are involved. Indeed, an assessment can only be made where there is an option for transportation of cargo either by land or by air between locations. Indirect costs that are discussed under air transportation are also important to land transport.

For example, transportation using trucks may cause an organization to incur high inventory control costs due to the need to maintain high inventories to overcome challenges such as delays in the delivery of cargo due to unsmooth traffic flows. Because of its high susceptibility to risks, road transport has high insurance costs. The price that is charged for transportation of cargo per ton or kilometer is lower in relation to air transport.

Rail transport can overcome some of the challenges of road transport. For example, an organization can ensure tighter inventory controls while using rail transport due to the non-existence of problems of unsmooth traffic flow. However, the cost of rapidity is high, although this problem is non-existent in developed nations such as Germany.

Hence, rail transport competes closely with air transport. Rail transport particularly reduces supply chain costs where large distances are involved and/or where the intermodal chain is not necessary. It is also attractive where bulky goods are involved. However, where flexibility is important in the supply chain’s mode of transport, rail transport is unattractive since it may present high costs.

The Effectiveness of Air Transport and Land Transport of Goods

The goal of transport in the supply chain entails moving goods from one location to another. The literature on the role of supply chain in an organization presents supply chain management as an essential aspect of enhancing competitive advantage in a global market that is characterized by excess products and services.

Fundamentally, supply chain management entails overseeing the movement of goods and services, finances, and information from the point of production to wholesalers and then to the consumers. It also encompasses “coordinating and integrating these flows both within and among companies” (Ketchen & Hult, 2006, p.573). These processes must be accomplished both efficiently and effectively. Thus, a selected mode of transport needs to effectively deliver the objectives and goals of the transportation component of supply chains.

The effectiveness of either air transport or land transport defines the degree or threshold to which the objectives or goals of the supply chain have been achieved. It also defines the degree of the resolution of the targeted problems. In this context, the targeted problems embrace moving goods from one location to another. In terms of prices per ton or kilometer, air transport is expensive compared to land transport (Leclerc, 2012).

However, a reference to costs is immaterial in the discussion of the effectiveness of both modes of transport. The aspects of costs are critical in the discussion of efficiency. Considering that the objective of the supply chain is to deliver cargo in the most shortest time possible and in the right quality, air transport is more effective in supply chains compared to land transport, which may be characterized by delays and inflexibility in case of rail transport.

Conclusion

The overall aim of the supply chain within an organization is to ensure limited accumulation of inventories. It also ensures the mitigation of costs that are associated with urgent replenishments. Compared to land transport, air transport provides the important benefits that are aligned with the goals and objectives of the supply chain management.

The effectiveness of supply chains can be determined based on the degree to which an organization achieves the goals and objectives of its supply chain. However, without referring to costs, air transport is a highly effective mode of transport compared to land transport. When the aspect of costs is integrated, amid the benefits of high rapidity and the need to maintain low inventory costs, air transport becomes an expensive mode compared to land transportation.

Reference List

Bullinger, J., Kuhner, M., & van Hoof, A. (2002). Analyzing supply chain performance using a balanced measurement method. International Journal of Production Research, 40(15), 3533-3543.

Chopra, S., & Meindl, P. (2004). Supply Chain Management: Strategy, Planning, and Operation. Upper Saddle River, NJ: Prentice Hall.

Ketchen, G., & Hult, T. (2006). Bringing organizational theory and supply chain management: The case of best supply chains. Journal of operations management, 25(2), 573-580.

Leclerc, Y. (2012). Sustainability and the Supply Chain: How to Reduce Cost and Save the Environment. Manufacturing business technology, 2(1), 67-71.

World Industrial Reporter. (2012). Global Shipping: Choosing the Best Method of Transport. Web.