LOGISTICS AND SUPPLY CHAIN MANAGEMENT By:-AVINASH SAHOO

SLOT- F2 (15BPI0057)

PART-A

Que 3) State how stowability affects the transportation costs?

Ans:- Stowability refers to product dimensions and how they affect vehicle space utilization. Odd
sizes and shapes, as well as excessive weight and length, do not stow well and typically waste
space. Hence transportation cost may vary if the products differ much in their stowability. Density
and stowability are similar, but it is possible to have products with the same density that stow very
differently. For example, while steel blocks and rods have the same density, rods are more difficult
to stow because of their length and shape.

Que6)State the concept of a fourth-party logistics (4PL) provider.

Ans:- With increased globalization of supply chains, customers are looking for players that can
manage virtually all aspects of their supply chain. This led to the concept of a fourth-party logistics
(4PL) provider. It was first defined as an integrator that assembles the resources, capabilities and
technologies of its own organization and other organizations to design, build and run
comprehensive supply chain solutions. Many 3PLs have started providing services by which they
serve as a 4PL, and a lead logistics provider.

Functions provided by a 4PL company:-

Procurement
Storage
Distribution
Processes
Que7)State some specific value-added services provided by 3PLs.

Ans:- This is the table which shows the value-added services provided by 3PLs:-

PART-B

Que6) How do third parties increase the supply chain surplus?

Ans:- The Third parties increase the supply chain surplus if they either increase value for the
customer or decrease the supply chain cost relative to a firm performing the task in-house. Third
parties can increase the supply chain surplus effectively if they are able to aggregate supply
chain assets. The third parties use the following mechanisms to grow the surplus.
1. Capacity aggregation: third party can increase the supply chain surplus by aggregating demand
across multiple firms and gaining production economies of scale that no single firm can on its
own.

Ex: Dell outsources design and production of processors to Intel and gains economies
of scale as Dell cannot if it designs and produces on its own.

Ex: Magna Steyr, a third party that has taken over assembly of automobiles for several
manufactures. It has developed flexible capacity and labor that allows it to produce
economically, cars that sell in low volumes.

It has produced BMW X3, G-class for Mercedes and Grand Cherokee for Chrysler. No
auto manufacturer outsources production of the best selling cars to a third party.

2. Inventory aggregation: A third party can increase the supply chain surplus by aggregating the
inventories across a large number of customers. Aggregating allows them to significantly lower
overall uncertainty and improve economies of scale in purchasing and transportation. Ex: a high
product variety and small customer base.

3. Transportation aggregation by transportation intermediaries: A third party may increase the

surplus by aggregating transportation function to a higher level than any shipper can on its own.
Ex: UPS, FedEx. The transportation intermediary aggregates shipment across multiple shippers,
thus lowering the cost of each shipment.

4. Transportation aggregation by storage intermediaries: A third party that stores inventory can
also increase the supply chain surplus by aggregating the inbound and outbound transportation.
Ex: WW. Grainger stock products for a more than a thousand manufacturers and sell to hundreds
of thousands of customers.

5. Warehouse aggregation: A third party may increase the supply chain surplus by aggregating
warehouse needs over several customers. The growth in surplus is achieved in terms of lower
real estate costs and lower processing cost with a warehouse. Ex: Safexpress owns warehouses
distributed throughout India that are used by many of its customers.

6. Procurement aggregation: A third party increases the supply chain surplus if it aggregates
procurement for many small players and facilitates economies of scale in ordering, production
and inbound transportation. It is most effective in small buyers Ex: for small electronics industry
procurement aggregation offered by contract manufacturers adds significantly to supply chain
surplus.

7. Information aggregation: A third party may increase the supply chain surplus by aggregating
information to a higher level than can be achieved by a firm performing the function in-house.
This reduces search cost for cost for customers. Ex: eBay provides information aggregation.

8. Receivables aggregation: A third party may increase the supply chain surplus if it can
aggregate the receivables risk to a higher level than the firm or it has a lower collection cost than
the firm. Receivables aggregation is likely to increase the surplus if retail outlets are small and
numerous and each outlet stocks products from many manufacturers that are served by the same
distributor.

9. Relationship aggregation: An intermediary can increase the surplus by decreasing the number
of relationships required between multiple buyers and sellers. Without an intermediary,
connecting to thousands of sellers to a million buyers require billion relationships. The presence
of an intermediary lowers the number of relationships to be maintained.

10. Lower cost and higher quality: A third party can increase the surplus if it provides lower
cost/higher quality relative to the firm. If the focus is on specialization and learning, they are
likely to be sustainable over a long term.

Q2) Compare and contrast the transport principles and illustrate how they create efficient
transportation.

Two fundamental principles guiding transportation management and operations are economy of
scale and economy of distance. Economy of scale refers to the characteristic that transportation
cost per unit of weight decreases when the size of the shipment increases. For example, truckload
(TL) shipments (i.e., shipments that utilize the entire vehicles capacity) cost less per weight unit
than less-than-truckload (LTL) shipments (i.e., shipments that utilize a portion of vehicles
capacity).

Transportation economies of scale exist because fixed expenses associated with moving a load
can be spread over the loads weight. The fixed expenses include administrative costs of taking
the order, time to position the vehicle for loading and unloading, invoicing, and equipment cost.
These costs do not vary with shipment volume.

It is common knowledge that per unit transportation cost comes down as the bulk of the items
transported increases. Hence in order to gain benefits in terms of reduction in transportation costs
logistician tries to consolidate the bulk and then ship the consignment rather than shipping half
truck loads or half container loads. This benefit is economy of scale.

The fixed costs in transportation includes administrative costs of taking the transportation order,
time to position the vehicle for loading and unloading, invoicing and equipment cost. These do
not vary with the volume of shipment. The administrative cost of shipping 1 kg of goods and
1000 kg of goods is same. When scale are achieved because fixed expenses associated with
moving a load are spread out, thereby decreasing costs per unit of weight.

Economy of distance refers to the characteristic that transportation cost per unit of distance
decreases as distance increases. For example, a shipment of 800 miles will cost less than two
shipments of 400 miles for the same combined weight. It is also referred to as the tapering
principle since rates or charges taper with distance. The rationale for distance economies is
similar to that for economies of scale.

While evaluating alternative transportation strategies or operating practices, the objective is to

maximize the size of the load and the distance that it is shipped while still meeting customer
service expectations.