INVENTORY MANAGEMENT

STRATEGY IN
DISTRIBUTION AND LOGISTICS

by: ANHEATHER JADE ALVIOR

Inventory Management Strategy

• Inventory management tries to efficiently streamline inventories to avoid

both gluts and shortages.

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 Four major inventory management methods:

Just In-Time Management (JIT)

Materials Requirement Planning (MRP)

Economic Order Quantity (EOQ)

Day Sales of Inventory

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1. Just In-Time Management 2. Materials Requirement
(JIT) Planning (MRP)

o is an inventory management o is a system for calculating the

method in which goods are materials and components needed
received from suppliers only as to manufacture a product.
they are needed. The main
objective of this method is to
reduce inventory holding costs
and increase inventory turnover.

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3. Economic Order Quantity 4. Days Sales of Inventory
( EOQ) (DSI)

o is a company's optimal order o exhibits the average number of

quantity that meets demand while days a business requires to turn its
minimizing its total costs related inventory into sales. It is one way
to ordering, receiving, and holding to measure inventory
inventory. management.

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 Inventory Management Strategy in Distribution

The goal of inventory management is to understand stock levels and stock's

location in warehouses. Inventory management software tracks the flow of
products from supplier through the production process to the customer. In
the warehouse, inventory management tracks stock receipt, picking, packing
and shipping.

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 Inventory Management Strategy in Logistics

The goal of inventory management is to have the right products in the right
place at the right time.

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INVENTORY FUNCTIONS
AND TYPES

BY: KRIZELLE JOYCE BARRIENTOS

• Inventory is a major asset that should provide return for the capital invested.
These four functions geographical specialization, decoupling, balancing supply
and demand, and buffering demand uncertainty require inventory investment to
achieve managerial operating objectives.
• Given a specific manufacturing marketing strategy, inventories planned and
committed to operations can only be reduced to a level consistent with
performing the four inventory functions.
• All inventories exceeding the minimum level excess commitments. At the
minimum level, inventory invested to achieve geographical specialization and
decoupling can only be modified by changes in facility location and operational
processes of the enterprise.

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TYPES: For a manufacturer inventory risk is long-term. The
manufacturer’s inventory commitment starts with raw material and
component parts, includes work-in-process, and ends with finished
goods.

• Raw Materials: The essential components used to create finished products.

Examples include metals, plastics, and textiles.
• Work-in-Process (WIP): The inventory currently being transformed or assembled
into finished goods. This includes items that have started the production process
but aren’t yet complete.
• Finished Goods: Products that are ready for sale or distribution to customers.
These items have completed the production process and are awaiting shipment.

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 Inventory
Carrying Cost
BY: FRENCHSKIE NICOLE COCJIN
Inventory carrying cost identifies all
business expenses related to holding
and storing unsold goods.

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 Components of
Inventory Carrying Cost

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1. Delay of Innovation - measures the cost that a business incurs to finance its
operations. It measures the cost of borrowing money from creditors, or
raising it from investors through equity financing, compared to the expected
returns on an investment.
2. Cost of Capital - is usually the biggest portion of inventory carrying costs,
includes the purchase price of the products plus any interest and other fees if
the business took on debt to pay for that inventory.
3. Cost of Space - the amount of money incurred as a result of storing inventory.
The costs could be direct or indirect money spent on the storage of goods.
4. Administrative Costs - encompass a wide variety of expenses, including
property taxes, facility maintenance and cleaning, transportation and
equipment depreciation. Generally, if a company holds more inventory, it has
higher administrative costs, in part because it needs a larger facility.
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5. Depreciation and Obsolescence Costs - products become obsolete after they depreciate
to the point of having no value and must be written-off. Organizations can minimize
obsolete inventory by finding ways to offload stock while it still has some value,
perhaps through deep discounting, donating it or by selling it to a liquidator.
Otherwise, you’ll likely pay to dispose of it.
6. Insurance/Taxes - many companies invest in an insurance policy to protect one of their
most valuable assets: inventory. The more product in the warehouse, the more that
insurance policy will cost. Similarly, the more inventory you hold, the higher your
taxes. An organization can pare down both insurance and tax expenses by keeping
fewer products or only its highest-performing goods in the warehouse.
7. Material Handling - is the movement, protection, storage and control of materials and
products throughout manufacturing, warehousing, distribution, consumption and
disposal.

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8. Lead Time - is the period between the start of a process and its conclusion.
It’s the amount of time it takes to make a product or service so it's usable
for the customer.
9. Shrinkage - when inventory is lost after your company purchased it but
before it’s sold to a customer, that’s shrinkage. Sources of
inventory shrinkage include theft, fraud, damage in transit or record-
keeping mistakes. As with other inventory carrying costs, the more stock a
business holds, the more money it will commonly lose to shrinkage.
Therefore, carrying costs enables you to find out your profit against incurred
against the inventory you are holding. This cost ensures that you do not run
into grave losses by holding inventory over a long period of time. Always the
carrying cost should only be in limits of 20% – 30% of your total inventory
value.
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INVENTORY
PLANNING
BY: ROMNICK LABANIEGO
 I. Determining when to • To illustrate Assume demand of 20
units/day and a 10-day performance cycle.
order
In this case, R = D x T
II. Determining how much
to order • = 20 units/day x I0 days = 200 units
• When safety stock is necessary to
I. Determining when to order accommodate uncertainty, the reorder point
Reorder point - When a replenishment formula is:
shipment should be initiated.
• Formula: R = D x T + SS
Formula: R = D x T where, R = Reorder • where, R = Reorder point in units; D =
point in units; D = Average daily demand Average daily demand in units; and T =
in units; and T = Average performance Average performance cycle length in days.
cycle length in days. SS = Safety stock in units
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 No. of orders = Annual demand in
units/Order Quantity
II. Determining how much
to order Total ordering costs = No. of
orders x ordering cost

• Simply stated, the objectives are to Carrying costs Average inventory =

identify the ordering quantity that order quanti
minimizes the total inventory carrying Total carrying costs = Average
and ordering cost. inventory x carrying costs.ty/2

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 Economic Order Quantity

The EOQ is the replenishment practice that

minimizes the combined inventory
carrying and ordering cost. ldentification
of such a quantity assumes that demand
and costs are relatively stable throughout
the year.

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 MAJOR ASSUMPTIONS OF THE
SIMPLE EOQ MODEL
1) All demand is satisfied;
2) Rate of demand is continuous, constant, and known;
3) Replenishment performance cycle time is constant and known;
4) There is a constant price of product that is independent of order quantity or time;
5) There is an infinite planning horizon;
6) There is no interaction between multiple items of inventory;
7) No inventory is in transit; and
8) No limit is placed on capital availability.
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 EOQ Extensions
1. Volume Transportation Rates
When product ownership is transferred at origin, the impact of transportation rates
upon total cost must be considered when determining order quantity. As a general
rule, the greater the weight of an order, the lower the cost per pound of
transportation from any origin to destination. A freight-rate discount for larger
shipments is common for both truck and rail. Thus, all other things being equal, a
firm naturally wants to purchase in quantities that offer maximum transportation
economies. Such quantities may be larger than the purchase quantity determined
using the EOQ method. Increasing order size has a twofold impact upon inventory
cost.
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2. Quantity Discounts. Purchase quantity discounts represent an EOQ
extension analogous to volume transportation rates.

Quantity discounts can be handled directly with the basic EOQ formulation
by calculating total cost at any given volume-related purchase price to
determine associated EOQs. If the discount at any associated quantity is
sufficient to offset the added inventory carrying cost less the reduced cost of
ordering, then the quantity discount offers a viable alternative. It should be
noted that quantity discounts and volume transportation rates each affect
larger purchase quantities. This does not necessarily mean that the lowest
total cost purchase will always be a larger quantity than would otherwise be
the case under basic EOQ.
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• Other EOQ Adjustments. A variety of special situations may occur that
will require adjustments to the basic EOQ.

• 1) production lot size

• 2) multiple-item purchase,
• 3) limited capital, and
• 4) private trucking

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 MANAGING
UNCERTAINTY
BY: LEILA MARCALIŃŃAS
• Although it is useful to understand inventory relationships
under conditions of certainty, formulation of inventory policy
must realistically consider uncertainty. One of the main
functions of inventory management is to plan safety stock to
protect against out-of-stocks.

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 INVENTORY MANAGEMAENT
POLICIES
• Inventory management is the process that implements inventory policy.
The reactive or pull inventory approach uses customer demand to pull
product through the distribution channel. An alternative philosophy is a
planning approach that proactively allocates inventory based on forecasted
demand and product availability. A third, or hybrid, logic uses a
combination of push and pull.

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 Inventory Management Practices
• An integrated inventory management strategy defines the policies and
process used to determine where to place inventory, when to initiate
replenishment shipments, and how much to allocate. The strategy
development process employs three steps to classify products and
markets, define segment strategies, and operationalize policies and
parameters.

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 TRANSPORTATION
INFRASTRUCTURE AND
MANAGEMENT
BY: CHARI FAYE VARONA
 Transportation infrastructure and management

• transportation infrastructure management covers a wide range of themes. It tackles

road use, including questions of maintenance and upkeep. Intelligent transport systems
(ITS) and new technologies are naturally covered. Planning and travel demand analysis
are included in the activities of the chair.
• Transportation infrastructure management refers to the process of making decisions
concerning the allocation of resources for the preservation, maintenance and repair, of
the facilities that comprise transportation systems, pavement and bridge networks. In
developed countries, where much of the transportation infrastructure is mature and
portions are nearing the end of their service lives and need to be replaced, decisions are
increasingly important.
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• This is due to both the far-reaching and serious negative impacts of deficient
infrastructure, as well as the magnitude of expenditures. In the United
States, for example, annual expenditures are on the order of tens of billions
of dollars. Decisions trade off user costs, which depend on facility condition
and correspond to a fraction of the costs associated with travel time, fuel
consumption, vehicle depreciation and maintenance, with costs. As facilities
deteriorate, the rate at which user costs accrue increases. Costs are incurred
to improve condition, and thus, reverse the effects of deterioration.
• The importance of transportation infrastructure management has, over the
last 40 years, motivated a great deal of research to address both the
development and estimation of statistical performance models to support
condition forecasting, as well as the formulation and analysis of
optimization models to support decision-making
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The role of transportation in logistics operations has changed dramatically
over the last three decades. Prior to transportation deregulation, the
purchase of transportation could likened to buying a commodity such as
coal or grain. There was very little difference between transportation
suppliers in terms of product, service, or price. Transportation deregulation
in 1980 introduced pricing flexibility and significantly increased the range
of services transportation companies could provide customers. Today a wide
range of transportation alternatives are available to support product or raw
material logistics.

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Transportation Structure
• The freight transportation structure consists of the rights-of-
way, vehicles, and carriers that operate within five basic
transportation modes. A mode identifies a basic transportation
method or form. The five basic transportation modes are rail,
highway, water, pipeline, and air.

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 Rail carriers compete most favorably when the
distance is long and the shipments are heavy or
bulky. At one time in the United States, rail
Rail carriers transported the majority of goods
shipped; however, since World War II, their
share of the transportation market has steadily
fallen. The $60 billion industry consists of
140,000 rail miles operated by 7 Class I or large
railroads, 21 regional railroads, and 510 local
railroads. Not only does the 140,000-mile system
move more freight than any other freight rail
system worldwide, but also it provides 221,000
jobs. Today in the United States, rail carriers
account for about 1.8 billion tons of freight
hauled each year.19
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• Rail service is relatively slow and inflexible; however, rail carriers are less
expensive than air and motor carriers and can compete fairly well on long hauls.
To better compete, railroads have purchased trucking companies and can thus
offer point-to-point pickup and delivery service using motor carrier trailers and
rail flatcars that carry the trailers (known as trailer-on-flatcar service or TOFC
service). Railroads are also at somewhat of a disadvantage compared with motor
carriers with respect to shipment damages, equipment availability, and service
frequency.
•
• Real-time location systems (RTLSs) on rail cars use active, Wi-Fi-enabled radio
frequency identification (RFID) tags to allow tracking of rail cars (and their
assets) in real time. The tag is programmed to broadcast a signal identifying its
location at regular time intervals. Sensors can also be added to the RTLS tags to
monitor the temperature inside refrigerated cars, for example, and transmit a
signal if the temperature goes out of a pre-set range.20
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 • Highway transportation has
expanded rapidly since the end
Highway of World War 11. To a
significant degree the rapid
growth of the motor carrier
industry has resulted from
speed and ability to operate
door-to-door. Motor carriers
have flexibility because they
are able to operate on all types
of roadways. Nearly one million
miles of highway are available
to motor carriers, which is
more mileage than all other
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modes combined.
• Motor carriers are most often classified as less-than-truckload (LTL)
carriers or truckload (TL) carriers. LTL carriers move small packages or
shipments that take up less than one truckload, and the shipping fees are
higher per hundred weight than TL fees, since the carrier must consolidate
many small shipments into one truckload and then break the truckload back
down into individual shipments at the destinations for individual deliveries.
• Motor carriers can also be classified based on the types of goods they haul.
General freight carriers carry the majority of goods shipped in the United
States and include common carriers, whereas specialized carriers transport
liquid petroleum, household goods, agricultural commodities, building
materials, and other specialized items. In Australia, extra-long truck and
trailer combinations (referred to as road trains) transport goods between
geographically dispersed communities not served by rail (see the chapter-
opening SCM Profile for discussions of this and other unique transportation
services).
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 • Water is the oldest mode of transport. The original sailing vessels
were replaced by steam-powered boats in the early 1800s and by

Water
diesel in the 1920s. A distinction is generally made between deep-
water and navigable inland water transport. Domestic water
transport, which involves the Great Lakes, canals, and navigable
rivers, has maintained a relatively constant annual ton-mile share of
13 percent over the past three decades.19 While the share has
remained relatively constant, the mix has changed dramatically.
• The main advantage of water transport is the capacity to transport
extremely large shipments. Water transport employs two types of
vessels for movement: Deep-water vessels are generally designed for
coastal, ocean, and Great Lakes transport; diesel towed barges
generally operate on rivers and canals and have considerably more
flexibility.
• The main disadvantages of water transport are the limited range of
operation and transport speed. Unless the origin and destination of
the movement are adjacent to a waterway, supplemental haul by rail
or truck is required. The capability of water to transport large
tonnage at low variable cost places this mode of transport in
demand when low freight rates are desired and speed of transit is a
secondary consideration. 11/27/2023 38
Pipeline • Pipelines are a significant part of the
U.S. transportation system. Pipelines
accounted for approximately 56.8
percent of all crude and petroleum
ton-mile movements.
• In addition to petroleum products, the
other important product transported
by pipeline is natural gas. Similar to
petroleum, natural gas pipelines in the
United States are privately owned and
operated, and many gas companies
act as both gas distribution and
contract transportation providers.
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• The basic nature of a pipeline is unique in comparison to any other mode of
transport. Pipelines operate on a 24-hour basis, 7 days per week and are
limited only by commodity changeover and maintenance. Unlike other
modes, there is no empty container or vehicle that must be returned.

• Pipelines have the highest fixed cost and lowest variable cost among
transport modes. High fixed costs result from the right-of-way for pipeline,
construction and requirements for control stations, and pumping capacity.
• Since pipelines are not labor-intensive, the variable operating cost is
extremely low once the pipeline has been constructed. An obvious
disadvantage is that pipelines are not flexible and are limited with respect to
commodities that can be transported as only products in the forms of gas,
liquid, or slurry can be handled.
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 • The newest but least utilized mode of
transportation is airfreight. The significant
advantage of airfreight lies in the speed
Air with which a shipment can be transported.
A coast-to-coast shipment via air requires
only a few hours contrasted to days with
other modes of transport.
• While costly, the speed of air transport
allows other aspects of logistics such as
field warehousing and inventory to be
reduced or eliminated. Air transport,
despite its high profile, still remains more
of a potential than a reality.
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• Air transport capability is limited by load size, weight lift capacity,
and aircraft availability. Traditionally, intercity airfreight was
transported on scheduled passenger flights. While the practice was
economically justified, it resulted in a limited capacity and flexibility
of freight operations. The high cost of jet aircraft, coupled with the
erratic nature of freight demand, served to limit the economic
commitment of dedicated aircraft to all-freight operations.
• The fixed cost of air transport is low compared to rail, water, and
pipeline. In fact, air transport ranks second only to highway with
respect to low fixed cost. Airways and airports are generally
developed and maintained by government.

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TRANSPORTATION
FUNCTIONALITY,
PRINCIPLES and
PARTICIPANTS
BY: PRINCESS MAE BORJA
 Transportation Function

• is a product movement up and down the value chain.

Transportation utilizes temporal, financial, and environmental
resources, it is important that items be moved only when it truly
enhances product value.

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 Principle of Transportation
Economy of Scale
• it refers to the characteristic that transport cost per unit of weight
• decreases when the size of shipment increases.

Economy of Distance
• the characteristic that transportation cost per unit of distance
• decreases as distance increases
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 Transport Participants
• SHIPPER
• CONSIGNEE (RECIEVER)
• CARRIER AND AGENTS
• GOVERNMENT
• INTERNET
• PUBLIC

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 Role and perspective of participants

• Shipper and Consignee have a common interest in moving goods from origin to
destination within a given time at the lowest cost.
• Carriers desire to maximize their revenue for movement while minimizing
associated costs.
• Agents (brokers and freight forwarders) facilitate carrier and customer matching.
Government desires a stable and efficient transportation environment to support
economic growth.
• Public is concerned with transportation accessibility, expense, and standards for
security, safety and the environment.
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Transportation
Structure
BY: NELCAR DOMINGO
What is a Transportation Structure?

• A transportation structure is a physical infrastructure that

facilitates the movement of people and goods from one
location to another. These structures are essential for the
efficient and safe movement of goods and people, and they
play a vital role in the development of economies and
societies.

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Types of Transportation
Structures

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 1. Roads 2.Bridges

• The most common type of • structures that span over physical

transportation structure. They are obstacles such as rivers, valleys,
used for both vehicular and and railways. They allow vehicles
pedestrian traffic, and they can be and pedestrians to cross these
found in all parts of the world. obstacles without having to get in
Roads can be classified into the way of other traffic. Bridges
several types, including highways, can be made of a variety of
expressways, arterials, and local materials, including concrete,
roads. steel, and wood.
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3. Tunnels 4. Railroads

• structures that allow vehicles and • transportation systems that use

pedestrians to pass through trains to transport goods and
obstacles such as mountains, hills, passengers, consist of tracks,
and bodies of water. Often used in locomotives, and passenger and
areas where it is not possible or freight cars. An efficient and
practical to build bridges. reliable mode of transportation,
and they are used to transport
goods and passengers over long
distances.
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5. Airports 6. Ports

• facilities that allow airplanes to • facilities that allow ships to dock

take off and land, consist of and unload cargo, consist of piers,
runways, taxiways, terminals, and docks, warehouses, and other
other facilities that support air facilities that support maritime
travel. Airports are essential for transportation. Ports are essential
the transportation of goods and for the transportation of goods
passengers over long distances. over long distances.

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7. Canals 8. Pathways and Trails

• artificial waterways that allow • are pedestrian and bicycle paths

ships to travel between different that provide a safe and convenient
bodies of water. They are often way to travel. They can be found
used to bypass obstacles such as in a variety of settings, including
rivers, mountains, and peninsulas. urban areas, parks, and forests.
Canals can also be used to control
the flow of water and to provide
irrigation.

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 Transportation Service
Traditional Carriers Package Service
• traditional carriers refer to companies • a type of shipping service that is
that own and operate their own fleet of specifically designed for the transport of
vehicles, such as trucks, airplanes, or packages. Packages are typically larger and
ships. These companies provide heavier than letters, and they may contain a
variety of items, such as merchandise,
transportation services to businesses
documents, or personal belongings.
and individuals, typically on a Package services offer a variety of options
contractual basis. Traditional carriers for shipping packages, including domestic
are typically larger, more established and international shipping, different
companies with a wider network of shipping speeds, and various tracking and
facilities and equipment. insurance options.
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Ground Package Service Air Package Service
• a type of shipping service that • An air package service is a type of
uses the road network to transport shipping service that uses
packages from one location to airplanes to transport packages and
another. This is the most common goods over long distances. This is
and economical type of shipping the fastest way to ship packages
service, and it is often used for internationally, and it is often used
shipping non-urgent items such as for time-sensitive shipments or
merchandise, gifts, and household items that are too fragile to be
goods. shipped by other methods.
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TRANSPORTATION
SERVICE
BY: JEFF ROLAND MAGOS
 TRANSPORTATION SERVICE
• Transportation service is achieved by combining the
capabilities of modes. Prior to the regulation government policy
limited carriers to operating in a single mode. Such restrictive
ownership sought to promote competition between moods and
limit the potential for monopoly practices.

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 Traditional carriers
 The most basic carrier type is a transportation firm that provides services
utilizing only one of the five basic transport modes. Focus on a single operational
mode permit a carrier to become highly specialized.
 Although single – modes operators are able to offer extremely efficient
transport, such specialization create difficulties for a shipper who desires
intermodal transport solutions because it requires negotiation and business
planning with multiple carriers.
 Airlines are an example of a single - mode carrier for both freight and
passenger service that traditionally limit service from airport to airport.
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 Package service
 Packages represent an important part of logistics, and the influence of
carrier in this segments is increasing due to their size and intermodal
capabilities. The advent of e-commerce and the need for consumer - direct
fulfillment have significantly increased demand for package delivery.
 While package service are expanding the services required do not fall
neatly into the traditional model classification scheme.
 Packages are regularly sported using the line – haul services of rail,
motor, and air. Package service provides both regular and premium services.
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 Ground package service
 Numerous carriers offers delivery services within metropolitan areas.
Other carriers offer package delivery service on an interstate and intrastate
basis. The most recognizable carriers united parcel service (UPS), the united
states parcel service and federal express ground.
 The original service offered by UPS was contract delivery of local
shipment for department stores.

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 Air Package service
 Several carriers such as Federal Express, UPS, Emery Worldwide Logistic
and DHI, have entered the package for premium transportation market over
the past two decades.
 Most organizations that provide routine package service also offer
premium service, UPS, EXAMPLE: Offers next and second day service
while the united states postal service provides a variety of priority services.

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 Intermodal transportation
 Intermodal transportation combines two or more modes to make advantage of
the inherit economies Each and thus provide an integrated service at lower total
cost.
 Intermodal offerings began to develop more successfully during the 1950s with
the advent of integrated rail and motor service commonly termed piggy bank
service.
 Technically coordinated or intermodal transportation could be arranged among
of basic modes. Descriptive jargon piggy bank, fishy bank, train ship and air track
have become standard transportation terms.
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 Non-Operating intermediaries
 This non-operating intermediaries broker the services of other firms. A
transportation broker is somewhat analogous to a wholesaler in a market
channel.
 Non-operating intermediaries economically justify their function by
offering shippers for lower rates for movement between two locations than
would be possible by direct via common carrier.

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 Freight forwarders
 Freight forwarders are for-profit businesses that consolidates small
shipments from various customers into a bulk shipment and then utilize a
common surface or air carrier for transport.
 The main advantage of the forwarder is a lower rate per hundred weight
obtained from large shipment and in most cases faster transport of small
shipments than would be experienced if the individual customer dealt
directly with the common carrier.
 Fright forwarders accept full responsibility for shipment performance
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 Shipper for association /cooperatives and
agents
 Shipper association are operationally similar to freight forwarders in that day
consolidate small shipment into large movements to gain cost economies.
 Shipper association are voluntary nonprofit entities where members, operating in
specific industry collaborate economies related to small shipment for purchases
 The association requires a group of hippos to establish an administrative office or
arrange an agent at the location of frequent merchandise purchase.
 Some associations operate their own intercity transportation. Each member is
build a proportionate share for transportation plus a prorated share of association’s
fixed cost. 11/27/2023 68
 Brokers
 Brokers are intermediaries who coordinate transportation arrangement for
shipper consignees, and carriers. They also arranged shipments for exempt
carriers and owner operators.
 Brokers typically operate on a commission basis. Prior to deregulation
brokers played a minor role in logistic jute service restrictions.

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BY: ANGELYN TANTE
• Transportation is critical to logistical performance. Traffic departments commit and manage.
Nearly 60 percent of A typical firm's logistics expenditures. Transportation managers are
responsible for arranging for inventory to be moved in A timely and economical manner.

• A fundarnental responsibility is to determine whether transportation services should be

performed using private capacity or for-hire specialists. Decisions related to internal versus
out-
• Sourcing are not totally different from those faced in many other operational areas. What is
different about transportation is the critical impact that operations have on logistical
performance.
• As operational expectations become more precise, performance cycles more compact, and
margins for error reduced to zero, successful firms have come to realize that there is no such
thing as cheap transportation. Unless transportation is managed in an effective nd efficient
manner, procurement, manufacturing, and market distribution performance will fail to meet
expectations.
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Generalized relationship between distance
and transportation cost

Two important points are illustrated in this

figure. First, the cost curve does not begin at
the origin because there are fixed costs
associated with shipment pickup and
delivery regardless of distance. Second, the
cost curve increases at a decreasing rate as a
function of distance. This characteristic is
known as the tapering principle 11/27/2023 74
 VOLUME
• The second factor is load volume. Like many other logistics activities,
transportation scale economies exist for most transportation movements.
This indicates that transport cost per unit of weight decreases as load
volume increases. This occurs because the fixed costs of pickup, delivery,
and administration can be spread over incremental volume. This
relationship is limited by the size of the transportation vehicle. Once the
vehicle is full, the relationship begins again for each additional vehicle.
The management implication is that small loads should be consolidated
into larger loads to maximize scale economies.
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Generalized
relationship
between weight
and transporation
cost,poun
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 DENSITY
• Density is a combination of weight and volume. Weight and volume are
important since transportation cost for any movement is usually quoted in
dollars per unit of weight. Transport charges are commonly quoted as
amount per hundredweight (CWT). In terms of weight and volume,
vehicles are constrained more by cubic capacity than by weight. Since
actual vehicle, labor, and fuel expenses are not dramatically influenced by
weight, higher-density products allow relatively fixed transport costs to be
spread across more weight. As a result, higher density products are
typically assessed lower transport costs per unit of weight.
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 Generalized relationship
between density and
transportation cost of pound
Illustrates the relationship of declining
transportation cost per unit of weight as
product density increases. In general,
traffic managers seek to improve product
density so that trailer cubic capacity can
be fully utilized. For example, kimberly-
clark was able to reduce transportation
expense by reducing air contained in
paper products. Such compression
increased product density.
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• Stowability • Handling
Stowability refers to how product case dimensions fit
into transportation equipment. Odd package sizes and
shapes, as well as excessive weight or length, may not Special handling equipment may be
fit well in transportation equipment; this results in required to load and unload trucks,
wasted cubic capacity. Although density and
stowability are similar, it is possible to have items railcars, or ships. In addition to
with similar densities that stow very differently. Items special handling equipment, the
having rectangular shapes are much easier to stow
than oddshaped items. For example, while steel blocks
manner in which products are
and rods may have the same physical density, rods are physically grouped together in boxes
more difficult to stow than blocks due to their length
and shape. Stowability is also influenced by other
or on pallets for transport and
aspects of size, since large numbers of items may be storage will impact handling cost.
nested in shipments whereas they may be difficult to
stow in small quantities. For example, it is possible to
accomplish significant nesting for a truckload of
trashcans while a single can is difficult to stow.
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• LIABILITY MARKET

Liability includes product

characteristics that can result in
damage and potential claims.
Carriers must either have insurance
to protect against possible claims or
accept financial responsibility for
damage. Shippers can reduce their
risk, and ultimately transportation
cost, by improved packaging or
reducing susceptibility to loss or
damage.
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 MARKET
• Market factors such as lane volume and balance influence transportation cost. A
transport lane refers to movements between origin and destination points. Since
transportation vehicles and drivers must return to their origin, either they must
find a back-huul load or the vehicle is returned or deadheaded empty. When
empty return movements occur, labor, fuel and maintenance costs must be
charged against the original front-haul movement. Thus, the ideal situation is to
achieve two-way or balanced movement where volume is equal in both
directions

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11/27/2023 82
 However, this is rarely the case due to demand
imbalances in manufacturing and consumption
locations. For example. Any goods are manufactured
and processed on the east coast of the united states and
then shipped to consumer markets in the western
portion of the country; this result in more volume
moving west than east. This imbalance causes rates to
be generally lower for eastbound moves. Movement
balance is also influenced by seasonality, such as the
movement of fruits and vegetables to coincide with
growing seasons. Demand location and seasonality
result in transport rates that change with direction and
season. Logistics system design must take such factors
into account to achieved backhuol movement whenever
possible
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 Cost Structure
COST ALLOCATION IS PRIMARILY THE CARRIER'S CONCERN,
BUT SINCE COST STRUCTURE INFLUENCES NEGOTIATING
ABILITY, THE SHIPPER'S PERSPECTIVE IS IMPORTANT AS WELL.
TRANSPORTATION COSTS ARE CLASSIFIED INTO A NUMBER
OF CATEGORIES.

Variable cost Fixed cost

Joint cost Common cost
 VARIABLE COST
Variable costs change in a predictable, direct manner in
relation to some level of activity. Variable costs can
only be avoided by not operating the vehicle. Aside
from exceptional circumstances, transport rates must at
least cover variable cost. The variable category includes
direct carrier cost associated with movement of each
load. These expenses are generally measured as a cost
per mile or per unit of weight. Typical variable cost
components include labor, fuel, and maintenance. On a
per mile basis, the carrier variable costs range from $.75
to $1.50 per vehicle mile. The variable cost of
operations represents the minimum amount a carrier
must charge to pay its day-today bills. It is not possible
for any camer to charge below its variable cost and
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expect to remain in business long. In fact, rates should
fully cover all costs.
 FIXED COST

Fixed costs are expenses that do not change in

the short run and must be serviced even when a
company is not operating, such as during a
holiday or a strike. The fixed category includes
costs not directly influenced by shipment
volume. For transportation firms, fixed
components include vehicles, terminals, rights-
of-way, information system, and support
equipment. In the short term, expenses
associated with fixed assets must be covered by
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contribution above variable costs on a per
11/27/2023 86

shipment basis.
 JOINT COST

Joint costs are expenses unavoidably created by the

decision to provide a particular service. For
example, when a carrier elects to haul a truckload
from point A to point B, there is an implicit
decision to incur a joint cost for the back-haul from
point B to point A. Either the joint cost must be
covered by the original shipper from A to B or a
back-haul shipper must be found. Joint costs have
significant impact on transportation charges
because carrier quotations must include implied
joint costs based on considerations regarding an
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appropriate back-haul shipper andlor back-haul
11/27/2023 87

charges against the original shipper

 COMMON COST

This category includes carrier costs that are

incurred on behalf of all or selected shippers.
Common costs, such as terminal or management
expenses, are characterized as overhead. These
are often allocated to a shipper according to a
level of activity like the number of shipments or
delivery appointments handled. However,
allocating overhead in this manner may
incorrectly assign costs. For example, a shipper
may be charged for delivery appointments when
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it doesn 't actually use the service.
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 TRAFFIC
DEPARTMENT
ADMINISTRATION
BY: JOHN LESTHER SILVA
 While traffic managers administer many different activities,
they are fundamentally responsible for:

1. operations management
2. freight consolidation
3. rate negotiation
4. freight control
5. auditing and claims
6. logistical integration.

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 • Equipment
OPERATIONS Scheduling
MANAGEMENT • Load Planning
• Routing
Traffic departments oversee daily shipping,
with firms increasingly implementing • Carrier
Transportation Management Systems (TMS) Administration
for operational tasks like equipment • Carrier
scheduling, load planning, routing, and carrier Selection
administration.
• Carrier
Integration.
11/27/2023 92
Transportation cost is the most basic consideration. The freight rate is only part of the
total cost. Overall cost must consider transit time and consistency impact on inventory,
ease of system interface, equipment, and related activities such a loading and counting.
Camers offering faster and more reliable transit times offer attributes that are important
to overall logistical performance. Regardless of how fast a supplier is
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ADD A FOOTER 11/27/2023 94
 FREIGHT
CONSOLIDATION
BY: ANGELIKA NAIN
 FREIGHT CONSOLIDATION:

• The fact that freight costs are directly related size of shipment and length of haul places
a premium upon freight consolidation. In terms made by the late President Truman, the
buck stop here, meaning traffic management is the business function responsible for
achieving freight consolidation.
• The traditional approach to freight consolidation was to combine LTL or parcel
shipment moving to a general location. The objective outbound to consolidation was
straightforward.
• The transportation savings in moving a single consolidated shipments versus multiple
individual, small shipments Where typically sufficient to pay for handling and local
delivery while achieving total cost reduction.
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• The shift response based logistic has introduced new challenges regarding
consolidation. Time-based logistic tends to transpose the impact of
unpredictable demand from inventory safety stock to creation of small
shipment.
• To control transportation cost when using a time-based strategy,
managerial attention must be directed to the development of ingenious
ways to realize benefits of transportation consolidation.
• To the extent practical consolidation should be plant prior to order
processing and warehouse order selection to avoid delays. All aspects of
consolidation require timely and relevant information concerning planned
activity.

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 • Reactive Consolidation - A reactive
approach two constellation does not
TYPE OF attempt to influence the composition
CONSOLIDATION and timing of transportation
movements. The consolidation effort
• REACTIVE CONSOLIDATION
takes shipments as they come and
• PROACTIVE CONSOLIDATION seek to combine freight into larger
shipments to line-haul movements.
The most visible example of effective
reactive line-haul is united parcel
services nightly citation and
consolidation of package freight for
intercity movement.
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 Three ways to achieve effective reactive fright consolidation

• Market Area
• schedule delivery
• pooled delivery

1. Market area – The most basic method of consolidation is to combine small

shipment going to different customer within a geographical market area.
This procedure does not interrupt the natural freight flow by changing the
timing of shipments.
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2. Schedule Delivery – Schedule delivery consist of limiting shipments to
specific markets to selected days each week. The schedule delivery plan
is normally communicated to customers in a way that highlights the
mutual benefits of consolidation.
3. Pooled Delivery – Participation in a pole delivery plan type typically
means that a freight forwarder, public warehouse, or transportation
company arranges consolidation for multiple shippers serving the same
geographical market area.
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 PROACTIVE CONSOLIDATION

• While reactive efforts to develop transportation consolidation have been

successful films are becoming more innovative concerning pretransaction
planning. Two forces are driving a more proactive approach to
consolidation.
• First the impact all the time based responsive logistical system is creating
a larger number of small shipments.
• Second proactive consolidation has increased the desire for shippers
carriers and consignees to participate in consolidation savings.
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 TWO TYPES OF PROACTIVE
CONSOLIDATION
• Pre-order planning – An important • Multifirm consolidation –
step toward achieving proactive Significant freight consolidation
consolidation is preorder planning opportunities also may exist if non
of order quantities and timing to related terms can be coordinated.
facilitate consolidated freight Commonly referred multi-vendor
movement. Simply stated the consolidation the general idea of
creation of orders should not be grouping different shippers freight
restricted to standard buying x or has always been integral two line
inventory replenishment rules. hole operation of LTI. carriers.
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 RATE NEGOTIATION
• For any given shipment it is the responsibility of the traffic department to
obtain the lowest possible rate consistent with service requirements.
• The prevailing price for each transport alternative rail, air, motor, water,
pipeline water and so on is found by reference to tariffs.
• Since 1980 the prevailing tariffs represent the starting point in
transportation negotiation.

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• The way to effective negotiation is to seek win - win agreement
where in both carriers and shippers share productivity gains.

EXAMPLE:
• If 2 day delivery is required the traffic department seek to select the
method of transport that will meet this standard at the lowest
possible cost. Given the special considerations of transportation
several factors discussed throughout description must guide rate
negotiation . However in the context the building solid carrier
relationship traffic managers must seek fair and equitable rates.

11/27/2023 104
 Auditing and
Claim
Administration
BY: TRISHA MAE PLAIRA

ADD A FOOTER 11/27/2023 105

• Refers to the process of conducting audits and assessments of an
organization's administrative functions and processes. It involves
evaluating the effectiveness, efficiency, and compliance of
administrative activities within an organization.
• The purpose of auditing administration is to identify areas of
improvement, ensure adherence to policies and procedures, and
enhance overall organizational performance.

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 Here are the Few Examples:

In the context of finance and accounting, audits are conducted to

assess the financial health and well-being of a company. They involve
examining financial statements, internal controls, and operational
procedures to provide assurance to stakeholders, such as
shareholders, investors, and regulators, that the organization's
financial information is reliable and trustworthy.

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 Example, in the insurance
industry, claim
administration involves
receiving and reviewing
claims, verifying the validity
of claims, determining
coverage, and processing
payments to claimants it
may also include conducting
audits of claim files to
ensure accuracy, compliance
with policies and
procedures, and adherence
to regulatory requirements.

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 In summary, auditing
administration involves
evaluating and assessing an
organization's administrative
functions, including
management practices,
internal controls, and
compliance with laws and
regulations. It aims to
identify areas for
improvement, enhance
organizational performance,
and ensure adherence to
policies and procedures.
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 LOGISTICAL
INTEGRATION

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 Logistical integration
refers to the coordination and synchronization of various activities and
processes within a supply chain or organization to achieve efficient and
effective logistics operations. It involves the seamless flow of information,
materials, and resources across different stages of the supply chain, from the
procurement of raw materials to the delivery of the final product to the
customer.
For example, a footwear and sports apparel company like adidas implemented
logistical integration by equipping its warehouses with storage systems
designed to improve product layout. This improved their productivity and
allowed them to deliver orders more quickly
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Here are a few examples of logistical integration:

• Integrated supply chain management:

logistical integration involves aligning and coordinating activities
across the entire supply chain, from suppliers to manufacturers to
distributors and retailers. This coordination ensures smooth flow of
materials, information, and resources, leading to improved
efficiency and reduced costs.

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• Inventory management:

logistical integration includes optimizing inventory levels and

implementing effective inventory management practices. This
involves coordinating with suppliers to ensure timely deliveries,
implementing just-in-time (JIT) inventory systems, and utilizing
technology to track and manage inventory levels accurately.

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In summary, logistical integration refers to the coordination
and synchronization of activities within a supply chain or
organization to achieve efficient and effective logistics
operations. It involves supply chain coordination,
information sharing, process optimization, technology
utilization, and collaboration with partners. By achieving
logistical integration, organizations can enhance
operational efficiency, reduce costs, and improve customer
satisfaction.

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 TOPIC OUTLINE
• FREIGHT CONTROL

• DOCUMENTATION

• BILL OF LADING

BY: VINCE ANDREW SANCHES 11/27/2023 115

 FREIGHT CONTROL
•Traditional problems related to tracing and expediting have been significantly reduced
through the use of information technologies such as bar coding, online freight
information systems, satellite, and Internet-based communications.

•Bar coding provides quick and error-free transfer of shipment information that facilitates
shipment tracking at intermediate points. Online freight information systems allow
shippers and consignees to directly access a carrier's computer to determine shipment
status.

•Schneider National utilizes satellite tracking to provide location and projected movement
across its truck fleet to identify potential problems and work proactively with customers
to implement acceptable solutions.
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 FREIGHT CONTROL
• Other important responsibilities of transportation management are tracing and
expediting. Tracing is a procedure to locate lost or late shipments. Shipments
committed across a transportation network are bound to be misplaced or delayed
from time to time. Most large carriers maintain online tracing to aid shippers in
locating a shipment.

• The tracing action must be initiated by the shipper's traffic department, but once
initiated ted, it is the carrier's responsibility to provide the desired information.
Expediting involves the shipper notifying a carrier that it needs to have a specific
shipment move through the canier's system as quickly as possible and with no
delays.
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 DOCUMENTATION
• Well-defined documentation is required to perform a transportation service. With
the exception of private transfer within the confines of a single firm, products are
typically being sold between the shipper and the consignee. Thus, legal title to
ownership is occurring at the time the transport service is performed. When for-
hire carriers are engaged aged to perform the transportation, the transaction must
establish clear legal responsibility for all parties involved. The primary purpose
of transportation documentation is to protect the interest of all parties involved in
the performance of the transaction. Three primary types of transport
documentation are bills of lading, freight bills, and shipment manifests.

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 • The bill of lading is the basic document utilized in
purchasing transport services. It serves as a receipt and
documents products and quantities shipped. For this
reason, accurate product description and count are
essential. In case of loss, damage, or delay, the bill of
lading is the basis for damage claims. The designated
individual or buyer on a bill of lading is the only bona
fide recipient of goods. A camer is responsible for proper

BILL delivery according to instructions contained in the

document. In effect, title is transferred with completion of
delivery. The bill of lading specifies terms and conditions
of carrier liability and documents responsibilities for all

OF possible causes of loss or damage except those defined as

acts of God. It is important that terms and conditions be
clearly understood so that appropriate actions can be

LADING
taken in the event of substandard performance.
Government rules permit uniform bills of lading to be
computerized and eIectronically transmitted between
shippers and camers.
11/27/2023 119
 • The bill of lading is the basic document utilized in purchasing transport services.
It serves as a receipt and documents products and quantities shipped. For this
reason, accurate product description and count are essential. In case of loss,
damage, or delay, the bill of lading is the basis for damage claims. The
designated individual or buyer on a bill of lading is the only bona fide recipient
of goods. A camer is responsible for proper delivery according to instructions
contained in the document. In effect, title is transferred with completion of
delivery. The bill of lading specifies terms and conditions of carrier liability and
documents responsibilities for all possible causes of loss or damIn addition to the
uniform bill of lading, other commonly used types are order-notified, export, and
government. It is important to select the correct bill of lading for a specific

BILL
shipment. An order-notified or negotiable bill of lading is a credit instrument. It
provides that delivery not be made unless the original bill of lading is surrendered
to the camer. The usual procedure is for the seller to send the order-notified bill
of lading to a third party, usually a bank or credit institution. Upon customer
payment for the product the edit institution releases the bill of lading. The buyer

OF
then presents it to the common camer, which in turn releases the goods. This
facilitates international transport where cross-border payment for goods may be a
major consideration. An export bill of lading permits its a shipper to use export
rates, which may be lower than domestic rates. Export rates may reduce total cost
when applied to domestic origin or destination line-haul transport. Government

LADING
bills of lading may be used when the product is owned by the U.S. government.
• age except those defined as acts of God. It is important that terms and conditions
be clearly understood so that appropriate actions can be taken in the event of
substandard performance. Government rules permit uniform bills of lading to be
computerized and eIectronically transmitted between shippers and camers.

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  FREIGHT BILL
• The freight bill represents a carrier's method of charging for transportation services performed. It is

BILL
developed using information contained in the bill of lading. The freight bill may be either prepaid or
collect. A prepaid bill means that transport cost must be paid prior to performance, whereas a collect
shipment shifts payment responsibility to the consignee. Considerable administration is involved in
preparing bills of lading and freight bills. There has been significant effort to automate freight bills and

OF
bills of lading through ED1 transactions. Some firms now elect to pay their freight bills at the time the bill
of lading is created, thereby combining the two documents. Such arrangements are based upon the
financial benefits of reduced paperwork cost. Many attempts are underway to produce all transport
documents simultaneously.

LADING  SHIPMENT MANIFEST

• The shipment manifest lists individual stops or consignees when multiple shipments are placed on a
single vehicle. Each shipment requires a bill of lading. The manifest lists the stop, bill of lading, weight,
and case count for each shipment. The objective of the manifest is to provide a single document that
defines the overall contents of the load without requiring review of individual bills of lading. For single-
stop shipments, the manifest is the same as the bill of lading.

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