55 TRANSPORTATION & DISTRIBUTION MANAGEMENT

Course Objectives:
1. The main aim of this course is to understand role of distributors – designing various distribution
channels – networking the role of transportation
2. Will effectively be able to manage transportations – inventory warehousing – various
distribution channels – costs and value measures.

Learning Outcomes:
1. To get knowledge in transportation and distribution management.
2. To have a in depth knowledge about the various transportation cost and technologies used in
transportation and distribution management.

Unit I
Role of Distribution in Supply Chain – Designing Distribution Channels

Unit II
Distribution Networks – Factors Influencing Distribution Network Decisions – Network Design
&Optimization Approach and Techniques

Unit III
Role of Transportation in Supply Chain – Factors influencing Transportation Decisions – Modes of
Transportation – Transportation mode Selection Process. Transportation Principles and Participants –
Transportation Participants Transportation Modes, Performance Characteristics and Selection

Unit IV
Transportation Performance, Costs and Value Measures – Factors driving Transportation Costs –
Categories of Transportation Costs – Transportation Routing Decisions

Unit V
Transit Operation Software – Benefits of Transportation Software – Advanced Fleet Management
System – Inter modal Freight Technology – Transportation Security Initiatives and Role of Technology.

Text Books:
1.Management of Modern City Transportation System, M Mustafa K KDewan, Deep & Deep
Publications Pvt. Ltd., First Edition, 2004.

Reference Books:
1. Transportation Management – Imperatives and Best Practices, S. Jaya Krishna, ICFAI
University Press, 2007.
2. Marine Transportation Management, Henry S. Marcus, Auburn House Pub. Co.,1986.
Management of Transportation, Bardi Edward J., Cengage Learning (Thompson ), 6 th Edition 2006
[International Edition],

Unit I
Role of Distribution in Supply Chain
Distribution management manages the supply chain for a firm, from vendors and
suppliers to manufacturer to point of sale, including packaging, inventory, warehousing,
and logistics. Adopting a distribution management strategy is important for a company's
financial success and corporate longevity.

What Is Distribution Management?

Distribution management refers to the process of overseeing the movement of
goods from supplier or manufacturer to point of sale. It is an overarching term
that refers to numerous activities and processes such as packaging,
inventory, warehousing, supply chain, and logistics.

Distribution management is an important part of the business cycle for

distributors and wholesalers. The profit margins of businesses depend on how
quickly they can turn over their goods. The more they sell, the more they earn,
which means a better future for the business. Having a successful distribution
management system is also important for businesses to remain competitive and
to keep customers happy.

 Understanding Distribution Management

Distribution management is critical to a company's ability to successfully attract
customers and operate profitably. Executing it successfully requires
effective management of the entire distribution process. The larger a corporation,
or the greater the number of supply points a company has, the more it will need
to rely on automation to effectively manage the distribution process.

Modern distribution management encompasses more than just moving products

from point A to point B. It also involves gathering and sharing relevant
information that can be used to identify key opportunities for growth and
competitiveness in the market. Most progressive companies now use their
distribution forces to obtain market intelligence which is vital in assessing their
competitive position.
There are basically two types of distribution: commercial distribution (commonly
known as sales distribution) and physical distribution (better known as
logistics). Distribution involves diverse functions such as customer service,
shipping, warehousing, inventory control, private trucking-fleet operations,
packaging, receiving, materials handling, along with plant, warehouse, store
location planning, and the integration of information.

The goal is to achieve ultimate efficiency in delivering raw materials and parts,

both partially and completely finished products to the right place and time in the
proper condition. Physical distribution planning should align with the overall
channel strategy.

 Advantages of a Distribution Management Strategy

Aside from keeping profits up, there are many reasons a company may want to
use a distribution management strategy. First, it keeps things organized. If there
was no proper management system in place, retailers would be forced to hold
stock in their own locations—a bad idea, especially if the seller lacks proper
storage space.

A distribution management system also makes things easier for the consumer. It
allows them to visit one location for a variety of different products. If the system
didn't exist, consumers would have to visit multiple locations just to get what they
need.

Putting a proper distribution management system in place also alleviates any

potential for errors in delivery, as well as the times products need to be delivered.

 
Businesses can adopt distribution management strategies through electronic
platforms, which can help simplify the process and boost product sales.

 Distribution Management as a Marketing Function

The fundamental idea of distribution management as a marketing function is
that the management of distribution happens in an ecosystem that also involves
the consideration of the following:

 Product: Not always a tangible object, product can also refer to an idea,

music, or information.
 Price: This refers to the value of a good or service for both the seller and
the buyer, which can involve both tangible and intangible factors, such as
list price, discounts, financing, and likely response of customers and
competitors.
  Promotion: This is any communication used by a seller to inform,
persuade, and/or remind buyers and potential buyers about the seller’s
goods, services, image, ideas, and the impact it has on society.
 Placement: This refers to the process that ensures the availability,
accessibility, and visibility of products to ultimate consumers or business
users in the target channels or customers where they prefer to buy.

Effective distribution management involves selling your product while

assuring sufficient stocks in channels while managing promotions in those
channels and their varying requirements. It also involves making sure a supply
chain is efficient enough that distribution costs are low enough to allow a product
to be sold at the right price, thus supporting your marketing strategy and
maximizing profit.

 Role Of Distribution In Supply Chain 

Now, the first question that comes to mind is What is distribution. it is defined as a step
wise procedure of moving products from the suppliers to the end customer. For every
stage in a supply chain whether suppliers, manufacturers or customers there is
distribution occurring from the previous stage. Raw materials are moved from suppliers
to the manufacturers and finished goods are moved from the manufacturers to the
customers. Distribution affects the supply chain cost and the experience the customer
has. In India, the distribution cost of cement constitutes about 30 % of the cost to
produce and sell it.

Choosing an appropriate distribution network can be helpful in achieving various supply

chain objectives ranging from high responsiveness to low cost. As in the case of 7-
eleven Japan and Wal-Mart respectively. Different companies use a different distribution
network according to their need and may even face some issues due to that. For
example Dell until 2007 distributed computers directly to its customers and hence took
several days to deliver it to the customers. From June 2007 they started selling
computers through retailers such as Wal-Mart. Hence it is necessary to choose an
appropriate distribution network to satisfy customers at the minimum cost possible.

 FACTORS INFLUENCING DISTRIBUTION NETWORK DESIGN

There are two main dimensions based on which the performance of a distribution
network is evaluated:-

Customer needs that are met.

Cost of meeting customer needs

The customer needs that are met have an influence on the company’s revenues, which
along with cost decide the profitability of the delivery network. The customer service
components that are mainly influenced by the structure of the distribution network are:

Response time: it is the time taken for a customer order to reach the customer.

Product variety: it is the number of different products or configurations that are offered
to the customer.

Product availability: it is the probability of having a product in inventory when any

customer order arrives.

Customer experience: the convenience for the customer to place and receive an order as
well as the extent to which this experience is customized.

Time to market: it is the amount of time needed for the launch of a new product into
the market.

Order visibility: it is the ability of a customer to track his/her order from placement to
delivery.

Return ability: it is the ease with which any customer can return a product if unsatisfied.

Firms like Amazon target customers that can wait longer for their order or can tolerate a
long response time, these firms require only a few locations that may be far from the
customers. They can focus on improving the capacity of each location. Whereas firms
that target customers who value short response times need to have many facilities that
too located near the customers. Thus we can conclude that a decrease in the response
time results in higher number of facilities (appendix 1).

Following are the costs affected by changing the distribution network design:

Inventories

Transportation

Facilities and handling

Information
As the number of facilities increase in a supply chain, the inventory cost also increases
so firms try to try to limit and consolidate the number of facilities in their supply chain
network . For example, Amazon is able to turn its inventory 12 times a year because of
fewer facilities, whereas Borders with about 400 facilities turns its inventory 2 times only.

Inbound transportation costs are the costs incurred in bringing material into a facility
and outbound transportation cost is the one incurred in sending material out of a
facility. Inbound lot sizes are larger hence inbound cost per unit is lower than outbound
costs. Increasing the number of warehouse locations makes the outbound
transportation distance a smaller fraction of the total distance travelled thus increasing
the number of facilities decreases the transportation cost as long as the inbound
economies of scale are maintained . If the number of facilities is increased to a point
that the inbound lot sizes are very small and result in a significant loss of economies of
scale, then increasing the facilities increases the transportation cost

The consolidation of facilities allows a firm to exploit economies of scale hence facility
costs decrease as the number of facilities is reduced .

As the number of facilities increases, total logistics costs (inventory costs +

transportation costs + facility costs) first decrease and then increase . Hence any firm
should have at least the number of facilities that minimize total logistics costs.

In general no distribution network outperforms the others along all dimensions. Hence
it is important to see to it that the strengths of the distribution network fit with the
firm’s strategic position.

 DESIGN OPTIONS FOR A DISTRIBUTION NETWORK

There are two key decisions that the managers should consider in order to design a
distribution network:

Will the product be picked up from a predetermined site or has to be delivered to the
customer location?

Will the product be flowing through an intermediary?

Based on the answers to these questions and also the company’s industry, any one of
the following distribution network designs may be used:

Manufacturer storage with direct shipping

Manufacturer storage with direct shipping and in-transit merge

Distributor storage with package carrier delivery

Distributor storage with last-mile delivery

Manufacturer/distributor storage with customer pickup

Retail storage with customer pick up

 Manufacturer Storage with Direct Shipping

In this, the product is directly delivered to the customer from the manufacturer, the
customer order is taken by the retailer and information flows from the customer via the
retailer to the manufacturer. The retailer doesn’t need to keep any inventory. It is also
known as drop-shipping. For example, eBags or Nordstrom.com uses such a network
design 

– Designing Distribution Channels

Designing Distribution Channels - Structure and Design of Marketing

Channels

Channel design refers to those decisions that involve in the development of new marketing channels
or modifying the existent ones.
Designing Distribution Channels

Channel design refers to those decisions that involve in the development of new marketing
channels or modifying the existent ones. The channel design decision can be broken down into
six steps namely:
 
1.              Recognizing the need for channel design decision
2.              Setting and coordinating distribution objectives
3.              Specify the distribution tasks
4.              Develop alternative channel structures
5.              Evaluate relevant variables
6.              Choose the best channel structure

 1.Recognizing the need for a channel design decision

 
First and foremost task for the organization is to recognize the need for a channel design. An
organization would go in for a new channel design for the following reasons namely

1. When a new product or product line is developed, mainly when the existing channels are not suitable
for the new line

2. When the existing product is targeted to a different target market. This is common when an
organization is used to catering the B2B, plans to enter the consumer market

3. When there is a change in the marketing mix elements, when an organization reduces its prices on
certain offering the channel worked out will be based on the price points, they may look in for discounters
 
4. When facing major environmental changes namely in economic or technological or in legal spheres.

5. Finally when the organization opens up new geographic marketing areas

 The list by no means is comprehensive, but gives a picture about some of the most common
conditions when channel design decisions are worked out.

 
2.Setting and Coordinating Distribution Objectives
 

Once a need for a design is recognized the next task for the channel manager is to work out to
develop the channel structure, either form the scratch or by modifying the existing one. It is
necessary for the channel manager to carefully evaluate the firm’s distribution objectives. In
order for the distribution objectives to be effective and well coordinated the channel manager
need to perform three tasks namely

 1. Become familiar with the objectives and strategies in other marketing mix areas and other relevant
objectives and strategies of the firm. In most cases the person or the group that sets the objectives of the
other marketing mix elements will also set the objectives for distribution as well.

2. Set the objectives and state them explicitly. A good objective is one, which is clear, and explicit, and
has a greater role in achieving the firm’s overall objectives. Some examples of a good distribution
objectives are as follows.

E.g. Apple Computers set a distribution objective to reach more consumers with what it refers to as the
‘Apple experience’. So, Apple reinvigorated and reestablished relationships with large retail chains,
which it had neglected in recent years .

E.g. In the same way Coca-Cola seeks to broaden its penetration in schools and college markets, as a
result of which it has entered into contact with many schools and colleges, whereby these institutions
would sell only Coca-Cola products on their campuses.

 3. Check and see if the distribution objectives set are congruent with marketing and other general
objectives and strategies of the firm. This involves verifying if the distribution objectives do not conflict
with the objectives in the other areas of marketing mix or even to the overall objectives of the company.
In order to cross check, it is essential to examine the interrelationships and hierarchy of the objectives of
the firms. Exhibit 4.9 gives a clear picture of the same

3.Specifying the Distribution Tasks

Once the objectives are formulated, a number of functions need to be performed in order for the
distribution objectives to be met. The manager therefore has to specify the nature of the tasks
that needs to be carried out in order to meet the objectives. The tasks need to be precisely stated
so that it meets the specified distribution objectives.

For e.g. a manufacturer of a consumer product, say a high quality cricket bats aimed at serious
amateur cricket players would need to specify distribution tasks such as gathering info on target
markets shopping patterns, promote product availability to the target, maintain inventory, and
timely availability, compile info about the product features, provide hands on experience using
the product, process and fill customers orders, transport the product, arrange for credit
provisions, provide warranty, provide repair and service, establish product return to make the
offering readily available. Sometimes these functions may appear to be production oriented
rather than distribution tasks, but when we talking about meeting customers, they are indeed
distribution tasks.

 4.Developing Possible Alternative Channel Structures

 Once the tasks have been specified by the channel manager he should find out alternate ways of
allocating these tasks. In most cases the channel manager chooses from more than one channel to
reach the consumer effectively. Britannia would sell their biscuits thorough wholesale food
distributor, departmental stores, convenience stores and even in pharmacies. Whatever may be
the channel structure, the allocation alternatives should be in terms of (a) the number of levels in
the channel (b) the intensity at various levels, and (c) the types of intermediaries.

The number of levels can be from two level upto five levels. The channel manager can think of
going for a direct way of meeting the customers to using two intermediaries as an appropriate
way. Intensity refers to the number of intermediaries at each level.

Generally the intensities can be classified into three categories namely intensive, selective and
exclusive.
Intensive saturation means as many outlets as possible are used at each level of the channel.
Selective means that not all possible intermediaries at a particular level are used.
Exclusive refers to a very selective pattern of distribution.
 
A firm like Parle may use intensive distribution channel structure, while Rolex may use high
degree of selectivity. The types of intermediaries, third component has to be carefully dealt. The
firms should not overlook new types of intermediaries that have emerged in recent years
particularly the auction firms such as baazee, bid or buy as possible sales outlet for their
products.

 
(A) Activity

 Would you use exclusive, selecting or intensive distribution for the following products?
1. Maruti Automobiles
2. MTR Food Products
3. Samsung Electroinics

5.Evaluating the variables affecting Channel structure

 
 Once the alternative structures have been outlined, each channel structure has to be evaluated on
a number of variables. There are five basic categories namely,

Market variables - marketing management is based on the philosophy of marketing concept,

which stresses on the consumers needs and wants, the managers have to take the cues from the
market. The subcategories that have a greater influence on the market structure are market
geography, market size, market density and market behavior
 

Product variables - some of the most important product variables are bulk and weight,
perishability, unit value, degree of standardization, technical vs. non-technical and newness.
Heavy and bulky products have a high handling and shipping costs relative to their value. The
manufactures of such products have to keep in mind to ship in large lots to a fewer possible
points.

It would always be better if the channel structure remains short. Food products, flowers are
considered to be highly perishable. When products are highly perishable, the channel structure
should be designed to provide rapid delivery from producers to consumers. One important
consideration is lower the unit value of a product, the longer the channels should be as low unit
value leaves small margins for distribution costs.

Exhibit 4.10 explains the relationship between the degree of standardization and channel length.
If the product flows directly from manufacturer or producer to the user the degree of
customization is more, but as the product becomes more standardized it passes through many
channels. Mostly the B2B machinery has a great degree of customization as it passes from the
manufacturer to the industrial user, while many consumer market is predominantly a
standardized one.
 

When it comes for the technical component, the industrial products are mostly distributed
through direct channels because of the technical expertise and service while many technical
consumer products do use shorter channel structure. When the product is new and is in the
introductory stage in order to capitalize on the aggressive promotion, a shorter channel is
preferred to gain awareness.

Exabit 4.10 Relationship between degree of standardization and channel length

Company Variables

The important variables that affect a good channel design are size, financial capacity, managerial
expertise and objectives and strategies. Larger the firms in terms of size it enables them to
exercise a substantial amount of power in the channel. The size does give flexibility for the firm
in picking the channel structures. The same hold true when it comes for the financial capability.
Greater capital available with a firm, less dependency is seen on the intermediaries.

 When a firm is into industrial marketing, it prefers to have its own sales force, warehousing,
order processing capabilities and larger firms with good financial backing are better able to bear
the high cost of these facilities. When a firm lacks quality managerial skills, a comprehensive
channel structure ranging from wholesalers to brokers are needed to perform the distribution
activity, once the firm gains experience it can change or reduce the number of intermediaries.

 The objectives and strategies a firm has may limit the use of intermediaries. These strategies
may emphasis on aggressive promotion and may even alter the distribution tasks. Overall this is
one of the prime variables used for evaluating.

 
Intermediary Variables
The important intermediary variables are availability, costs and services offered. The availability
is one of the key variables as this influences the channel structure.

 If we take the case of Dell Computers, due to lack of a proper channel structure he designed a
direct mail order channel, which provided a strong technical backup as well. The cost is another
variable a channel manager considers. If the cost of using a particular intermediary is too high
compared the services it offers the manager may consider in minimizing the use of
intermediaries. The services performed by the intermediaries is another integral component, a
good intermediary is one, which offers efficient services at the lowest cost.

 Environmental Variables
 
The uncontrollable or the macro environmental forces may affect the different aspects of channel
development and management. Forces like the Socio-cultural, economic, technological, legal
forces have a significant impact on the channel structure. The other variables are those the
organization can work upon or change to the situation but the environmental forces are those the
organization has to cope up with.

 6.Choosing the ‘Best’ Channel structure

In deciding the manager should choose an optimal channel structure that would offer desired
level of effectiveness at the lowest possible cost. Even though there is not one set method to pick
an optimal channel structure, it all depends on the orientation of the firm. If the goal of the firm
were profit maximization, the channel structure would be in line with the goal. Most channel
choices are still however made on the basis of managerial judgment and the data that is available.
 Unit II
Distribution Networks
In a supply chain, a distribution network is an interconnected group of storage facilities and
transportation systems that receive inventories of goods and then deliver them to
customers. It is an intermediate point to get products from the manufacturer to the end
customer, either directly or through a retail network

 The distribution network

“The distribution network is the set of warehouses, of different types and kinds, which
operate in an organised, integrated manner to constitute the bone structure of the
logistics system that gets the products handled (or manufactured) by the company to
customers”.

In the past, a warehouse used to be considered as just a container. Nowadays, in the

integrated approach to the logistics chain, warehouses are viewed as fundamental hubs
in the logistics network, with functions defined by their specific location within the
network.

In general, warehouses have four main operating functions:

 Storage
 Handling
 Stock monitoring
 Sorting of inbound/outbound goods by origin/destination
In terms of specific functions, there are three different types of warehouses:

 Plant warehouses
 Central warehouses
 Outlying warehouses
The plant warehouse is, basically, a container to which a production plant’s output is
temporarily transferred. A plant warehouse is required because either the company
produces on the basis of forecasts (for stock), and therefore needs to store the goods
produced pending receipt of orders from customers, and/or the company needs to
group together a certain quantity of product in order to fill the entire capacity of a
means of transport (and thus optimise its use).

The central warehouse is basically a collection and distribution centre, necessary to

“concentrate” different products to make them available in a single point. Normally, it
receives loads of single products, or single lines, and dispatches loads of multiple
products.

Lastly, the function of an outlying warehouse is very similar to that of a central

warehouse (collection/distribution centre). However, its main task is to ensure rapid
delivery to customers, and it is located close to them to facilitate this.

Depending on the size of an enterprise or business, distribution networks

vary in structure and sizes. Companies like Amazon or Apple are likely to
own more sophisticated and complicated distribution networks,
transportation, and logistics systems.

When defining the structure of a distribution network, the most crucial

factors are the product demands of the end customer, customer
experience, product variety and product availability, response time, and
finally, product returnability.

 Summary
 A distribution network can be seen as the flow of goods from a
producer or supplier to an end consumer.
 The network consists of storage facilities, warehouses, and
transportation systems that support the movement of goods
until they reach the end consumer.
 When defining the structure of a distribution network, the most
crucial factors are the product demands of the end customer,
 customer experience, product variety and product availability,
response time, and product returnability.

 Building the Ideal Distribution Network or Model

Distribution networks transform over time as businesses expand and aim

to reach more consumers. Therefore, they need to be set up in a way that
allows for long-term optimization. In order to determine the ideal and
efficient distribution network and supply chain, the satisfaction of
customer demand comes into play. Satisfying overall customer demand
has to be done at low costs and required service levels. It requires
strategic planning and specialized supply chain management and
planning.

Distribution networks are built by considering all key service and cost
drivers. One of the most important drivers for distribution and supply
chain modeling is customer location. Businesses need to identify where
their customers are located in order to find a distribution structure that
works efficiently, at a cost that is low and will not result in a large impact
on the price of the product for the end consumer. The location of the
customer allows for logistics planning.

Another key driver is the order quantity and frequency. It is pivotal for a

business to know how often consumers purchase a product and the
purchase volumes associated with the product. It aids in inventory
delivery management.

Transportation costs and the mode of transportation required are

also key drivers in building a distribution model. Determining the order
frequencies and the location of consumers aid in determining the right
type of transport needed and the costs associated with the transportation
modes and vehicles required.
Warehousing is also an important driver in designing an efficient
distribution network. The business must determine the ideal warehouse
locations, size, ease of access, and costs, to ensure that the right selection
is made to best suit the distribution needs and ensure overall customer
satisfaction.

In cases where the goods are being exported or imported, it is also

important for the businesses to identify points of entry. Other key drivers
include factory and supplier locations and service level requirements.

 Benefits of Deciding on a Distribution Network

The two forms of distribution that a manufacturer can decide on are

either direct distribution or indirect distribution. Direct distribution is a
direct sale from the manufacturer to the end consumer, whereas the
indirect distribution involves setting up or linking to an existing
distribution network, which normally encompasses warehousing, etc.

The benefits of making use of existing distribution networks or setting one

up include (but are not limited to):

 1. Reduction in costs

Setting a new distribution point could be costly for certain businesses and
manufacturers. An existing distribution network provides speed and ease,
as well as increasing reach for products (geographically), thereby
eliminating the costs and challenges associated with time, human
resources, and capital required.

 2. Greater customer reach

An efficient distribution network allows for wider customer reach because
it should ideally enhance the speed at which products reach the end
consumer and opens up opportunities to reach other geographic areas.

Other benefits of setting up a working distribution network include

increased customer satisfaction and feedback, faster growth, more
efficient marketing, and greater knowledge on customer and product
preferences.

 – Factors Influencing Distribution Network Decisions

Everything you need to know about factors influencing choice of distribution channel. Deciding
or selecting channels of distribution is a strategic decision for any manufacturing or trading
concern.
The choice of channels depends on various factors. Usually, manufacturers consider which
distribution channel would be objective and efficient.
The selected channels must have lowest cost with maximum overall profit. It should also be
remembered that there is no single channel of distribution that will always result in optimum
profit. The integrated marketing concept has prompted many manufacturers to employ several
kinds of channels.
There are various constraints that are to be considered before deciding channel objectives.
Learn about the factors influencing choice of distribution channel are:-

1. Market Related Factors

2. Product Factors
3. Company Factors
4. Channel Related Factors
5. Environmental Factors.

Factors Affecting Choice of Distribution Channel – 5 Important Factors: Market, Product,

Company, Channel and Environment Related Factors
There are several channels available for the purpose of distribution of goods. Each channel has
its own advantages and limitations and every company has to make difficult choice about
channels of distribution. This decision about choice of a channel of distribution depends on
several factors. A company has to consider all these factors and make an appropriate choice.
The following are the factors:
1. Market Related Factors:
Since the channels of distribution operate in the market. The market related factors are very
important. There are several forces in the market which dictate the choice of channels of
distribution.

The following are the market related factors to be considered:

a. Customers:
The ultimate purpose of any channel of distribution is to distribute the goods to the customers.
Therefore the requirements and the nature of the customers should be considered while deciding
the channel of distribution.
If the customers are widely scattered the channels must be in a position to reach them out
effectively. This requires appropriate channels but if the customers are not widely scattered
smaller channels would be sufficient. If the customers are very large in number such as
individuals, very wide channels of distribution will be necessary, but if the customers are small
in number and purchase in large quantities such as the industrial purchasers, small channels or
even direct distribution will be sufficient.
b. Competition:
One has to consider the channels of distribution arranged by the competitors. This choice
represents the wisdom and experience of the competitors. It also means that the competitors have
been successful in using such channels over the long run. A company can adopt such channels of
distribution if found suitable to itself. Unless there are compelling reasons, a company should not
try to change the pattern of distribution as compared with that of the competition.
c. Existing Channels of Distribution:
One has to make study of the existing channels of distribution. The functions performed by these
channels, their strengths and weaknesses, their suitability and such other factors affect the choice
of channels. Their relative advantages must also be studied.

2. Product Factors:
Since it is the product which is to be distributed, the product characteristics also have to be
analyzed while choosing a channel of distribution. Different products are different in nature and
this nature of the products requires different types of channels.
The following product factors have to be considered:
a. Perishability:
If the products are highly perishable, the channel must be short or even direct marketing would
be suitable. This is because long channels of distribution with a large number of intermediaries
delay the distribution of goods. Products like milk, flowers etc. require very fast distribution.
b. Nature of the Product:
Consumer goods are purchased by a larger number of people, in smaller quantities and more
frequently. Therefore such goods require longer channels of distribution which have a wide
range. The presence of retailers is a must. Industrial goods on the other hand are purchased in
larger quantities by a smaller number of purchasers and less frequently. Moreover the industrial
goods purchaser is well informed, knowledgeable and rational. Such goods require shorter
channels of distribution.
c. Technicality:
Some products are highly technical in nature such as computer hardware and software, medical
diagnostic equipments etc. Such goods require a high amount of technical support which can be
provided only by the manufacturer. Therefore, such goods are best distributed by manufacturers’
salesmen. Goods which do not require such technical support, for example-ready-to-wear
garments can be distributed by longer channels of distribution.

d. Seasonality:
Some goods have a seasonal nature either in terms of production (agricultural goods), or
consumption (woolen goods) and such goods require different types of distribution channels.
e. Variety Offered:
If a manufacturer has a wide range of goods, he can opt for direct distribution of the goods since
a large number of products are available. If a manufacturer has very few products, he has to
distribute them through long channels of distribution.
f. Unit Value:
Products of high unit value suit shorter channels of distribution or even direct marketing, but
products of low unit value which are mass consumed require longer channels of distribution.

3. Company Factors:
A company has to look within and understand itself while choosing a channel of distribution. It
has to understand its requirements, strengths and weaknesses.

The following specific factors have to be understood:

a. Company’s Financial Strength:
A financially strong company can design its own channel of distribution because of its financial
strength. It can negotiate with people and establish an altogether new channel of distribution. A
company which is not financially strong has to settle down for existing channels of distribution
because establishing a new channel of distribution requires huge amounts of money.
b. The Extent of Control Desired:
Control desired in this context means the ability of the company to exercise control over the
channels of distribution in matters like resale price maintenance, territory restrictions etc. Longer
the channel, lesser will be the control.
c. Reputation of the Company:
A well-established company with a strong reputation will find it easy to have longer channels of
distribution. This is because channel intermediaries are generally willing and enthusiastic to be
associated with strong companies.
d. Company’s Marketing Policies:
Every company will have policies regarding marketing and these policies will also lay down
norms relating to channels of distribution and these policies will also have a strong influence on
the choice of channels of distribution.
e. Past Experience:
An established company will already have well established channels of distribution. The
company will also have experience in matters of dealing with such channels of distribution. A
company should consider such past experience while deciding the channels of distribution.

4. Channel Related Factors:

The channels of distribution choosing should be appropriate from the view point of the company.
These channels must be examined and then a proper choice must be made.
The following factors of the channel must be considered:
a. The Ability of the Channels:
Well established and strong channels have the ability to distribute goods effectively over a wide
area. They can promote and sell even unknown products. Newly established channels of
distribution however cannot do these. Therefore a company has to consider the ability of the
channels before deciding on the channels of distribution.
b. The Financial Strength of the Channels:
Financially strong channels of distribution can distribute the goods well and also finance the
manufacturers directly or indirectly. They can lift the goods from the manufacturers by paying
cash immediately which indirectly amounts to financing the manufacturers. Therefore, such
financial ability is also a factor that must be considered by a company regarding choice of
channel of distribution.
c. Ability to Provide after Sales Service:
Some products require a long term after sales service. In such a case it should be decided as to
who has to provide the after sales service whether the manufacturer or a member of the channel
of distribution. In such a case a company has to look into the ability of the channels of
distribution to provide effective after sales service in a sustained manner.

5. Environmental Factors:
A company’s channel choice depends on certain environmental factors. Environment in this
context means the environment within which the company, the channels of distribution, the
customers etc. are present.
The following are certain environmental factors which must be considered while deciding
channels of distribution:
a. Economic Situation:
The prevailing economic situation in the country affects all the economic activities. Therefore, a
company has to be aware of the prevailing economic conditions. During an economic boom, the
sales of all the products will naturally be good and channels of distribution will be more than
willing to take up distribution of products.
During a recessionary period, the general sales come down as a result of which channels of
distribution become reluctant to take up distribution. These are the factors to be considered by a
company while deciding on a channel of distribution.
b. Legal Factors:
A company is free to decide about its channels of distribution as long as its activities are legal.
There are certain legal factors however which must be considered while deciding channels of
distribution and arrangements with them. Certain types of arrangements with the channels of
distribution in the form of sole distributorship and in the cases of certain essential commodities
may be objectionable under law. Therefore, such legal factors are to be considered.
c. Fiscal Structure:
Fiscal structure in this context refers to certain indirect taxes levied by the state governments on
products. There is no uniformity in this matter and clarity is absent in certain cases. Therefore,
such matters must also be considered while deciding on, channels of distribution.
 Factors Influencing Choice of Distribution Channel –
Product, Consumer, Company, Middlemen and General
Considerations

A. Product Considerations (Nature of Product):

1. UNIT Value – Use short direct sales type channel for high value goods. Use large channels for
low value goods.
2. Perishability – Short channels or direct to consumer for perishable goods e.g. fruits,
vegetables, perfumes. Long channel for durable goods.
3. Bulky and Weighty (like iron & steel, cotton etc.) – To be sold directly by manufacturer or
short channel to reduce distance and number of handlings.
4. Highly Technical Products – To be sold through shortest channel / directly by Manufacturer.
5. General Goods (with Substitutes) – Sell through long channels.
6. Limited Product Line – Direct Selling .
7. Standardized / Branded Products – Sell through long channels.
8. Ordered Goods (goods as per customer specifications) – Sell direct by Manufacturer.
9. Expensive High Unit value Products – Sell direct by companies.
10. Inexpensive products – Sell through indirect / long channel.
11. Tangible and intangible Products – Tangible goods sold through indirect, longer channel.
Intangible services are sold through direct or shorter channel.
12. Repeated Handling (like delicate jewelry) – Short channel.
13. Customer-Specifications Goods – Shorter channel (direct channel).
14. After Sales Service Requirement – Direct/short channel.
15. Nature of product – For consumer products, indirect channels are preferred and for industrial
goods direct channel.
16. Goods subject to Fast Style Changes – Manufacturers prefer selling direct to retailers.

B. Consumer Considerations:
1. Dispersed geographically Customers – Sell through Middlemen (one or more layers).
2. Large no of customers – Sell through Middlemen (one or more layers).
3. Credit and other facilities – Better use intermediaries; for wholesalers, retailers can better
asses creditworthiness of customer.
4. Order Size Manufacturer – he can sell direct to big organisation and use wholesalers to sell to
retailers.
5. Buying Habits of Customers – For consumers buying frequently but in small quantities -
Indirect channel.
If customer buying in large amount – Direct channel is profitable.

C. Company Considerations:
1. Large scale Manufacturers – Distribute their products directly.
2. Small Manufacturers – Sell through wholesalers as they cannot afford heavy expenses of sales
force.
3. Custom of the Industry may decide the channel.
4. Financial Position – Direct sales by financially strong companies. Weak co (with lesser
financial/human resources) to depend upon intermediaries.
5. Maximizing short-run profits – Sell through direct channel.
6. Managers with Expertise to Sell – Sell direct.

d. Middlemen / Intermediaries Considerations/Factors:

1. Manufacturers may choose to avail middlemen’s important services;
2. Middlemen’s Liberal and co-operative attitude helps their use;
3. Rigid attitude restricts their use;
4. Use middlemen if they can assure maximum sale and have necessary capability; and
5. Producers would use channels if they are not costly and such channels which have low costs.

 e. General Considerations:
Choose channels which satisfy following criteria viz.:
1. Suitability – Suitable channel be adopted.
2. Efficiency – Efficient channel be adopted.
3. Flexibility – Channel should be capable of being changed.
4. Competitors’ Channels be kept in mind and sell through same channels or devise alternatives.
5. Social Considerations – Attitude of society towards a channel be considered.
6. Inflationary / Recessionary conditions – In Inflation sell through longer channels to penetrate
deep into market and generate greater sales revenue. In recession, use shorts channels to prevent
undesirable price increase in products.
 Factors Influencing Choice of Distribution Channel – 8
Major Factors: Type of Product, Market Consideration, Size
and Structure of Manufacturing and a Few More
The choice of a suitable channel of distribution which can be utilised for chanalising the flow of
existing products from the producers to the ultimate consumers is generally governed by the
following eight factors –

 Factor # 1. The Type of Product:

The peculiarities of the product influence and determine the number of middlemen through
whose hands the products will pass before it gets into the hands of the consumers.

(a) Perishability – As a rule, fewer middlemen are required for selling perishable goods and
commodities. Most of the bakery products and food products, generally, pass through only one
middleman—the retailer—and may in many cases be sold directly by the producer.

(b) Servicing required – Products like automobiles and sewing machines which require servicing,
expensive handling equipment, or instructions before use also pass through the hands of a few
middlemen. Fashion goods generally require direct selling since their special features have to be
explained to the consumers effectively. Retailers may not do this very well.

(c) Seasonal character – If a commodity is in seasonal demand there may be no need for
middlemen.

(d) Unit value – Generally, products of lower unit value and high turnover are distributed
extensively through indirect channels, e.g., hosiery goods, cosmetics, etc.

(e) Bulk or weight – Where the movement of goods involves heavy freight and poses problems
of transportation, limited channels may be employed. Selling may be mostly direct in such cases.

 Factor # 2. Consumers or Market Considerations:

The consumers influence the choice of the distributive channels in the following ways:
(a) Number – If the number of consumers is small, as in the case of bulky and expensive
machinery, the manufacturer can employ his own sales force to sell directly to the consumers. If,
however, there is a large number of a consumer interested in a product, the producer has to make
use of the services of wholesalers and cannot afford to employ sales staff for direct selling or
even deal with the host of retailers. Cigarettes and other consumer goods belong to this category.

(b) Geographical location – If most of the consumers using a particular product (say, bread) live
in the same city or locality as the producer, the producer can sell his products through his own
salesmen. On the other hand, if the consumers are large in number and are scattered over a wide
area, the producer will have to depend upon wholesale and retail channels for the sale of his
products.

(c) Consumer or industrial market – The purpose for which the product is purchased by
consumers also influences the choice of channels of distribution. If a product is used for an
industrial purpose, direct purchase from the manufacture will suit the consumer better and the
manufacturer will adopt direct selling.

(d) Order size – The size of orders received and the volume of goods supplied to individual firms
will influence the channels used to reach them. A food products manufacturer will sell directly to
large grocery chains because the total volume of business makes this channel economically
feasible.

(e) Consumer buying habits – The channel policies are affected by the buying habits of
consumers and industrial users, the amount of effort the consumer is willing to expend, the desire
for credit, the desire for after-sales service etc.


 Factor # 3. Size and Structure of Manufacturing:
The larger the producer, the more profitable it may be for him to establish direct contact with
consumers through his own sales force. A small producer, on the other hand, finds it more
profitable to rely on indirect channels making use of wholesalers and retailers. Also, if the
manufacturing is widely dispersed geographically, in relation to the demand, the greater will be
the necessity of using indirect channels, particularly wholesalers.
This is so because the wholesalers will have to collect products from a wide area. Further the
width or the range of the product-line also determines the broad pattern of distribution that a firm
will adopt. If a manufacturer deals in a wide range of products, he will tend to serve the retailer
directly eliminating the wholesaler because it is more convenient for the retailer to purchase from
as few a sources as possible. Besides, it may mean some saving in the personal selling cost per
unit as the salesmen will be able to handle large sales volume for the same salary.

 Factor # 4. Company Considerations:

The character of the firm making the choice of channels of distribution will also affect the
channel policies of firms.
Some of the important factors in this regard are:
(a) Reputation – Firms with established goodwill can usually make their own choice of
middlemen and enter into advantageous agreements with them.
(b) Financial resources – A financially strong firm will have a tendency to set up its own
channels rather than depend upon middlemen.
(c) Experience and competence of management – Where the management lacks marketing know-
how, it may prefer to depend upon indirect selling through middlemen.
(d) Desire for control of channel – A manufacturer may establish a short channel just because he
wants to control the distribution. Moving closer to the final customer affords the manufacturer
greater opportunity to gather current market information and control the freshness of the product
and its retail price.

 Factor # 5. Structure of Retailing:

The structure of retail trade in a product has also an important bearing on the choice of channels.
One important aspect of this factor is the number of stores selling mainly the product in question.
Generally, if there are many such stores, the manufacturer will like to make use of the available
retail channels instead of selling direct to the consumers. Also, retailers will be used for
marketing a product if the retail stores provide convenience of shopping to the potential
consumers.
In short, the important considerations relating to the structure of retailing are:
(a) Services provided by retailers.
(b) Availability of desired retailers.
(c) Attitude of middlemen toward manufacturer’s policies.
(d) Sales volume possibilities.

 Factor # 6. The Customary Channels:

In cases where an established network of channels exists, the manufacturer may make use of
such customary channels. For example, if washing soap is being marketed through grocers, a
manufacturer may find that selling it through general merchants does not add substantially to the
sales volume. However, the firm must be on the lookout for new channels and should explore
them and experiment with them.

 Factor # 7. Selectivity of Distribution:

An important decision in regard to the choice of channels is the one relating to the number of
middlemen to be used.
Three alternative policies are available to the manufacturer:
(a) Extensive distribution,
(b) Selective distribution, and
(c) Exclusive distribution.
(a) Extensive Distribution:
Extensive distribution means that the manufacturer is willing to make use of any and all
distributive outlets prepared to handle his product. A good example is provided by cigarettes. In
following this policy, the manufacturer may use an independent wholesaler through whom he
can reach all the retail outlets, or he may sell direct to the large retailers and reach the rest of the
market through wholesalers.
(b) Selective Distribution:
Selective distribution means that the manufacturer will select from among the available outlets
rather than use all of the outlets. The purpose of this policy is to provide the channels chosen
with large enough sales to keep them selling the manufacturer’s product in a satisfactory way.
This may increase the sales at reduced distribution costs and bring forth better co-operation from
the dealers.
The manufacturer may be able to achieve a good measure of control over distribution through -
this policy. On the other hand, it may happen that this market coverage is weak in that potential
customers are not able to find his product because it is being marketed through selected channels.
(c) Exclusive Distribution:
This implies the grant of sole selling rights for a product in a certain territory to a middleman
under a contractual agreement. Generally, the middleman acting as the sole distributor for a
territory does not handle competing products. The benefits and drawbacks of this policy are
extensions of those arising from selective distribution.

 Factor # 8. The Profit Criterion:

After the qualitative criteria have been applied and a broad choice regarding the type and number
of channels made, the next step will be the use of the quantitative criterion in the form of
estimates of profit. This means that estimates of demand, revenue and costs for each channel
should be prepared and compared to make the final choice regarding the channels of distribution.
The sales volume potential differs considerably channel by channel and the costs tend to move in
direct relationship to the directness of the channel. As we move progressively from a direct
manufacturer-to-user channel to the most indirect channel through one or more independent
wholesalers, the costs of distribution tend to become progressively lower.
At the same time, the manufacturer’s control over his products also gets reduced thus limiting the
sales that might be achieved. The net gain from a comparison between these variables will be the
criterion for the choice of a channel.
Channels for New Products:
In case of a product being put on the market for the first time, it is important to ensure that the
potential buyer learns from some source that the product exists and that it will satisfy certain
specific needs of his. If it is an important product, the buyer will seek considerable information
(whether from the advertisement or from the middleman) before deciding to go in for it.
This may be said of items like refrigerators, room coolers, air- conditioners, etc. If, however, it is
a relatively unimportant thing, the potential buyer may not want much information and may be
inclined to make a purchase just as soon as the product is made available. The choice of a
channel or a set of channels will be dictated by the kind of product that is being introduced.
The seller of a new consumer product can generally choose from among a number of
alternatives. A wholesaler may not promote the product aggressively but he does usually have
useful connections with retailers and charges a lower margin of profit. If the manufacturer can
create a response for the product through advertising, the wholesaler will be a good choice.
A speciality shop may promote the product with force but will generally demand higher profit
margin. Direct sales could also be made to the retailer. This will call for a large sales force. As a
further alternative, missionary salesmen may be employed to call on the retailer and the product
may be marketed through wholesalers. This may mean more cost but it will ensure better dealer
co-operation.
In practice, a beginning may be made with a channel that ensures aggressive promotion of the
product even though the cost in the form of margin is high. As the product becomes accepted in
the market, the manufacturer can switch over to the channels that mean less cost (say
wholesalers).
Of course, in making this switchover, utmost care should be taken to avoid ill-will on the part of
the original channel as it may be required again to promote another new product.

Selection of a Particular Dealer:

While selecting a particular dealer for the sale of his products, a manufacturer must
consider the following points:
(i) The ability and the willingness of the dealer to handle the product.
(ii) Credit standing of the dealer.
(iii) Dealer’s knowledge about the product characteristics and its market.
(iv) Ability to maintain sufficient stocks of the product.
(v) Capacity to secure business.
(vi) Ability to cover the territory or areas over which goods have to be sold.
(vii) The other goods or products dealt in by the dealer—whether they are allied products or
competitive ones.
(viii) Ability to arrange for repair and maintenance of the product, if need be.
(ix) The dealer’s willingness to co-operate with the manufacturer in maintaining stable prices.

 Factors Influencing Choice of Distribution Channel – Top

10 Factors: Nature of Product, Market, Size of Business,
Cost of Channel, Nature of Middlemen and a Few More
 1. Nature of Product:
The nature of the product has a bearing on the choice of distribution channel. The durability of
the product, unit cost of product, type of product must be considered while determining the
distribution channel. Perishable goods like bread, milk are distributed through short channels,
while durable goods like television, refrigerator may be marketed through long channels.
Products that require specialized selling and technical skill need short channel.
Products with lesser unit value and high turnover are distributed by employing longer channels
of distribution. Household products like utensils, cloth, cosmetics etc. are distributed through
longer channel while products like jewellery having high product value are directly sold to the
consumers by the jewelers.

 2. Nature of Market:
The geographical width of the market, number of potential buyer, nature of competition has a
bearing on selection of distribution channel. In case of industrial markets where number of
buyers is less; a shorter channel of distribution can be adopted. These buyers usually purchase
directly from the manufacturers.
But in case of consumer markets, where there are a large number of buyers, a longer channel of
distribution is employed as distribution process cannot be effectively carried out without the
services of wholesalers and retailers. If the manufacturer wants to reach customers who are
concentrated at one particular place or market, distribution channel will be short and the
manufacturer can directly supply the goods in that area by opening his own shops or sales depot.
While if the buyers are widely scattered, it is very difficult for the manufacturer to establish a
direct link with the consumers, hence services of wholesalers and retailers will be used.

 3. Size of Business:
The size of the business, financial strength of the concern determines the channel of distribution.
A small manufacturer may sell his product directly. While a large manufacturer may use a longer
distribution channel. If the manufacturer wants to control the entire distribution process, it will
prefer direct selling or adopt short distribution channel.

 4. Cost of Channel:
Distribution process involves cost of transportation, warehousing, storage insurance, material
handling, distribution personnel’s compensation and interest on inventory carried at different
selling points. Higher cost of distribution will result in the increased cost of product. On the other
hand the services delivered by the distribution channel intermediaries may be indispensible.
Hence the marketer must carry out a cost benefit analysis while selecting the distribution
channel.

 5. Nature of Middlemen:
The manufacturer must select those middlemen who provide the best marketing services like
storage, transportation, credit and packing etc. At the same time the middlemen should ensure
various services to customers. A manufacturer would like to appoint that middlemen who assure
greater sales volume.
In appointing middleman, the manufacturer must take into consideration the financial stability
and reputation of the middleman. A financially sound middleman can provide credit facilities to
customers and make prompt payment to the manufacturer.

 6. Distribution Intensity:
The selection of distribution channel depends upon the intensity of distribution. If the marketer
intends to undertake extensive distribution will make his products available through all
distribution outlets, if the manufacturer intends to undertake selective distribution will make
products available through few selected outlets. If the manufacturer intends to undertake
exclusive distribution will make the products available thorough one outlet.
 7. Time of Distribution:
The selection of distribution channel depends upon time taken by the distribution channel. The
manufacturer needs to compare the time taken by different distribution channels and should
select the one that takes minimum time for delivery of goods to customers.

 8. Government Policy:
Government policies and regulations also influence the choice of distribution channels. The
Government may impose certain restrictions on distribution of certain products like wine,
narcotic goods.

 9. Competition:
The distribution channel used by the competitors determines the channel of distribution to be
adopted.

 10. Reach:
The channel of distribution selected by the company must be easily accessible by customers and
prospects. If company intends to sell products locally, may choose a retailer or distributor in the
area who knows the local market. If company wants to expand its business and to sell products in
other states, may choose a distribution network that provides coverage of the selected markets.

 Factors Influencing Choice of Distribution Channel – 5

Important Factors: Product, Company, Competitive, Market
and Environment Related Factors
Deciding or selecting channels of distribution is a strategic decision for any manufacturing or
trading concern. The choice of channels depends on various factors.
These factors may be discussed as follows:

 1. Product Related Factors:

Nature of product is an important factor in deciding channels of distribution. Consumer products
are usually standardised, less expensive, and non-technical and have large number of buyers
spread over a wide geographical area thus will require wider network of channels involving
many middlemen to sell and distribute products. On the other hand, industrial products are
technical, expensive, usually customised as per customer’s demand, have lesser number of
buyers thus will require personal or direct selling with short channels involving fewer
middlemen. Perishable goods need to be sold faster thus will adopt short channels of distribution.

 2. Company Characteristics:
Another factor in deciding the channels of distribution is the company’s financial strength and its
decision to share the degree of control with its channel partners. To sell products through direct
selling, company will require huge investment to open their retail outlets and employ large
workforce to sell its products. On the other hand, indirect selling requires intermediaries to sell
products. Thus, if a company has enough funds and prefers to retain control with the
management, may opt for direct selling, and if company has lesser funds to invest and is willing
to share control with its channel partners may opt for indirect selling.

 3. Competitive Factors:
The decision to choose channels of distribution is affected by the channels adopted by
competitors in the same industry. It is the company policy which decides whether to go with
competitors or be different from them. A company may choose to adopt the similar channels of
distribution which are used by other business concerns in the same industry or may use different
channels to be different from other firms. For example, some firms may choose to sell through
retail shops where other manufacturers are also selling their products whereas others may choose
different channel like door to door selling.

 4. Market Factors:
The market forces like size of market, geographical concentration of potential customers,
quantity demanded etc. affect the decision to choose channels of distribution. If the market size
is small and buyers are concentrated in a particular region then companies may choose short
channels for distributing their products. On the other hand, companies dealing in consumer
products will have a larger market size with consumers scattered over a wide geographical area.
In such cases they need to supply goods at the convenience of their customers thus may adopt
longer channels of distribution and have more number of intermediaries.

 5. Environmental Factors:
The environmental factors like economic condition and legal constraints also affect the decision
of choosing channels of distribution. In a depressed economy marketers may choose shorter
channels as they are most economical in terms of cost.
 Factors Influencing Choice of Distribution Channel – 6
Most Important Factors: Nature of Market, Product,
Consumer’s Buying Habits, Competition and a Few More 
Usually, manufacturers consider which distribution channel would be objective and efficient.
The selected channels must have lowest cost with maximum overall profit. It should also be
remembered that there is no single channel of distribution that will always result in optimum
profit. The integrated marketing concept has prompted many manufacturers to employ several
kinds of channels. There are various constraints that are to be considered before deciding channel
objectives.
These are discussed below:

 1. Nature of Market:
The selection of channels depends firstly on the requirements of the market i.e., what the
consumer wants and how much is wanted? A manufacturer must also determine what he himself
wants; what share of the market he wishes to attain and how much he is willing or able to invest
in order to attain it.
He must also make it sure how best he can reach the market in order to attain this share. Besides
these one should also assess various factors such as buying habits of consumers, the size of
average sale, the concentration of purchases, repeat sales, the seasonality of sales, scope of
distribution and competition.

 2. Nature of Products:
Product features also will exert influence on the decision of suitable channels:
i. Perishability – Perishable products require more direct marketing because of the dangers
associated with delays and repeated handlings.
ii. Size – Products that are bulky (e.g., iron and steel, cotton, etc.,) usually need short channels so
that distance and number of handlings from producer to ultimate consumers may be reduced.
iii. Style – This is a dangerous element and often necessitates frequent changes in the channels.
Manufacturers prefer selling direct to retailers, especially when goods are subjected to fast style
changes.
iv. Unit value – Products of high unit value are often sold through company’s own sales force
than through middlemen.
v. Newness of the Products – When new products are introduced, new channels are preferred.
 3. Consumer’s Buying Habits:
As far as convenience goods are concerned, long channels are preferred. Shopping and specialty
goods, on the other hand, are marketed more directly. This difference in channels is caused by
differing buying habits followed by the buyers. Industrial goods of high value are also marketed
directly.
On the basis of buying habits, following patterns in channels are suggested:
i. Size of the average sale – When the quantity sold is small the channels should be elaborate. For
example – Cigarette and Matches. If direct selling is followed in this case marketing cost will
tend to become high.
ii. Seasonal character of sales – In spite of the fact that seasonal goods (e.g., Woolen clothes)
will have only seasonal markets, the distribution must be arranged on a continuous basis. Prima
facie, it is a case for direct sales but as a long-run strategy, continuous marketing channels must
be used.
iii. Concentration of customers – If the market for a product is fully concentrated and localised,
direct selling would be beneficial.

 4. Competition:
This also influences the decision of a seller to decide on the channel to be selected. This factor
needs thorough analysis and careful consideration. Mostly, in practice, similar types of channels
used by die competitors are preferred two reasons could be accounted for this – First the
competitor’s channel is familiar to the purchasers and hence could reach the customers easily.
Secondly, by using a totally different channel the initial difficulties may affect the sales and even
increase the cost of distribution. Therefore, manufacturer should prefer a new channel only if he
is convinced that it would be more efficient.

 5. Financial Considerations:
Financial strength of the channel members also is considered when selection is made. This is
needed to tide over the temporary and seasonal difficulties that may arise in course of time.

 6. Cost of Channel:
Yet another factor considered is the cost involved in distribution. Needless to say, cost of
distribution would reflect in the price of the product. Direct marketing generally is costlier and
distribution arranged through middlemen is more economical. Moreover, direct marketing would
involve the manufacturer to always keep sufficient funds for moving the products to markets.
Thus, the individual manufacturer or seller, making a choice of how he will get his goods most
economically and efficiently into the hands of potential customers, has to consider the above
factors. There are also no readily available set guidelines which could state what the best
channels are. In each instance, therefore, the seller has to consider his own objectives, resources
and, of course, the channels that are available to him.

 Factors Influencing Choice of Distribution Channel –

Nature of Product, Market, Firm and Middlemen
Selection of distribution channel is a crucial decision. This can be discussed with the help of a
real life example. A small manufacturer of grape juice started selling it through food brokers who
delivered exclusively to warehouses and replenished retailer’s shelves in a month. There were
frequent out of stock situations and poor display. The producer replaced food brokers with
distributors. The distributors delivered the beverage to stores thrice a week. Very soon his
marginal product became a very successful item.
While selecting a distribution channel, the producer should compare the costs, sales volume and
profits expected from alternative channels of distribution.

 1. Nature of Product:
Generally, bulky and heavy products are distributed directly to minimise transportation of
products. Similarly, perishable and expensive items are sold directly or through a short channel.
When product is technically complex dependable installation and maintenance services are
required. Therefore, computers, and other such products are sold directly. In case of easily
substitutable products with low brand loyalty direct selling is desirable.
But standardised and highly branded products like toothpaste, talcum powder, bathing soap,
detergents, etc. can better be sold through a long channel. If one product is complementary to
another (e.g., tooth paste and tooth brush) the same channel can be used.

 2. Nature of Market:
Direct selling is preferable when the market is small and it is located in a narrow area. On the
other hand, in case of mass market and geographically scattered customers, a longer channel
becomes necessary. Industrial buyers prefer to deal directly with manufacturers while consumers
prefer to buy from retailers. Direct selling is convenient where the purchase order is large and the
number of orders is small. Customers’ requirements for credit, home delivery, etc. also influence
choice of channel of distribution.
 3. Nature of the Firm:
Direct selling is possible only when the manufacturer is financially strong and possesses
marketing expertise. For a single-product firm, direct selling is not economical. In case the
manufacturer desires control over distribution, direct selling is preferable. Distribution policy of
the firm also influences the choice of distribution channel.

 4. Nature of Middlemen:
When desired type of middlemen are not available, direct selling may be necessary. Same is the
case when middlemen are not able/willing to provide transportation, storage, display and other
services. Preferences, costs, financial standing, etc. of middlemen are also important. Customary
channel in a particular trade should also be considered. Legal restrictions are important. For
example, liquor and drugs can be marketed through licensed shops only.

 Factors Influencing Choice of Distribution Channel – 4

Major Factors: Product, Market, Middlemen, Company
and Marketing Environment
The following are the factors that determine the channel decision:

 1. Product:
i. If a commodity is perishable or fragile, a producer prefers a few and controlled levels of
distribution. For perishable goods, speedy movement needs shorter channel or route of
distribution.
ii. For durable and standardized goods, longer and diversified channels may be necessary.
iii. For custom-made products, direct distribution to consumer or industrial user may be
desirable.
iv. System’s approach needs a package deal and a shorter channel serves the purpose.
v. For technical products requiring specialized selling and serving talents, shortest channel is
desirable.
vi. Products of high-unit value are sold directly by travelling sales force and not through
middlemen.
vii. For food products, both wholesaler and retailer are required. Here, size and average
frequency of customer orders influence channel decision.
 2. Market:
i. If the market size is large, it may require many channels, whereas in a small market direct
selling may be profitable.
ii. For highly concentrated markets, direct selling is enough but for widely scattered and diffused
markets, many channels are necessary.

 3. Middlemen:
i. Middlemen who can provide the required marketing services will be given first preference.
ii. The selected middlemen must offer maximum cooperation, particularly in promotional
services. They must accept marketing policies and the programmers or the manufacturers
actively help them in their implementations.
iii. The channel generating the largest sales volume at lower unit cost will be given top priority.
This will minimize distribution cost.

 4. Company:
i. The company’s size determines the size of the market, the size of its accounts and its ability to
get middlemen’s cooperation. A big firm may have a shorter channel.
ii. The companies with substantial financial resources need not rely too much on the middlemen
and can afford to reduce the levels of distribution. A weaker company has to depend on
middlemen to secure financial and warehousing relief.
iii. New companies rely heavily on middlemen due to lack of experience and ability of
management.
iv. A company desiring to exercise greater control over the channel will prefer a shorter channel
as it will facilitate better coordination, communication and control.

 5. Marketing Environment:
Marketing environment can also influence the channel decision. During recession or depression,
shorter and cheaper channels are always preferable. In times of prosperity, there is a wider
choice of channel alternatives. Technological innovations also have an impact on distribution.
The distribution of perishable goods, even in distant markets, has become a reality due to cold
storage facilities in transport and warehousing.
 Factors Influencing Choice of Distribution Channel – 2
Main Factors: Product and Market Considerations
The entrepreneur must take into account the following factors namely product considerations,
market considerations, and other considerations before selecting a distribution channel. All these
factors or considerations affecting the choice of a distribution channel are inter-related and
interdependent.
Hence, an entrepreneur must choose the most efficient and cost effective channel of distribution
by taking into account all these factors as a whole in the light of the prevailing economic
conditions. Such a decision is very important for a business to sustain long term profitability.
These have been briefly discussed below:

 Factor # 1. Product Consideration:

The type and the nature of products manufactured is one of the important factors in choosing the
distribution channel.
The major product related factors are:
i. Low value Products – these are ordinarily sold through middlemen, whereas, expensive
consumer goods, and industrial products are sold directly by the producer.
ii. Perishable products – these kinds of products are short life products that are subjected to
frequent changes in fashion or style as well as heavy and bulky products follow relatively shorter
routes and are generally distributed directly to minimize costs.
iii. Industrial products – these products require demonstration, installation and after sale service
therefore, they are often sold directly to the consumers. While the consumer products of
technical nature are generally sold through retailers.
iv. Wide range of products – the producer of these products may find it economical to set up own
retail outlets and sell directly to the consumers. On the other hand, firms producing a narrow
range of products may sell or distribute through wholesalers and retailers.
v. A new product – a new product needs greater promotional efforts in the initial stages and
hence few middlemen may be required. All the direct marketing effort has to be put by the
producer.

 Factor # 2. Market Consideration:

Another important factor influencing the choice of distribution channel is the nature of the target
market.
Some of the important features in this respect are:
i. Industrial user – If the market for the product is meant for industrial users, the channel of
distribution will not need any middlemen because they buy the product in large quantities.
ii. Small customer market – lf the number of prospective customers is small or the market for the
product is geographically located in a limited area, direct selling is more suitable. While in case
of a large number of potential customers, use of middlemen becomes necessary.
iii. Bulk buying market – lf the customers place order for the product in big lots, direct selling is
preferred. But, if the product is sold in small quantities, middlemen are used to distribute such
products.
Other Considerations:
There are several other factors that an entrepreneur must take into account while choosing a
distribution channel.
Some of these are as follows:
i. A new business firm may need to involve one or more middlemen in order to promote its
product, while a well-established firm with a good market standing may sell its product directly
to the consumers.
ii. A small firm which cannot invest in setting up its own distribution network has to depend on
middlemen for selling its product. On the other hand, a large firm can establish its own retail
outlets.
iii. The distribution costs of each channel are also an important factor because it affects the price
of the final product. Generally, a less expensive channel is preferred. But sometimes, the
customers prefer a more convenient channel even if it is more expensive.
iv. If the demand for the product is high, more number of channels may be used to profitably
distribute the product to maximum number of customers. But, if the demand is low only a few
channels would be sufficient.
v. The nature and the type of the middlemen required by the firm and its availability also affect
the choice of the distribution channel.
Distribution or Marketing channels are an important part of any organization to deliver their
products and services to consumer properly. This is a set of interdependent organizations or
parties involved in the process of making a product or service available for consumption or use
by consumer or end users.
– Network Design
In transportation planning and development, transport network design problem seeks
to optimize specific objectives (e.g. total travel time) through choosing among a given set of
projects while keeping consumption of resources (e.g. budget) within their limits.

 Network design
There are many different ways of structuring a set of transit routes into a network to provide
transit service to a given area. These might include any combination of:

 Radial services, focusing on collecting passengers from outlying areas and bringing them
into a major trip generator (e.g., a downtown area, major employment center, or other
significant destination);
 Cross-town or grid-like routes, focusing on connecting passengers across the area, perhaps
between radial services or among several smaller trip generators; and,
 Direct connections, focusing on moving passengers between major trip generators (e.g.,
between downtown and a high-density residential area, or between a major employer and
downtown).
 Circulators, focusing on collecting and distributing passengers in smaller sub-areas.
Usually, transit networks are made up of some combination of these types of routes, allowing a
satisfactory level of access to most of the region, with a high degree of direct service to major
trip generators. Sometimes, this may involve a combination of modes.
For example, in Boston, the rail systems are strongly radial, while the bus system provides cross-
town and circulator services. The scale image below shows the strong radial nature of these lines,
directed to downtown Boston.

Other systems, particularly bus systems, can include both cross-town and radial services,
allowing more coverage and greater direct access to destinations. One example is the bus
network of New Jersey Transit in and around Newark, shown in the figure below. One can
clearly see both radial routes as well as a strong grid-like structure on the west side of downtown.
Regardless, in the US, the network structure is usually strongly influenced by political and
economic realities, with strong citizen and political input as well as hard budget constraints.
However, from a transportation perspective, the resulting network may be characterized in
several important ways:

 Geographic coverage, often influenced by political considerations as well as objectives to

provide mobility for lower-mobility populations;
 Temporal coverage, determining what time periods on weekdays and on weekends to offer
service; and,
 Connectivity (direct vs. indirect service), with the desire to connect major trip generators
with direct routes but perhaps allowing transfer trips to serve lower-demand areas.
These characteristics play a major role in estimating demand for the service. Specifically, the
analyst may wish to experiment with a variety of network structures and routes, in order to
estimate the level of demand that each network might support. Well-specified travel demand
models should be able to account for geographic and temporal coverage, as well as trip
connectivity, in forecasting transit usage.
As an important caveat, most transit agencies do not usually approach network design as if from
scratch. Most agencies do have some existing route patterns, and associated infrastructure (stops,
terminals, guideways, etc.) that may often constrain certain route structures or at least strongly
favor maintaining some of the existing routes. As a result, most agencies consider new elements
of the network (new routes and services) as a complement to existing services, with more modest
adjustments to the existing route structures. However, where new modes of service may be
introduced (e.g., rail systems in traditionally bus-oriented networks), more significant
restructuring of service may be possible, perhaps extending service to new geographic areas,
intensifying service in existing service areas, or supplementing the new mode by directing routes
to connect to and from the new mode.
 Route design
In conjunction with network design, a planner must also consider specific routes and their
purpose. The layout of individual routes usually involves some trade-offs in design, most
notably:

 Stop density. Stop density involves the trade-off of passenger access vs. route speed. Higher
stop densities mean that passengers will not have to walk or travel far to get to a stop,
allowing easier access to transit service. However, higher stop densities also mean that the
vehicle may be stopping frequently, reducing the overall operating speed.
 Route length and circuitousness. Route length involves the trade-off of direct service vs.
service reliability. Longer routes allow passengers to get to more potential destinations, as
the route provides direct service to a larger geographic area. But, longer routes may lead to
poor schedule adherence, as service may be more prone to travel time variability and/or
service disruptions.
 Trip generators. The route can serve major trip generators or more minor trip generators, or
some combination of these. Often, routes have termini that coincide with major trip
generators, with higher passenger flows occurring between these major generators. However,
there may also be a need to serve certain geographic areas with modest demand.
In many cases, some combination of routes can be built into the transit network that provides
some balance in each of these areas. Common route designs include the following:

 Line haul: high frequency and/or high capacity service on major travel corridors
 Loops (one-way or two-way): coverage for lower-density areas or circulation in and among
activity centers
 Short turn routes: to complement a full route, additional service provided on a shorter
segment (the “short turn”) of the route
 Branching (or split) routes: branching toward the end of the route, with areas served by only
some buses
 Feeder routes: connect to/from line haul from/to lower density areas
 Limited and express routes: only stop at major stops/stations to improve travel times, balance
loads
 Zonal service: only serve some sections in a major corridor

Optimization Approach and Techniques

Optimizing at different levels: from strategic level to operational
Optimization software has key benefits for all horizons: from multi-year strategic
planning to daily planning & execution. Strategic decisions are decisions for
multiple years, like infrastructure optimization: identifying the best location for a
DC/warehouse, including assignment of product groups to locations, assigning
regional customers to a DC, etc. Tactical decisions are typically for a few months,
such as optimizing the fleet (size, type, number), using the in-house fleet or
subcontractors (and which subcontractor), and computing the impact of customer
changes or new customers.
In various

sub-industries it also makes sense to create master routes, e.g. for scheduled visits
to retail and manufacturing depots. It is also important here to analyze frequency
and delivery days: the goal is to spread the workload over the week, and cluster by
day to create efficient routes, while satisfying customer and stock constraints. Note
that availability of the product at the DC (or production location) is also relevant
here, and whether picking or production allows for and/or is efficient enough to
make the proposed transportation plan feasible. In general, the benefits for
strategic/tactical optimization are greater than for operational/real-time
optimization, but the related impact and implementation aspects must also be taken
into account.
At a tactical level, computing the required workforce is also relevant, not only for
drivers, but also in terms of the warehouse and other logistics operations (if
relevant). This requires forecasting and capacity planning to compute the expected
load of all the tasks and their requirements, and to create feasible work shifts from
these tasks. This capacity plan is important for computing the size of each team:
how many shifts are required to work per 24-hour period or week, and how to plan
for annual leave and public holidays.
The main objective in the operational process is to create efficient routes from the
given orders and to optimize fleet utilization. Where the order sizes are small and
there are a high number of restrictions (e.g. due to service constraints or
accessibility of the locations), the power of the optimization software really makes
itself felt. Creating routes and assigning routes to trucks can take place in a single
step (e.g. in outbound distribution for shippers), but can also be done in separate
steps.
There could be a number of reasons for this:
(1) timing: creating the routes is important for the picking process in the
warehouse, and needs to take place at an earlier stage,
(2) centralization: the loads can be created at DC level or division level, but
resources can be assigned at a more central level, allowing resources to be shared
between divisions, and decisions to be taken on when and where to use sub-
contractors, or
(3) splitting up tasks has the advantage that routes are created in the most efficient
way, rather than on the basis of suggestions from drivers or drivers‟ privileges.
Both creating the routes and assigning routes to resources can lead to complex
puzzles with a large number of constraints, including driving time legislation,
congestion and required service and capabilities. In some sub-industries this is
handled as a daily batch optimization (e.g. in retail distribution), but it can also be
a rolling process throughout the week (e.g. in 24-hour business, international
transport, etc.). For transport companies it is also important to plan for both the
known and unknown orders (e.g. pick-ups), which will be added at a later stage
during execution. For distribution planning this is usually resolved by
incorporating regular pick-ups (based on history) in the plan at the beginning and
by reserving time in the route for unknown orders.
When assigning routes to resources the objective is to utilize the fleet effectively
(maximum number of utilized hours per truck) and to minimize repositioning
(empty mileage). Additional constraints are driving time legislation, and getting
drivers back to their home base. The combination of truck, driver and trailer can be
flexible, so there may be the potential to implement logistic concepts such as drop
and hook, swap trailer, hot seating or trailer pools. In the case of intermodal
transport you can reduce trailer transportation costs by using (unguided)
intermodal transport: this means computing the best route for the trailer, given all
the modalities with their tariffs, timetables and service conditions.
During execution, real time information is input into the optimizer. This could be
new (or canceled or changed) orders from the administration system (TMS, ERP,
WMS), but it could also be changes related to execution itself, such as actual
arrival time (based on GPS or geofencing), changes to delivery sequence, changed
volumes, canceled or refused deliveries, and missed pick-ups. For the latter a new
visit should be created, but depending on the reason the cost of the current visit
should be charged. Proposals for adding new orders (at the order entry stage if
possible, or proposals via the web) are also important functions.
Filters are useful in efforts to minimize disruptions to the current operational plan
as they allow the dispatcher to concentrate solely on any disruptions or other issues
that arise. This usually involves manual intervention to assess the disruption.
Where unacceptable, orders should be planned again. It is also essential to
maintain effective control during execution in order to ensure a high-quality
operation. Optimization software supports dynamic route optimization with the
capability to recalculate and visualize expected arrival times and to inform
customers where relevant. During and after execution of the plan, planners can
review the operational results by tracking performance, particularly for
subcontractors (e.g. costs per vehicle/km, loading rate, vehicle utilization per route,
etc.).
Moreover, the real-time integration of onboard computers and mobile devices
makes it possible to compare planned versus actual routes, to recalculate ETAs in
the event of congestion or delays, and therefore to optimize the entire
transportation process. The results of the planned or actual route can be used as the
basis for “self-billing”: the pro-forma invoice which the sub-contractor charges to
the client.
Fact-based Tactical Routing in SAP TM

Opportunities and challenges for specific sectors

Each sub-industry has its own opportunities and challenges for further
optimization. Some examples are:
 Postal and express delivery services: this sector is characterized by large
number of stops for collection/delivery, a critical sorting process, and an
overnight linehaul and/or air forwarding system for the best possible
customer service. Creating tactical linehaul schedules, and computing areas
for pickup and delivery (PUD) is essential. In operational terms, dealing
with variations in volume and keeping changes to planned schedules to a
minimum while still achieving the desired utilization and loading efficiency
all represent key factors. This requires effective operational distribution
optimizers. It is essential for the planning system to deal effectively in real
time with a large number of unscheduled pick-ups. In this industry the
combined capabilities of distribution optimization and supporting execution
are therefore critical. Computation of the tactical overnight line haul
 schedule can be a complex task in the postal/parcels industry. This includes
the optimal routing of the goods from origin-depot to destination-depot
(which intermediate location/hub to use, taking into account volume and
service), assembling loads between these locations and creating a schedule,
ensuring that trucks are utilized in an optimal way. Pickup and delivery
(PUD) must be optimized in such a way that regions remain balanced.
Driver workloads should average out as evenly as possible. Boundaries
between regions should remain flexible to optimize service and minimize
everyday costs; they must not so flexible, however, as to cancel out the
benefit of drivers’ familiarity with their own regions.
 Bulk goods and liquids: this sector includes shippers with their own fleets
(e.g. oil and gas, animal feeds), as well as companies that transport liquid
chemicals and foodstuffs. The key factor for this sub-industry is loading
optimization, which involves compartment loading, ulage rate and axle
weight constraints as well as contamination and cleaning restrictions.
Loading optimization is very complex, but becomes very relevant, due to
increased safety and security requirements. Computers can evaluate the
options and make decisions based on complex restrictions far more quickly
than human beings.
 Logistics contractors/own shipping department: the first step is to compute
which orders should be combined to form efficient loads, such that
utilization and clustering of deliveries is optimized, and taking all
restrictions into account. While creating those loads, stackability or other
loading rules can be taken into account to optimize trailer utilization. In
retail or production depots, output from this step can be sent to the
warehouse to initiate the picking process. The next step is to assign the loads
/ routes to the resources; in some cases this step will be combined with the
previous step. 3PLs may opt for a multi-depot approach: an individual shift
for an individual driver may include a number of different customers and
DCs in order to minimize empty mileage. In some sections of the industry
(e.g. transport of new vehicles for the motor trade) the loading order also
represents a complex computational puzzle.
 Groupage: as with postal and express deliveries, in groupage you want to
optimize the outbound delivery routes and, during execution, optimally
assign the pickups to the best routes. Groupage can be international as well
as domestic, and a rolling horizon approach is key. International shipping
may involve intermodal transport (ferry, train, shortsea), and a trailer
 swapping system can be implemented to increase the probability of drivers
being able to spend their rest days at home.

Unit III
Role of Transportation in Supply Chain – Factors influencing
Transportation Decisions – Modes of Transportation –
Transportation mode Selection Process. Transportation Principles
and Participants – Transportation Participants Transportation
Modes, Performance Characteristics and Selection

Role of Transportation in Supply Chain

Transportation is the most essential component of a supply chain. ... The transportation in a
supply chain entails ferrying a product from a supplier to a customer or a distribution
store by road, rail, pipeline, air or sea. Factors involved in transportation include cost,
service/transit time and movement of products.

Transportation is the most essential component of a supply chain. It involves the delivery of
products from the start to the end of a supply chain. For a supply chain to be deemed effective,
the transportation segment must be managed efficiently. This involves making sure the transport
and logistics strategy is dynamic and responsive to the demands of the market.
The transportation in a supply chain entails ferrying a product from a supplier to a customer or a
distribution store by road, rail, pipeline, air or sea. Factors involved in transportation include
cost, service/transit time and movement of products. These are the most pertinent issues in an
effective supply chain. Others include integration among customers, carriers, and suppliers and
information flow.

Transportation is frequently used in the facilitation of a supply chain. Below are seven uses of
transportation in supply chain management:

 1. Transportation is used to reduce costs.

The transportation in a supply chain can be used to control costs in a business operation. Freight
and fuel costs take up most of the logistics budget. Moving products from one location to another
using one or a combination of the various modes of transportation is a cost-intensive affair. To
control transportation costs and keep them as low as possible, conducting a full freight audit is
essential.

Luckily, technologies exist that make it possible to enhance transparency in transport and
logistics. Companies that use technology and data can increase their awareness of both the
supply chain network in general and how it interacts with the broader transportation ecosystem.

The right data gives shippers insights into freight flows and other variables that are likely to
impact transportation costs to various destinations. This gives them a broader insight into the
transport ecosystem and how it affects the entire supply chain.

 2. Transportation is used to enhance customer service.

The transportation in a supply chain can be used for customer service. As products move from
one location to another, and from the supplier to the customer, the needs of the customer must be
at the heart of the transportation system. Making sure products reach a customer in the condition
they were shipped in and on time are essentials of transportation in a supply chain.

 3. Transportation is used to segment shipments in supply chain.

The prioritization of shipments is essential in transportation. The customers, products, time of

year, and suppliers, among other factors, determine the urgency and importance of goods in
transit.

The transportation in supply chains must be segmented to reflect these often complex realities.
This often requires a change in the mode of transport and settling on alternative carriers.

 4. Transportation is used to synchronize with supply chain technology.

The daily monitoring of transportation operations is best handled by a transportation

management software (TMS). Among activities tracked by a TMS are route planning, fleet
management, fuel costing, supplier relations, cargo handling, and customer communications.

A TMS is highly effective in controlling and lowering transportation costs. For instance,
according to Forbes, a TMS can reduce freight costs by 8%. While not all shipping companies
are using a TMS, its uptake is on the rise as companies embrace the realities of efficient, cost-
effective transportation.

 5. Transportation is used to provide more supply chain options.

The majority of products rely on multiple modes of transportation as they travel throughout the
supply chain. Therefore, various modes of transportation are required for an effective freight
transportation system. Such a system is ideally suited to support international and domestic
supply chains.
 As shown above, trucks are by far the most popular mode of transportation, making road
transport a critical part of the supply chain. Pipelines are also highly popular, especially in the
transportation of gaseous and liquid products. Items moved by air and road have a higher value
per ton, meaning that these two modes have a higher value than the others.

The appropriate mode of transportation in a supply chain must be selected at every point of the
transport and logistic cycle. Sometimes it takes a combination of modes of transport for a
product to reach an end-user or a distributor.

 6. Transportation is used to bypass geographical limitations.

Trucks have, for a long time, been the preferred mode of transportation in supply chain
operations. They traverse roads alongside railways to move products across the land efficiently.
They feature a chassis, which can hold standard shipping containers. In the US alone, fifty
million tons of products are freighted via trucks every day at the cost of more than $50 billion. In
Canada, 730.6 million tons of commodities were freighted via trucks in 2014. Compare this to
310.3 million tons of freight transported by railway in the same year.

The reason trucks are the mode of choice when transporting shipments is because they can pass
through terrains that other modes of transportation can’t. For instance, trains travel to limited
destinations, while air freight has weight and airport limitations. This leaves trucks as the most
convenient for moving vast volumes of products cost effectively.

 7. Transportation is used to boost the economy.

To freely move products from domestic to international markets and vice versa, an efficient
transportation system is a must. The vast distances between farms, mines, urban centres and
forests demand a sound transportation system so that manufactured products can reach
customers as efficiently as possible.

– Factors influencing Transportation Decisions

7 Factors in choosing The Right Mode of Transport For The Goods Movement.
 1) Cost of Transport.
 2). Reliability and Regularity of Service.
 3) Safety.
 4) Characteristics of goods.
 5) Budget.
 6) Timescale.
 7) Flexibility.
TRANSPORT DECISION MAKING Factors influencing transport decision making Macroeconomic trends
and trends in the cost of various transport modes
Regulatory developments

Technological change

Carrier strategies

Analyse the following:

 long-term cost trends of the various transport modes

 the relative price of fuel and other cost components

 trends in the production and consumer price index

 interest rates 

Transport decision making is restricted by numerous Acts and regulations

 All decisions should be made within the framework of these restriction

 Logistics management should keep abreast of technological innovations in the transport market

 The development of computer technology plays a major role in logistics and are used increasingly for:

 routing,
 scheduling and
 freight documentation,

while satellite technology facilitates

 freight tracing
 and expediting

6 strategic decision making areas of carriers

 the nature of service that carriers provide

 the geographic area in which services are rendered

 the size of the enterprise

 the scope of services

 marketing strategy

 use of technology

TRANSPORT DECISION MAKING AREAS

THREE CATEGORIES TRANSPORT SERVICES NECESSARY TO ACHIEVE THE LOGISTICS MISSION

HOW SHOULD THE NECESSARY SERVICES BE OBTAINED

SOURCES NECESSARY TO IMPLEMENT THE TRANSPORT STRATEGIES decisions need to be made about
the

 transport modes or combination of modes to be used within the chosen mode

 choice between own and professional transport

 financing of own equipment Decisions involve

 the extent to which fixed contracts should be concluded IN STEAD OF using the services of common
carriers

 when and in what circumstances 3rd parties should be used Decisions need to be made about

 the information that is necessary to make rational decisions

 the human resources needed and how they should be organised

 how the latest technology is used

 how many financial resources should be spent on transport activity

TRAFFIC MANAGEMENT Factors influencing carrier selection

1. Cost

2. Transit times

3. Reliability overall cost consists of

 transit time,

 ease of system interface,

 equipment and related activities such as loading and counting Carriers offering faster and more
reliable transit times also offer service attributes that are important to overall logistics performance.
Regardless of how fast a supplier is able to ship, it must provide a high degree of reliability.

4. Capability

5. Accessibility

6. Security refers to a carrier’s capacity to provide specialised equipment such as

 temperature control

 bulk products

 side offloading This refers to the manner in which door-to-door deliveries can be made and is
generally not a problem for road transport but does present problems to other modes a carrier’s ability
to protect a load from

 loss,

 damage

 or theft.

Evaluation of carriers using a two-step approach

Step 1

Determine the relative importance of service elements to a shipper assess each carrier’s performance
concerning each consideration according to a scale of 1 to 3 where 1 is high and 3 poor.

Step 2

NEGOTIATING WITH CARRIERS WHAT DOES NEGOTIATION INVOLVE? (NEGOTIATION DEFINED)

Negotiation is a management process involving  The preparation for bargaining  The interaction of
two or more parties in a bargaining situation &  The resolution or outcome of this interaction

Preparation includes  The collection of information and  its use on the formulation of interactive
strategies  designed to achieve a firm’s objectives in a bargaining situation

Bargaining includes  the execution of these strategies and  the “give and take” over individual issues
 which is necessary to satisfy the parties

Outcome represents  an agreement between the parties  designed to accomplish mutual gain or 
the discontinuance of the negotiation process
WHY IS IT NECESSARY TO NEGOTIATE WITH CARRIERS (NEED FOR NEGOTIATION)

Deregulation of freight transport resulted in the entry into the market of an increasing number of
carriers with a variety of services at different rates. This competitive transport market created the
opportunity for shippers to negotiate with carriers ,in an effort to bargain for the best possible service
at the lowest possible cost.

WHAT CAN WE NEGOTIATE ABOUT? (MATTERS THAT CAN BE NEGOTIATED)

Matters that can be negotiated are mainly rates and services .

Rate negotiation can assume one of the following three forms

 discount on the existing rate for small consignments

 a commodity rate for truckloads of a particular commodity transported in large volumes on a regular
basis

 a contract rate for regular consignments over a long period

The main concern when negotiating about services is to improve a carrier’s service which, in turn, will
raise the level of customer service. Although negotiations revolve mainly around the quality of service
the following special services can also be negotiated:

 transit services Permit a shipment to be stopped at an intermediate point between initial origin and
destination for unloading, storage, and/or processing

 diversion & consignment Changes to routing, destination or consignee after a shipment is in transit

 scheduled delivery and collection times. Congestion at loading docks can be avoided by scheduling
collection and delivery times with the carrier

This results in better utilisation of handling staff and equipment, and loading and unloading activities
are more effective

The carrier benefits because shorter waiting times and the concomitant better utilisation of vehicles
and crews

The shipper offers the carrier the choice of dispatching the consignment later in exchange for a slower
service The shipper can negotiate a lower rate

Rates and delivery times can be determined mutually

This is an additional service that carriers provide, namely transporting goods internally to offices and
warehouses.

DETERMINE RELATIVE POWER POSITION

The more dependent the carrier is on the organisation’s business, the greater the logistical manager’s
power position will be. In other words, the greater the amount of business allocated to a particular
carrier the greater the logistical manager’s power position will be .The smaller the relative share of a
specific carrier in the organisation’s transport work the less reliant the carrier will be on the
organisation and the weaker the logistical manager’s relative power position will be. The more
dependent an enterprise is on a carrier’s services, the smaller the logistical manager’s relative power
position will be

PREPARING FOR NEGOTIATION

Preparation is the principal phase in the negotiation process Preparation requires

 the collection,

 analysis and

 evaluation of information on an enterprise’s

 transport needs and

 shipping characteristics

 and the carrier’s operating characteristics and abilities Collecting information

The information that is needed can be classified into 3 categories i.

Transport Needs data used in most decisions about carrier selection must be gathered, such as

 the cost and tariff structure of carriers,

 reliability and

 their ability to meet the conditions of the agreement.

The following questions are invaluable in helping to focus on transport requirements:

With regard to rates:

 How do the enterprise’s transport costs compare with those of competitors?

 How does the price of the product after delivery to the final destination compare with that of
competitors

 How much discount on rates is necessary to remain competitive

 How much discount on rates is necessary to increase sales

With regards to Services

 What level of service do clients desire?

 What level of service do competitors provide?

 What improvement in transport services will lead to a reduction in cost?

 What service adjustments are necessary to effect possible improvements in the enterprise’s logistics
system?

ii. The enterprises shipping characteristics .

This information is extremely useful in determining the importance of the enterprise’s freight for the
carrier and determining the enterprise’s power position

The following are also important

 the number of consignments per annum

 the tonnage shipped per annum

 the regularity of consignments

 the density of products

 the direction of consignments  the handling characteristics of products

 the number of carriers used

The first four factors determine the value of the enterprise’s business for a carrier

The next three influences the carrier’s cost

The last one represents the concentration of the shipper’s power position

Carrier operation and costs

An important criterion for successful negotiation is knowledge of the other party.

The following operating and cost factors are important:

 Competitiveness of the product in a given market Owing to the derived nature of transport demand .
A high transport rate can increase the price of the product to such an extent that it can no longer
compete against available substitutes The logistics manager should emphasise the relationship
between

 the transport rate, o the price of the product,

 the competitive position of the product and
 the demand for transportation of the product.

 Handling characteristics It is less expensive for a carrier to handle a product that requires little or no
special handling. Palletised consignments are cheaper to handle than non-palletised ones and a lower
rate can be expected on the former

 Density A shipper who can

 improve the density of a product and

 increase the mass that is loaded helps the carrier to transport a lower cost per mass unit. A
lower rate can be negotiated in exchange for these reduced carrier costs.

 Back-hauls If traffic can be offered in the direction of a carrier’s back-haul, lower rates can be
negotiated on the strength of the fact that the vehicle would have re-turned empty in any event. Once
again, lower rates can be negotiated in exchange for better utilisation of vehicles.

Negotiation Objectives

To negotiate meaningfully about rates and services, it is necessary to identify beforehand what the
negotiations are supposed to achieve.

The formulation of objectives stems from a study of what is expected of the carrier

A logistics manager wants good quality service at a reasonable price. The extent of own transport can
range from providing certain transport equipment such as freight cars or containers to a full transport
service Decisions have to be made about

 the transport mode that is going to be operated,

 the type, size and quantity of equipment that has to be purchased or hired and

 when it has to be purchased or hired.

BASIC REASON FOR OWN TRANSPORT

The main reason for using own transport:

 to render a better service to customers,

 to deal with urgent consignments and to save on transport costs .

COST OF OWN TRANSPORT

FIXED COST & VARIABLE COST Comprises the following 6 points:

VARIABLE COST

 Depreciation and interest on capital in respect of vehicles and other equipment

 Depreciation and interest on capital in respect of additional buildings, maintenance facilities and
parking facilities

 Other standing vehicle costs such as licenses, insurance and crew costs

FIXED COST

 Management costs

 Administrative costs

 Salaries of maintenance staff if the enterprise is going to be responsible for its own maintenance
Concern mainly the operation of vehicles and include the following 3 areas:

 Fuel, oil and lubricants  Tyres  Maintenance parts

ADVANTAGES & DISADVANTAGES OF OWN TRANSPORT

ADVANTAGE

 ensures and effective delivery of urgent orders

 creates a good impression of the enterprise among customers because of fast service

 eliminates congestion at the loading docks

 ensures safe arrival of goods because of less handling and the correct arrangement of freight

 integrates incoming raw materials with production and distributes finished products according to
orders

 can possibly eliminate expensive packaging methods

DISADVANTAGE

 equipment has to be purchased

  involves cost of maintenance

 often means experiencing problems obtaining suitable staff

 involves expenses because vehicles may be operated empty and are underutilised

 involves problems with the management of the transport department and the integration of activities
with other functions of the enterprise

 entails risk associated with purchasing vehicles that are unsuitable for the work they are supposed to
perform

– Modes of Transportation
Modes of Transportation in the Global Supply Chain
 Shipping Containers in the Supply Chain. ...
 Trucks in the Supply Chain. ...
 Chassis in the Supply Chain. ...
 Railcars and Engines in the Supply Chain. ...
 Aircraft in the Supply Chain. ...
 Unit Load Devices in the Supply Chain. ...
 Ocean-Going Vessels in the Supply Chain.

 Types of Transportation: Why Are They Important?

All of these modes of transport are extremely important and play a significant role in the
industry. However, there are many differences in terms of price, shipped commodities, transit
distance, etc. While some modes may be the perfect solution to one business, they may also be
absolutely useless to another business.

 Ocean shipping

Ocean shipping is the most popular way of moving large volumes of goods overseas. Compared
to air, the ocean is a much more cost-efficient option but is also a rather slow option. This mode
of transportation works best for shippers who need to move goods on a distance longer than 400
km. Also, it works for oversized, hazardous, liquids, and weird-shaped freight. Ocean shipping is
common among large and mid-sized businesses because they need global shipping on a regular
basis. The freight is stacked in containers that are later loaded onto the ships or barges.
  Air shipping

Probably the fanciest shipping mode, air transport is a reliable and extremely quick way to ship
freight. Obviously, extraordinary speed comes at a higher price. Because of its larger cost, air
transport is mostly used by bigger companies, but small businesses often use it too. This option is
the perfect solution for retail companies and light industries. Essentially, there are specialized
aircraft for hefty cargo but in general, planes are not developed for handling oversized freight of
unusual shape.

 Trucking (Over-the-Road Shipping)

Over-the-road transportation is the most popular, the most frequently used, and the most in-
demand mode of transportation. It works for everyone, from individual shippers to large
enterprises. Also, road transport comes with a wide variety of equipment and shipping modes.
There are two main types of over-the-road transportation: full truckload (FTL) and less-than-
truckload (LTL). FTL shipping means that one shipper takes the entire truck capacity to move
the freight. LTL shipping means several shippers share partial use of the trailer. There are also
various types of trailers that serve different shipping needs: dry van, flatbed, refrigerated, etc. It
is easy to get a freight quote from the carrier and choose the needed equipment.

 Rail

Rail transportation plays a crucial role in intermodal shipments and is cheaper and more eco-
friendly than over-the-road shipping. Rail is best used for pre-planned long-hauls, and moving
from OTR to rail could benefit your supply chain in several ways. Significant investments in
intermodal transportation in recent decades have made it more reliable, cost-effective, and
service-oriented. Rail freight rates are flexible and much lower than truck rates. Due to the large
volume of goods being moved, the price per load is low. Also, rail transport doesn’t make
frequent stops and uses a minimum of fuel.

 Intermodal and Multimodal Transport

Choosing the right mode of transportation may be difficult, especially if you have a long and
complicated route. Intermodal and multimodal transportation solve this problem, as they are two
types of combination transportation modes. Generally, intermodal and multimodal shipping
suggest the combination of road, rail, ocean, or air for a single shipment. The only difference
between both methods is that intermodal is handled under a single bill, while multimodal goes
with separate bills from all the carriers involved. Generally, intermodal and multimodal can be
very beneficial to the shipper in terms of price and flexibility.

Ultimately, each mode of transportation has its advantages and drawbacks. Depending on the
size and needs of your business, you have a variety of options to choose from.

– Transportation mode Selection Process.

7 Factors in choosing The Right Mode of Transport For The Goods Movement.
1. Right Mode Of Transport

2. Factors That Play a Key Role in Selecting Mode of Transport Are

1. Right Mode Of Transport

Different types of goods require different type of transportation. The type of transportation of
the goods depends on several factors:

• The products of the company and their type,

e.g. perishables or non-perishables, breakables etc.

• Supplier production lead times.
• Product availability.
• Source of supply i.e. the pick-up destination, e.g. China or others.
• Customs and Excise rules, such as duty, quarantine regulations and others.
• Volume.

The primary modes of transport are Railways, Roadways, Airways, Waterways and Pipelines.
Depending on the type of consignment, the budget considerations, and the speed at which the
delivery needs to be made, each mode of transport has its own advantages and disadvantages.
Sometimes, depending on the client, market or geographical demands and requirements, more
than one mode of transport may be needed to deliver the goods to their destination.
When selecting the most suitable mode of transport to get products from point A to B, there are
several factors that need to be considered. The selection of the right transportation mode is very
critical to the business and the logistic management. An effective use of transportation
equipment and modes reduces shipping and logistics costs considerably.
Export planning is not so simple. Depending on the destination, goods consigned to a foreign
market can be transported by road, rail, air, sea, inland, waterways or a combination of any of
these. The important thing is to make the right selection and come up with the right and the most
cost-effective combination of modes of transport.
When deciding which mode of transport to use, certain factors should be taken into
consideration.

2. Factors That Play a Key Role in Selecting Mode of Transport Are

1) Cost of Transport
When selecting the best and most suitable transport for exportation of products, the budget is the
most important consideration. Costs vary based on the type and amount of goods needed to be
transported. It is important to keep in mind that the cost of transport influences the cost of goods.

If heavy or bulky products are being transported over a long distance, inland, then rail transport
is the most economical. Land transport, typically by trucks, is best suited for small amount of
goods being transported over short distances, as it also saves packing and handling costs. The
cheapest mode of transport is water transport, albeit the slowest too, but most suited for heavy or
bulky goods that need to be transported over long distances, where time is not an important
factor. Air transport is the best option for transportation of perishable, fragile and valuable
goods, even though it is the most expensive.

It is important for importers and exporters to consider the overall cost of transportation, keeping
the “hidden costs” such as insurance premiums and finance charges in mind.

2). Reliability and Regularity of Service

The reliability and regularity parameters of different transport modes, differ from each other. The
urgency and speed by which the goods are to be delivered, influences the decision as to which
mode of transport to use. All modes of transport, land, ocean and air, are affected by bad weather
such as heavy rains, snow, fog and storms, which may cause delays.

3) Safety
Another crucial factor influencing the selection of a mode of transport is the safety and security
of goods in transit. Land transport is more preferred to railway transport because the losses are
less.

 From the safety point of view, sea transport is the most risky, as water transport exposes the
goods to the perils of sea, and the long duration of travel adds to the risk factors. Certain types of
packaging also helps in safeguarding the goods in transit and are highly recommended, but they
do influence costs as well.

Some goods also require special facilities such as refrigeration or special security measures that
need to be taken into consideration when selecting a mode of transport.

4) Characteristics of goods
When selecting the mode of transport, the size and weight of goods play a crucial role. Land and
air transport primarily cater to fragile and small shipments. Rail and sea transport are a more
suitable option for heavy shipments.
 How dangerous, fragile or high value the products are, also influences the selection of the
transport mode. For breakable and fragile, high value products, air and land transport are the best
option.

5) Budget

Transportation costs are add-on cost on the sale price of a product. The transport costs add to
how much the goods can be sold for, to make a profit. Hence budget requirements need to be
considered accordingly. The volume or weight of the goods play a key role in determining which
method of transport is the best value. Also the type of good in terms of urgency of delivery, such
as how perishable the goods are, and how quickly they need to arrive, influences the choice of
mode of transport.

Typically, water transport is the most cost effective, and is mostly suitable when there is no
hurry, and the goods are bulky or heavy, and need to be carried a long distance. Rail transport is
relatively inexpensive for these types of goods. The advantage of road transport, in terms of cost
is that there are savings to be made on the costs of handling and packaging. Air transport is one
of the most expensive modes, but has the benefit of being fast, so is best suited for perishable and
fragile goods.

6) Timescale

Air transport is the best option for long distances requiring urgent and speedy transport, to meet
deadlines or because the goods are perishable or fragile. Motor transport is faster than rail
transport for short distance deliveries. However, for longer haul journeys rail is faster and more
economical.

Water transport is often not suitable where time is a factor.

7) Flexibility

The most flexible mode of transport is Motor or road transport, as it is not constrained by factors
such as flight times, shipping routes or pre-scheduled timetables. Motor transport can operate
day and night, at personal convenience, to suit all time frames, and has the added advantage of
door-to-door delivery

Transportation Principles and Participants

There are five main stakeholders involved in the transportation decisions: the shipper, the
receiver, carriers and agents, the government and the consumer. It is clear that the policies
will be formed around these five factors, which are often complex and tend to result in conflict
Transportation is one of the most visible elements of logistics operations. As consumers, we are
accustomed to seeing trucks and trains moving products or parked at a distribution facility.
While this experience provides a good visual understanding of transportation elements, it does
not allow the necessary depth of knowledge to understand transportation’s role in logistics
operations. This section establishes that foundation by reviewing functionality provided by
transportation and the underlying principles of transport operation.

Transportation functionality

Following are the two major functionality of Transportation

 Product movement
 Product storage

Product Movement

Whether the product is in the form of materials, components, assemblies, work-in-process, or

finished goods, transportation is necessary to move it to the next stage of the manufacturing
process or physically closer to the ultimate customer. A primary transportation function is
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.

The major objective of transportation is to move product from an origin location to a prescribed
destination while minimizing temporal, financial, and environmental resource costs. Loss and
damage expenses must also be minimized. At the same time, the movement must take place in a
manner that meets customer demands regarding delivery performance and shipment information
availability.

Product Storage

A less common transportation function is temporary storage. Vehicles make rather expensive
storage facilities. However, if the in-transit product requires storage but will be moved again
shortly (e.g., in a few days), the cost of unloading and reloading the product in a warehouse may
exceed the profitability. A second method to achieve temporary product storage is diversion.
This occurs when an original shipment destination is changed while the delivery is in transit.
Traditionally, the telephone was used to direct diversion strategies. Today, satellite
communication between enterprise headquarters and vehicles more efficiently handles the
information.

Principle of Transportations

Economy of scale

It 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 vehicle’s capacity) cost less per pound than less-than-truckload (L TL) shipments (i.e.,
shipments that utilize a portion of vehicle capacity). It is also generally true that larger capacity
transportation vehicles such as rail or water are less expensive per unit of weight than smaller
capacity vehicles such as motor or air. Transportation economies of scale exist because fixed
expenses associated with moving a load can be spread over the load’s weight. As such, a heavier
load allows costs to be “spread out,” thereby decreasing costs per unit of weight. The fixed
expenses include administrative costs of taking the transportation order, time to position the
vehicle for loading or unloading, invoicing, and equipment cost. These costs are considered fixed
because they do not vary with shipment volume.

Economy of distance

It 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 the same
combined weight) of 400 miles. Transportation economy of distance 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. Specifically, the relatively fixed expense incurred to
load and unload the vehicle must be spread over the variable expense per unit of distance.
Longer distances allow the fixed expense to be spread over more miles, resulting in lower overall
per mile charges.

– Transportation Participants Transportation Modes,

A. Shippers and Consignees’ Expectations
•Move the goods from origin to destination within a prescribed time at the lowest cost.
•Specified pick up and delivery times, predictable transit time, zero loss and damage, accurate
and timely exchange of information and invoicing.

B. The Government Role

•Stable and efficient transportation environment to sustain economic growth.

•Product availability throughout the country at a reasonable cost.
•Providing right-of-way such as road or railways or air traffic control system.

C. The Public concerns

•Accessibility, cost effectiveness and protection of environmental and safety standards.

•Development of transport infrastructure to have goods from global sources.
 Performance Characteristics and Selection
Each transportation mode affects operational and logistical decisions, and each mode's
performance is influenced by variables such as distance, topography, capacity, loading procedure
and duration, and fuel consumption.
The freight task has been largely catered by road and rail transportation modes, but for the
purposes of this article, we will examine maritime transportation modes as well.

 
In selecting the most effective option to transport commodities, there are five essential factors to
look at:

5 Factors to Consider in Freight Mode Choice

1.  Potential for Goods Damage
2. Transit Time
3. Cost of Transport
4. Fuel Efficiency
5. Levels of Safety

 1) Potential for Goods Damage

The key factors which influence the potential for damage to goods include movement and
acceleration forces. Freight containers experience the greatest acceleration forces during
handling at the terminal or depot and during transfers at rail yards.

At sea, rolling and pitching tend to create steady acceleration forces. By comparison, rail and
road modes tend to produce irregular acceleration forces, such as when braking, cornering,
starting up the engine, hoisting and lowering, and when trains pass over rail switches.

A study in New Zealand calculated that vertical acceleration levels exceeding 10m/s2 generate
enough force to raise a container off the ground, potentially causing significant damage to the
goods inside upon landing.

2) Transit Time
A study conducted on freight transports between Sydney and Perth found the average door-to-
door transit time for each of the following transport modes:
Road = 2-4 days
Rail = 7 days
Maritime = 10-14 days

3) Cost of Transport
Contributing factors to the cost of each freight transportation mode include fuel, manpower,
accidents, vehicle and equipment maintenance, regulatory compliance, accidents, profitability
targets, and market share.

From 1996-2012, Australia rail transportation experienced the highest cumulative increase in
freight rates.

4) Fuel Efficiency
In a New Zealand study, maritime freight transport was found to be slightly more efficient in fuel
consumption and CO emissions when compared to rail. Meanwhile, both maritime and rail
transport modes surpassed the fuel efficiency of road transport by around 50%.

To achieve this efficiency, however, 500 containers would need to be transported

per maritime vessel and 40 containers per train.
5) Levels of Safety
According to study, road freight transport accounts for the majority of serious claims and
fatalities in Australia's transport, postal, and warehousing industries. More specifically, trucks
-- which make up only 2.5% of vehicles on the road -- contributed to
around 20% of all road fatalities in Australia.

Having reviewed the five factors of mode choice, there are some clear benefits and deficiencies
with each transportation mode:
One conclusion that can be made is that where time is not a top priority, maritime shipping offers
the greatest of benefits, especially with the coming implementation of the IMO/SOLAS
Container Weight Verification Legislation. In Australia, regulation and public sentiment are
increasingly in favor of rail and maritime transportation modes as danger from and traffic caused
by road transport are becoming more observable.

Aside from the factors mentioned above, the types of cargo needed to be transported will also
influence the choice of freight transport mode. In trying to solve the problem of frequent damage
to goods during transport, it might be due time to consider utilising another freight transportation
mode. One further manageable factor in reducing product damage, cost, and personnel injury is
examining and perhaps transforming 
 Unit IV
Transportation Performance,
5 Methods of Measuring Transportation Performance

Measuring performance is one of the most important ways of ensuring your business success.
Knowing that you need to measure the performance of your transportation is one thing, knowing
how to measure transportation performance and what to focus on is another thing entirely. No
two organizations are the same and as such, no two measuring systems can be the same. You
need to measure the metrics that tie in with the specific go
als and vision of your organization.
An effective transport performance management strategy contains KPIs that give you detailed
insight into whether your business is heading in the direction you envisioned. Knowing what to
measure and when empowers you to make decisions that will directly impact your operation on a
fundamental level. Using effective transportation management software (TMS) will make
performance management easier and more streamlined, and enable you to monitor crucial KPIs
such as:

 1.Accuracy
Excellence is the latest buzzword across all business platforms. Order accuracy measures the
amount of orders that are processed, shipped and delivered without any incidents or issues along
the way. Measuring the time it takes to ship and deliver a product, if the order was the correct
one and whether goods were damaged or not are ways in which you can measure order accuracy.
In the same way order accuracy is measured, so too can inventory accuracy be measured and
used as a KPI in your supply chain management. Inaccuracies in the warehouse can make or
break your chain, so having a record of all goods in your database that don’t match the actual
inventory on the floor is essential. Inaccurate inventory can lead to unnecessary stock purchases
or even worse – incorrect or late customer deliveries.

 2.Costs Per X
There are always costs involved in running a successful business and transport is no exception.
Whether it’s warehousing costs, transportation costs or claims as a percentage of transportation
costs – being able to track and trace the money is key to being (and staying) in operation.
Calculating the claims percentage can be done by dividing the costs of loss and damage claims
by the total transportation costs. This way you can see – if the numbers are high – whether there
are problems in packaging, storage or with the carrier. Road transportation cost per unit is
another metric that can be used to measure road transportation performance by dividing the total
cost of road transportation per period by the number of units shipped. This method can also be
used to calculate by mode (road, ocean, truckload, less-than-truckload, etc.) and is especially
useful where units of measure are standard (e.g., kilograms and tones).

 3.On Time Pickup and Delivery

Calculated by dividing the number of pickups made by the total number of loads sent in a period,
measuring the “on-time delivery” metric allows you to measure the performance of the
carrier/driver. If you’re in the transportation industry, you know that delivering on time is your
raison d’être, your ‘reason for being’, as it were. A transporter that delivers late is a transporter
that’s doomed to failure, and on-time delivery depends on on-time pickup. On-time pickup can
be calculated similarly by dividing the total number of pickups which were made on time by the
amount of shipments carried by a specific carrier/driver. On time pickup and delivery work
hand-in-hand to ensure customer satisfaction so make sure to measure them both as focusing on
only one can leave you with half the picture (and half the power to make changes).

 4.Time
The old adage of “time is money” has probably never been truer than in todays’ instant
eCommerce world (popularly referred to as the Amazon Effect) so it only makes sense to
measure time as a key indicator of your transportation performance. Measuring how long a
shipment takes to be delivered, how long a driver waits at a destination, whether the driver
makes unexpected stops and how long these last is one of the most important metrics to measure.
High dwell times indicate that there is a problem or issue that can be addressed, whether with
your fleet or with your customer’s waiting area. Understaffing, overbooking, inaccurate
scheduling – all of these can lead to longer than desired dwell times that can adversely affect not
only your bottom line but also that of your other customers. Closely monitoring vehicle turnover
time (for both outbound and inbound transportation) is a metric that helps you to monitor the
efficiency of your process, whether at receiving or dispatching stage.

 5.Perfect Shipment Measurement

“Perfect Order” might very well be the ideal of all supply chains and while it sounds
complicated, a “perfect order” is simply an order that was delivered to the correct place, in
perfect order and without damage, within the expected turnaround times, in the correct
quantities, to the right customer and with the correct invoice. Anything less than this is not
considered a “perfect order”. Although daunting, having a high perfect order rate is entirely
possible if measured correctly and constantly. The effects of imperfect orders can include
increased labor costs, costs incurred due to returns and cancellations, lost revenue due to non-
returning customers and having to carry more inventory than is actually necessary.
Transportation performance in this regard is easily measured by having high visibility on current
conditions across various areas, followed by closely monitoring improvements to the areas that
most need it.
There are, of course, many other transportation performance KPIs such as labour productivity,
revenue yield, fuel efficiency, maintenance costs, loading and unloading times, damages,
percentage trucking capacity used etc.
Nobody knows your business like you do, so you need to look at implementing transportation
performance management software that is uniquely tailored to your business and its specific
goals. This will allow you to accurately and easily monitor the key performance indicators that
are relevant to you, ensuring your transportation performance is not just on par – but beyond it.

Costs and Value Measures

Maintaining low logistics cost, while ensuring high product performance is key to making your
production business profitable. Logistics costs include all costs beyond the basic production
costs for a unit.
Types of logistics costs include service costs, transportation costs, inventory costs and
warehouse costs. (Note: The exact definition and inclusion of costs may vary from business to
business, so it is important to check with your company.)
Companies focus on logistics because they essentially add costs to the production of materials,
while the cheapest options may decrease the production performance of a company. Measuring
logistics costs and performance is important for determining how to best reduce costs and
improve the overall production performance. Examine the following components of your total
production costs to see where you can make your logistics costs more efficient.

 1. Find Total Sales Revenue

Assess your sales in terms of total sales revenue subtracted by the total cost for production,
including cost of materials, labor, utilities and space. Refer to this value as profit, as this
represents the gross profit during a specific time period, before you calculate the logistical
costs. Note that the logistical cost and profit reports start with the profit value and then
represent the loss of profits based on logistic complications like service, transportation,
warehouse and inventory costs.
For instance, if you have $225,000 in total sales revenue and $45,000 in production costs, you
can calculate $225,000 - $45,000 = $180,000.

 2. Determine Service-Level Costs

Calculate the service-level costs by determining the unmet consumer demand based on
industry restraints. Include production restraints, such as the inability to meet large orders due
to time constraints or lost production days. Include ordering delays, such as the time it takes to
process an order, delivery time and managing back orders. Include malfunction costs, such as
products damaged during delivery, production errors and returned products.

Determine the service-level costs by subtracting the actual number of products sold without
return from the total units ordered.
As an example, if you had 5500 units ordered, but were only able to fulfill 4800 orders, you
can calculate 5500 - 4800 = 700 lost sales.

 3. Find Transportation-Level Costs

Determine the transportation-level costs. Divide the total transportation costs by the total sales
on the transported products to determine the percentage costs for transportation. Include all
transportations costs in this equation, such as payroll for transportation staff, fuel use,
insurance costs and maintenance costs.

For instance, if you have the $180,000 in profits during a month and $18,000 in transportation
costs, you can calculate $18,000 / $180,000 = 0.10 or 10% transportation costs.

 4. Determine Warehouse Costs

Calculate the warehouse costs as the cost of long term storage for produced merchandise.
Include the land costs, building costs, utilities, payroll and special costs if your products
require special storage conditions, such as cooling. Also, include any additional warehouse
space used for out of stock items, which are often stored so your company can reuse them later
for parts.
Present warehouse costs in terms of a pure cash value, or represent them as a percentage of
your total sales by dividing your warehouse costs by your total revenue from sales.
As an example, if your warehouse costs were $27,000, you could calculate $27,000 / $180,000
= 0.15 or 15% warehouse costs.

 5. Find Inventory Costs

Determine your inventory costs, as the cost of short term storage for produced merchandise
waiting to be shipped and merchandise at your store waiting to be sold. Include the space costs,
utilities, labor costs and special arrangements for your products, such as cooling necessities.
Present inventory costs in terms of pure cash value or as a percentage of your profits.

For instance, if your inventory costs were $9,000, you could calculate $9,000 / $180,000 =
0.05 or 5% inventory costs.

– Factors driving Transportation Costs

Distance is a major influence on transportation cost since it directly contributes to variable
expense, such as labour , fuel and maintenance. While road has a lower cost function for short
distance , it cost function climbs faster than rail and maritime cost functions. volume increases.

8 Key Factors that Influence Freight Costs

If your business involves inventory – whether you are a wholesaler, manufacturer or retailer –
freight charges are one of the key costs of doing business. Transportation costs are often highly
uncertain; a merchant may not know the freight cost for a shipment until the carrier sends an
invoice weeks later. Although freight costs are often uncertain, they are not a total mystery; as
with most outgoings, they depend on a range of economic circumstances. Let’s look at some of
the factors that affect transportation costs.

Fuel costs
The cost of maritime and land transport is, of course, related to the price of fuel. As fuel prices
fall, container ships and cargo trucks become cheaper to operate and the price of transport goes
down. Savings (or losses) are passed on to consumers – either indirectly or through a fuel cost
component built into a carrier’s pricing model. And of course, if fuel prices increase, carriers will
pass the additional expense on to merchants.

The labor market for commercial drivers

Increasing wages and competition among carriers for truck drivers can have an upward impact
on transportation costs. As older drivers retire, carriers may struggle to find operators for their
vehicles. Recruiting new drivers is difficult; the job can be tough and typically requires a
different class of driver licence (courses to certify new commercial drivers can take weeks or
even months to complete). Moreover, many logistics companies struggle to compete with ‘in-
house’ truck driving positions that tend to pay better and may offer less stress.

Demand for freight

Pricing depends on the volume of product being shipped by operators just as much as it depends
on the actual, underlying costs. If capacity is limited, operators may be inclined to sell limited
space at a premium. On the other hand, if business is slow, a carrier may be talked into offering a
more competitive rate, at least in the short term.

Customer loyalty
Merchants who can offer a carrier regular, consistent business are well placed to receive a
preferential rate, especially if demand across the industry is low.

Vehicle capacity
Some trucking companies operate an older, smaller fleet. While these trucks are entirely
adequate, newer trucks are designed to maximize storage space, allowing a truck to split space
even further.

Government regulation
Regulation may directly impact the freight industry and its bottom line; for example,
governments often set maximum driving hours for commercial operators. Other government
regulation may also impact freight costs; for example, New Zealand’s Emissions Trading
Scheme has been estimated to increase freight costs by several dollars for every thousand
kilometers travelled.

Geopolitical events
International maritime shipping has become fraught with the dangers of pirates and rogue
governments. The World Bank estimates that the losses from global piracy amounted to
approximately USD$18 billion in 2014, pushing up the price of everyday freight as carriers were
forced to change shipping routes and pay higher insurance premiums.

Your reputation as a merchant

The price quoted by a carrier will, at least in part, reflect the carrier’s expectations as to the
packing of pallets and the time to load. If you have a reputation for loading quickly, you may be
charged a slightly smaller rate to compensate

Condition Factor Examples

Shipping between France and
Distance, physiography,
Geography England vs. shipping between
accessibility
France and the Netherlands
Type of product Packaging, weight, Shipping coal
 perishable Shipping flowers or meat
A 777 compared to 737
(passengers)
Economies of scale Shipment size
Post-Panamax compared to
Panamax (freight)
Trade between China and the
Trade imbalance Empty travel
United States
Capacity, limitations,
Infrastructure The Interstate
operational conditions
Capacity, limitations,
Mode A bus compared to a car
operational conditions
Competition and Tariffs, restrictions, safety, The European Union, The
regulation ownership Jones Act

– Categories of Transportation Costs

The study of the economic aspects of transport or in other words transport economics is of prime
importance both to economists as well as to geographers. Until recently, geographers have
tended to ignore the fundamental importance of cost and price as influences, but now they intend
to study the economic aspects realising that an efficient transportation system in many ways is
the lifeblood of the economic system. Therefore, the study of the nature of transport costs and
pricing, at least in so far as they affect the spatial patterns of transport phenomena, is a basis to
transport geography.

The Structure of Transport Costs:

In dealing with transport costs, the distinction between private costs and social costs is important.
The former, as the name suggests, are costs incurred by the individual or transport operator in
providing a particular services. As Lipsey (1971) says, “this is the opportunity cost to the firm
(or individual) or the resources used… these are usually based on the market value of factors
purchased”.

The identification of these costs is not easy. G william and Mackie (1975) have stated that “the
non-storable nature of the product and the differences in the needs for and methods of providing
and financing track and terminal facilities between modes, make the transport sector as a
complex one even in this respect”. On the other hand, social costs are different.
Lipsey defines them as “the opportunity cost to the whole of society of the resources that the
firm (or individual) uses”. They are costs imposed on society as a whole through an individual
making a trip or a transport operator providing a service. These costs are not paid for by the user
– social costs are incurred as a result of external effects of the transport activity.

Private transport costs are made up of three main elements:

(i) Track costs – of providing and maintaining a surface over which transports services can
operate;

(ii) Running costs – the cost of purchasing, maintaining and operating a vehicle to run on the
track surface;

(iii) Interchange costs – the cost of providing facilities at the beginning and completion of a
journey.

The two broad category of transport costs are fixed costs (usually called by economists as
inescapable costs) and of variable costs (escapable costs).

Fixed Costs:
These are costs, which are incurred before any traffic at all passes.

They include the costs:

(i) Of providing the infrastructure (i.e., the roads, the port or the railway line);

(ii) Of providing, equipping and staffing the terminal facilities (i.e., bus depots, railway stations
or airports);

(iii) Of providing managerial, administrative and maintenance staff and their offices and
workshops.

These costs are inescapable because they cannot be avoided except by abandoning the whole
operation. They also do not vary with the level of traffic, but remain independent of it. A railway
signal-box of the old fashioned kind, controlling a short stretch of line, must be manned (and
thus incurs wage costs) whether there is one train or six trains per hour over the line.

Variable Costs:
These are costs incurred by the actual movement of traffic and therefore vary with the level of
the traffic passing. They include the cost of fuel, crew wages and the maintenance of vehicles
due to the operation of those vehicles in traffic service, for example the replacement of worn bus
tyres or routine inspection of an aircraft after so many hours airborne. They are called escapable
because they can be avoided or escaped by not running a particular train, suspending a particular
flight or a private motorist leaving his or her car in the garage and walking to the shops.

But there is one very important consideration, which complicates an otherwise simple concept.
In the very short run, to suspend the last bus on Saturday night will probably see only the fuel
and tyre wear, for even the driver will have to be paid the guaranteed minimum weekly wages.
Over a slightly longer period, all the drivers’ duties could be rearranged and perhaps one of them
gives notice.

In the medium run of several years, bus schedules could be redrawn and four new buses ordered
as replacements instead of five. In the long run the whole bus service could be closed down and
then all the costs previously regarded as fixed would become escapable. We must therefore talk
in terms of short-, medium- or long-term escapable costs and must remember that a short-term
inescapable cost may become escapable in the medium term.

Because of differences in the basic technology of the various transport modes, the proportion of
fixed (inescapable) and variable (escapable) costs in the total costs varies as between those
modes. For example, the railway is characterised by having a high proportion of fixed costs in its
total costs.

It has been calculated (Munby, 1968) that 44 per cent of railway costs are fixed and 56 per cent
variable. In contrast, road transport is characterised by a much lower proportion of fixed costs in
its total costs (which may of course be higher, equal to or lower than rail costs in a given
situation). On average 22 per cent of road haulage costs are fixed and 78 per cent variable. The
identification of fixed and variable costs for the main modes of transport is shown in Table 6.1.
The transport costs per unit varies with the increase in traffic, it falls off rapidly in case of rail
than road (Figure 6.1). If traffic is light, unit costs of rail are impossibly high, but if flows are
very heavy unit costs are greatly reduced and rail becomes very competitive.

All transport operation also gives rise to terminal costs (Figure 6.2). These are both fixed and
variable. The proportion of terminal costs in the total costs varies between modes. In road
haulage the terminal costs can be negligible. On the other hand, to send goods by rail may entail
conveying them by lorry from factory to goods depot, loading them into wagons and reversing
the process at the other end.
The transport costs are also proportional to distance, in other words, each additional unit of
distance added an equal increment of cost to total transportation costs as shown in Figure 6.3.

As a result of these varying cost characteristics, each transportation medium offers advantages
over different length of haul. Figure 6.4 depicts and idealized transport cost curves for three
transportation media.

Marginal and Average Costs:

Marginal cost is the additional cost incurred in order to produce one more unit of output.
Marginal cost may be incurred by carrying an extra passenger on a bus with seats to spare or
another tonne of goods on a half-empty lorry or of a wagon on a freight train. It may even mean
to allow 25 trains in a day instead of 20. Marginal costs are therefore time linked and it may be
of short-run or long-run nature.

Marginal costs do not represent constant additional to costs. Up to the capacity of the transport
unit (bus, aircraft, train, ship), any further increase in traffic incurs negligible marginal costs.
Then, there is a sharp increase at the point, where a second unit becomes necessary. Marginal
costs also vary between modes of transport.

Average costs are abstained by dividing the total costs of the operation by the work done,
expressed in terms of passenger-km, tonne-km or transport-unit-km. Average costs will of course
vary with output, for greater the product the more the fixed costs can be spread.

Step freight rates are often applied in case of railways. In such case, calculation of such rates
would have been by adopting grouping of rates, i.e., group a number of neighbouring railroad
stations together and treat them as a single station from a rate making of view. Thus, all the
stations in a single group would operate the same rate to any other group.

Transport Costs and Quality of Service:

Quality of service is of equal importance to cost of service, and in many cases users are prepared
to pay for quality. As Table 6.2 shows, the attributes of quality vary as between passengers and
freight.

Passenger looks for reliability above all, the likelihood that the service will fulfil the promise of
the time table. For urban bus passengers the most frustrating experience is to wait 15 minutes for
the next bus on a 5-minute service at the end of which time three buses come along together. For
short journeys frequency is important, as this reduces waiting time. Speed is important for the
businessman an he is prepared to pay higher fares for a faster service.
Conversely, for the student, money is important than time and he will be prepared (if he cannot
hitch) to go by motor coach, slower but cheaper than rail, at least before the introduction of
railcars. Comfort is another quality that passengers are prepared to pay for. To provide first-class
accommodation in trains and aircraft is more costly to the operator because fewer passengers can
be accommodated in a given space.

First-class fares are therefore higher, but some people are prepared to pay these. Obviously, two,
passengers demand safety and because of this pay higher fares, though they may not realise that
the higher the safety standard the higher the costs.

The freight shipper may be prepared to pay more for better quality service, as this may allow him
to reduce his total transport costs. Although rates for air cargo are higher than by surface routes,
it may pay the shipper to use the air, as the extra cost may be outweighed by the reduction in cost
of packing and insurance (due to greater freedom from pilferage and breakage) and the reduction
of the quantity of goods in transit due to greater speed. If the service reduction of the quantity of
goods in transit due to greater speed. If the service is reliable and frequent, warehouse charges
can be reduced or eliminated

Pricing:
The price of transport to the user is the other side of the coin from the cost to the producer of
providing the service. In the long run, of course, price must be related to cost so that revenue can
be related to expenditure, even if the revenue is made up by open or concealed subsidy. But in
the short run of the day or the week or in one direction of a two-way service, or on some
branches of a system this is by no means necessary. In fact, sometimes price is fixed irrespective
of cost.

This is because a transport service cannot be stored. Once created, the service is wasted if
unused. To run a 50-seater bus 20 km produces 1,000 seat-km. If only 10 passengers travel for
10 km, only 100 seat-km are sold and 900 seat-km are wasted yet the costs incurred are the same
as they would be if the bus were full.

Airlines are particularly concerned with this, the load factor, on which they base their fares.
Thus, a load factor of 50 per cent on a particular service means the airline can expect to sell half
the seat-km produced. Fares are therefore fixed to cover costs on the assumption that half the
seats as sold. To increase profitability, every effort must be made to fill the otherwise empty
capacity.
It may cost no more to provide a seat on a suburban train at 08.00, 14.00, 17.00 or 22.00 hours.
Suppose the cost per seat-km is 2p, the distance 20 km and an 80 per cent load factor is expected,
the cost per passenger would be 50p. At 08.00 hours and 17.00 hours large numbers want to
travel to and from work. It may be possible to charge them 60p without driving them on to
slower buses or to using their cars.

On the other hand, shoppers and the atregoers have to be enticed on to the 14.00 hours and 22.00
hours trains (which have to be run anyway) by charging them only 40p. The whole secret of
success in this form of fare manipulation is to maximise revenue. There is no point in raising
fares beyond the point that loss of passengers more than counteracts increased revenue from
those remaining; or to fix them so low that the extra passengers do not compensate for the
reduced revenue for each passenger. In practice, too, extra costs may be incurred by providing
peak-hour services.

Sometimes a different fare or rate may be charged for a service which costs the same to provide.
Thus, on almost any train you will find people with ordinary tickets, cheap-day returns,
concession tickets, season tickets and children with half-fare tickets. All these are in possession
of tickets based on different mileage rates, but are occupying seats which cost exactly the same
per kilometre to provide.

Economists refer to this as discriminatory charging. With careful manipulation, discriminatory

charging can ensure that revenue is maximised, but care must be taken lest too many people buy
tickets below the cost they would otherwise be willing to pay. In the middle 1960s the then
British European Airways introduced on their domestic flights very low standby fares. In theory
these would have led to the selling of a few extra seats above the expected normal load factor,
which, as we have seen would represent a clear profit.

In practice, too, many regular travellers, well aware of the usual loading of their planes, came for
standby tickets knowing they would be available. In contrast to charging different rates for a
similar service is the practice of charging the same rates for services with widely differing costs.

This system is known as cross-subsidisation. Many economists are much opposed to cross-
subsidisation as they consider prices should reflect cost difference. But some measures of cross-
subsidisation is necessary between various journeys on a single route or between routes on a
system. For the geographer it is necessary to bear cross-subsidisation in mind as an important
factor in shaping the physical layout of networks.
The principle of cross-subsidisation is an important practical aspect of transport pricing. As
distinct from subsidies, cross-subsidisation takes place from within a transport agency. In simple
terms, profits from viable services are used to offset losses on unremunerative routes. There are
numerous examples, which could be used to illustrate this principle. For railways, revenue on
inter-city routes provides a contribution towards the running of certain local and rural services.

Bus companies use revenue from busy urban routes to offset losses on rural services. Domestic
air travel in Britain is loss-making yet profits are made on European routes. These examples
therefore illustrate an important real-world consideration. In practice, therefore, the theoretical
ideal of marginal cost pricing is impossible to apply, yet it still remains as a basis for the pricing
policies of public sector transport agencies.

– Transportation Routing Decisions

What is routing in transportation?
Routing (also called route planning) can be defined as the process of creating the most cost-
effective route by minimizing distance or traveled time necessary to reach a set of planned
stops. ... Routing of goods and services incurs huge costs for vehicle operation, fuel, labor and
maintenance.

 Geocoding and accurate address detection- To automate sorting processes (primary &
secondary).
 Optimal fleet mix and route plan for the vehicles respecting business as well as local
constraints such as traffic, possible route restrictions, etc.
 Intelligent clubbing of orders based on properties such as preferred delivery time slots,
priority orders, location preference, and order specifications (weight, size, content, etc.).
 Control tower application to manage operational exceptions and predictive alerts on
delays, vehicle breakdowns, idle time, etc to improve both customer experience and
efficiency of delivery executives.
 Reducing turnaround time for the customer by optimizing first-mile operations,
locations of warehouses/distributer centers, reducing sorting times at fulfillment centers
and last-mile distribution centers.
 Predicting time windows of delivery for customers thereby increasing first attempt rates
and higher customer experience.
 Electronic proof of delivery (EPOD) for reducing friction with customers and
digitization of the processes.
 Fitting more deliveries in a day by minimizing driving hours with more efficient routes.

Unit V
Transit Operation Software

 Transportation Management Software

Reveal truly understands what it takes to manage even the most intricate aspects of a transit
operation. Every transit system is different; our intuitive transportation management software
platform is tailored to each agency’s individual workflows and needs and configured to deliver
the most efficient and cost-effective transit system possible.
From taking a reservation, to scheduling a trip in Workflow, to dispatching trips in real-time
based on up-to-the-minute trip and route performance, Reveal is an easy-to-use platform that
manages every aspect of a transit system. Plus, with specific tools to optimize run-cuts, develop
ideal driver bids, and equip staff with data to make the best business decisions possible, no other
transit technology platform allows for better operational performance.

Find out how our applications can help you reduce costs, increase productivity, and
improve passenger satisfaction with solutions that make transit simple.

 Demand Response System

 Improve Efficiencies and Customer Service
Reveal’s Demand Response System is one-of-a-kind, and was developed with the overwhelming
challenge of providing more with less--a challenge that transit agencies face each day. We
understand what it takes to manage a transit operation. Reveal prefers to be proactive in our
thinking and management capabilities, and has developed the management tools every agency
needs in order to proactively and proficiently manage costly expenses. We simply provide the
tools that solve transportation problems. We’re also excited to offer transit agencies technology
to help manage the latest transit trend: micro transit. Our platform can help manage niche micro
transit projects with app-based efficiency and transparency.

 Key Features
 Rider Registration
 Scheduling
 Mapping and Geo-Coding that Interacts with Google Maps
 Dispatch
 Comprehensive Reports and Dashboards

 Workflow
 Automate your processes and workflows
Through Workflow automation, Reveal establishes daily routines that allow transit agency staff
—from schedulers to operators to quality assurance—to successfully perform their duties.
Workflow is built into each job function to ensure data integrity, and includes the ability to track
the status of a task from start to finish. Each task has a defined flow from one staff member to
the next, enhancing each employee’s productivity and allowing the agency as a whole to more
efficiently enforce how work is handled.

 How does Workflow impact the way jobs are done?

  Driver Bids
 Control costs with efficiently managed bids
Reveal’s interactive driver bid application ensures accurate bids, controls costs, and allows
agencies to easily review what work has been compiled for each time of year, as well as holiday
schedules. The driver bid application interfaces with the run cutter application to ensure all runs
are accounted for when compiling bid information.

 Fixed Route
 Improving fixed route operations
Using tools that simplify complex tasks such as trip building, run-cutting, blocking, and creating
driver bids, our fixed route transit scheduling solutions improve the overall scheduling process.
Schedulers can take advantage of having greater flexibility and control when creating schedules,
using the interactive scheduling tool to decrease the time it takes to create schedules, reduce
mistakes, and improve route and driver efficiency.
Reveal’s fixed route tools also track the location of each vehicle in real time and proactively
communicate with dispatchers. Using GPS coordinates, Reveal automatically determines if
routes are running late, providing immediate notification to dispatchers. Additionally, through
passenger-facing mobile apps that utilize the same location data, passengers are able to check on
the location of their bus to quickly determine an accurate estimated time of arrival (ETA).

 Payroll
 Keep your overhead under control
With intelligent payroll tools that enable transit agencies to manage driver data more effectively,
Reveal can help control payroll costs. Through our Payroll application, agencies can establish
driver information and schedules, manage the process of clocking in and out, and interface
accurate driver hours to the agency’s payroll program. Inclusive of a dashboard that monitors
driver clock-ins and routes running behind due to late clock-ins, our Payroll applications allows
dispatchers to make the best decisions for excellent route performance.

 Run Cutter
 Optimize your operations at all times
The run-cut application analyzes historical trip information, as well as vehicles deployed in
service. The application provides the user with the information necessary based on passenger trip
performance, trip adherence, passenger no shows, and cancellations to develop quality run cuts
that optimize vehicle deployment, reduce excess vehicle capacity, improve on-time performance
during peak times, and reduce unnecessary dwell and slack time within routes.


 1.  Customers are booking and managing trips by themselves, leveraging interactive voice
response systems and near-universal access to mobile devices.
2.  With automated scheduling systems, reservationists are giving clear expectations to customers
for pick-up and drop-off windows at the point of reservation, rather than having to call each of
them when the manual scheduling is complete.
3.  Text messaging and on-the-way calling systems are reminding people of their trips and have
them ready when the vehicle arrives, reducing wait times and no-shows.
4.  Pre- and post-trip inspections are being done on tablet technology instead of on paper,
allowing for better visibility, record keeping, and communication between the office and
maintenance staff.
5.  Real-time automated dispatch support is allowing for the scheduling system to react quickly
to changes in service, making the dispatcher more effective in coordinating and delivering
service.
Asking the right questions to procure and configure automated transit software is a big decision
that can move your organization to the next level. It can leverage your existing resources and let
you focus on gains in other areas of your service.

– Benefits of Transportation Software

Benefits of Transportation Management System
 Cost-Efficiency Increased. Transportation is a prime cost aspect of logistics. ...
 Data Management Made Easy. ...
 Hi-End Technology Ensures Transparency. ...
 Standardization of The Process. ...
 Transportation Management System is the need of the hour.

BENEFITS OF IMPLEMENTING TRANSPORTATION MANAGEMENT SYSTEM

World trade volume is increasing day-to-day, with the increase in logistics and networks are
getting more complex. Most of the companies are transforming to a digital supply chain and
implementing the Transportation Management system as a part of it.
Transportation Management System (TMS) software helps organizations to move their freight
from the origin to destination point efficiently, with cost-effectiveness and consistency. With the
help of TMS, firms can increase the revenues-based process enforcements, optimizations, and
analytics. In this blog fruiSCE® TMS has listed the top five benefits of implementing and
effectiveness of transportation management system.

1. 1.Increased Customer Service:

Transportation Management Systems software gives reporting and analytics competencies that
help to examine the effects of business decisions on the logistics network.
In general, Logistics Managers choose the carrier with the list they have at that time. Managers
can filter based on cost, transit time, and insurance limits The software generates detailed reports
by comparing the list of carriers we have and gives the best carrier by analyzing cost, transit time
from the previous deliveries. This way, managers can choose the best carrier for the customer
without negotiating on customer service
2. Warehouse Efficiency:
The more usage of transportation management systems the more chance of decrease time on
freight management. If the transportation management system is integrated into other systems
like ERP and WMS, there will be a decrease in time spent on data entry and correcting mistakes.
If TMS is combined with WMS, you can get a clear supply chain visibility which helps to make
better-informed decisions by the management. 

3. New Delivery Capabilities:

A robust TMS offers the ability to optimize your shipping ways. If a logistic manager wants to
set up an inbound program within an organization among multiple locations,TMS increases
the overall efficiency and reduces the cost incurred. A transport management
system allows creating a master bill of lading with individual logins with multiple locations and
can be managed by a single person.
4. Inventory Reductions:
Transportation management systems make sure that customers are receiving their shipments on
time. This gives you more time to plan a better inventory as per the demand.
5. Cash Flow Improvements:
By having a proper transportation accounting through freight payment, auditing, and
consolidation services within TMS software, one can reduce 5 to 10 % of shipper payments and
2 to 5 % on total freight bill by reducing inaccurate charges and duplicate payments from an
outsourced provider.

– Advanced Fleet Management System

Fleet management is much more than just owning and operating a fleet. ... It utilizes advanced
technologies such as multiple sensor integration to get data on a number of vehicles and
derive meaningful insights from it, which can then be utilized in optimizing the fleet
operations.

 This is how technology is changing fleet management forever

It is only a few decades ago when fleet navigation relied heavily on paper maps. Paper maps
were a must and could be found in almost all vehicles from personal cars to commercial trucks.
Extinction of paper road maps could be counted as one of the best examples of technology and
how it has revolutionized the entire fleet management industry.

Technology is one of those wonders that has altered traditional modes of business across all
sectors, and fleet management remains no different. The arrival of cutting-edge technologies like
telematics, GPS navigation, and fleet management software has transformed how organizations
manage their fleet. According to a report by GEP a procurement consulting company, Telematics
systems were projected to be installed in approximately 75% to 80% of vehicles that were
manufactured in North America in 2016 and were termed as connected vehicles.

There is no debate that technology in the past twenty-five years has drastically changed vehicle
management and maintenance. The result of these technologies is reduced operation cost,
increased productivity, less manual work, more automation, healthier vehicles, satisfied
customers, and great profit margin.

Here are some of the ways how technology is revolutionizing fleet management:

 Navigation

Fleet tracking is one of the fastest-growing GPS navigation applications. GPS fleet tracking
helps fleet managers to locate fleet vehicles, plan and set up shortest routes and update drivers
with real-time driving directions. It also helps with anti-theft and accident tracking roadside
assistance, and tracking attendance of drivers.

 Remote Diagnostics

Using a combination of remote diagnostics and telematics, fleet managers can avoid any
unforeseen downtime and keep their fleet moving. This advanced fleet intelligence helps fleet
managers gain precise, real-time information on vehicle health, engine’s working condition, etc.
This cutting-edge fleet intelligence automatically corrects issues without the vehicle being driven
to a service location.

 Controlling Fuel Consumption

Technology like telematics is exceptionally increasing fleet efficiency. Telematics helps with
gathering fleet vehicle data on how drivers are driving the fleet. Data on too much acceleration
or speeding allows the fleet manager to make informed decisions about training drivers on
reducing fuel consumption by driving the vehicle at optimum speed. For example, Latium Feet
Management, a fleet consultant has helped clients in reducing their fleet’s fuel consumption by
10-15% annually.

 Greater Profit Margin

One of the most significant impacts of telematics is that it has improved with the reduction in
operational cost which in turn increased profit margin. This can be attributed to different factors
like telematics makes vehicles much safer, which leads to reduced insurance costs, greater
efficiency, lesser idle time, fuel consumption, among others. By using real-time data, fleet
managers can better manage supply and demand to create a higher profit margin. Latium Feet
Managementhas helped clients save an average of $1700 per fleet truck annuall
– Inter modal Freight Technology
Intermodal is the use of two modes of freight, such as truck and rail, to transport goods from
shipper to consignee. The intermodal process usually begins with a container being moved by a
truck to a rail, then back to a truck to complete the process.

 Technological Advancements In Intermodal Transportation

E-commerce, globalization, and the digital age have made technology an integrated part of the
shipping industry. The interconnected world makes continuous international movement of goods
now common practice; this in turn makes transloading a necessity and a standard of the 21st
century global marketplace.

Intermodal transportation has made moving freight over long distances more efficient and more
cost effective. When it’s done well, products get to the consumer with fewer errors and less cost
to all parties involved.

But for intermodal transportation to work well, the latest technology must be employed to ensure
that goods are safe and accounted for on each step of the journey. A few major technological
advancements are shaping the future of Intermodal transportation. Not only are these innovations
making it a safer and more logical way to move goods, but they are laying the groundwork for
the next generation of technologies.

 Transportation Management Systems

At any given time there are 34 million active containers worldwide. Everything makes its way
around the world in them. Vast intermodal freight transportation networks require smart shipping
to effectively manage and track movement.
Transportation Management Systems (TMS) are essential in making the entire process run
smoothly, tracking containers as they move from factories to ships to rail lines to trucks to
warehouses.
End-to-end supply chain visibility tools built into TMS platforms allow companies to be more
exact, to automate some aspects of the process, and to streamline others. In other words, this
technology allows us to virtually travel with shipments in relative real time which is increasingly
important as goods are moving across various modes of transportation.
Being able to know where products are every step of the way means that users are able to make
better decisions for their business’ and bottom lines. Having a strong and usable interface for
managing the data accrued over an intermodal process is essential. You are no longer required to
do the difficult work of gathering and organizing information from multiple sources: advanced
TMS does it all for you.

Accounting departments used to sweat the logistics of intermodal transportation; gathering

invoices, bills, rates and other information from a variety of sources was difficult work. But now
with the use of TMS information is easily pulled from various places into a single and easy to
use interface.

 Smartphone Apps

Smartphones are everywhere, and the power we now hold in these tiny devices revolutionizes
how we live. We are more connected than we’ve ever been and are able to do more from
wherever we are.
Apps are an important and growing technology used in shipping, and enable a Bring-Your-Own-
Device (BYOD) strategy to be applied in gathering data along the way. Apps are a platform that
allow workers, drivers, and shippers to use practically any device and to easily input, access, and
track important information.

Phones and tablets become the go-to devices used to capture documents, provide electronic point
of delivery confirmations, for GPS tracking, and more. Apps improve efficiency and provide
timely accurate data at low cost.

Not having to make any large investments in highly specialized hardware means a lower barrier
to entry for this technological advance. Portable devices are dependable, inexpensive, and if a
particular device goes down for any reason it is easily and quickly replaced.

 Container Tracking and Barcode Technology

Barcoding and RFID technology is used in tandem with smartphone apps, utilizing cameras and
scanners to read codes making it easier for workers to rapidly collect and upload information on
the fly. Track’n Trace technology is a powerful tool enabling users to pull the necessary
information from complex supply chains when and where they need it.

Data is sent into the cloud and then accessed remotely as needed through the user interface. The
use of barcoding combined with TMS simplifies the process of gathering information from
various sources and provides users with fresh data and notifications.
Barcodes and RFID technology are an important layer in the stack of technology making
intermodal transportation a strong, reliable, and preferred method for long hauls. Container
tracking and barcodes are facilitating the intermodal process and are making it more reliable than
ever.
 Environmental Data Collection

In 2013 food recalls hit an all time high. Recalls have a significant financial impact on suppliers
and manufacture, and a key factor in ensuring that foods are safe and maintain freshness is
temperature control.

The Drug Supply Chain Security Act (DSCSA) now requires manufacturers, repackagers,
wholesale distributors, dispensers, and third-party logistics providers to better monitor how drugs
travel to avoid environmental issues that can damage the pharmaceuticals enroute.
Stricter regulation of environmentally sensitive goods began in November 2014 and more will
continue to be phased in through 2023. The regulations focus on reporting and lot-level product
tracing, and require visibility into transaction information and history as shipments move through
the various links in the supply chain.

Advanced environmental sensors embedded in containers and warehouses are being used to
control and monitor materials as they make their way through various climates in order to
prevent loss. TMS can track information such as temperature, humidity, and shock levels
throughout the shipping process.
Devices connected to wireless networks deliver upto the minute information on key factors.
Remote modulation is then used to make changes from afar that can save cargo from damage due
to the elements.

 Technology and 3rd Party Logistics Management Success

Using a 3PL that employs the latest market technology is the key differentiator in logistic
management success. Transportation management systems, combined with apps that enable
quick and easy container tracking, smart data and remote modulation all come together to give us
a safe, affordable, and reliable way to meet the the needs of the current marketplace and to
strengthen supply chains.

– Transportation Security Initiatives

What is transportation security?
It also includes the various measures along the transport chain to maintain security, such
as cargo and passenger monitoring.

1.Physical security measures.

 Ensuring that the infrastructures, namely the modes and terminals, are secure in terms of
access.
 Employee security measures.

 2.Transport Security Measures

 Transpo
rt Security Measures

Implementing transportation security measures requires the following considerations:

 Procedural security measures. Ensuring that the introduction and removal of cargo from the
supply are recorded and can be verified. A similar process applies for passenger
transportation where for the manifest of conveyances such as airplanes and trains is monitored. It
also includes the various measures along the transport chain to maintain security, such as cargo
and passenger monitoring.

 Employee security measures. Ensuring that the personnel involved, from management to cargo
handling, have been screened and been subjected, depending on the sensitivity of the concerned
transportation modes, to background checks.

 Information systems security measures. Since the data involved in the management of supply
chain has a commercial value, it is important that the information and telecommunication
systems are secure. Additionally, a tier access structure to the information must be established
based upon which information is relevant to whom.

How can we improve transportation security?

4 Security Technologies That Can Improve Transportation Security
1. Vehicle Undercarriage Scanners. Security experts agree that scanning the undercarriage of road
vehicles is essential in proper security protocols. ...
2. Train Undercarriage Scanners. ...
3. License Plate Analytics. ...
4. Improving Security With Gatekeeper

While issues of safety and security have preoccupied transport planners and managers for many years, it
is only recently that physical security has become an overriding issue. Over this, an important nuance
must be provided between criminal activities and terrorism. While both seek to exploit the security
weaknesses of transportation, they do so for very different reasons.

Terrorism is a symbolic activity seeking forms of destruction and disruption to coerce a political,
ideological, or religious agenda. In this context, transportation is mostly a target.

Criminal activities are seeking an economic return from illegal transactions such as drugs, weapons,
piracy, and illegal immigration. In this context, transportation is mostly a vector for illicit transactions.
Concerns were already being raised in the past. Still, the tragic events of 9/11 thrust the issue of physical
security into the public domain as never before and set in motion responses that have re-shaped
transportation in unforeseen ways.

In addition, threats to health, such as the spread of pandemics, present significant challenges to transport
planning and operations.

As locations where passengers and freight are assembled and dispersed, terminals have particularly been
a focus of concern about security and safety. Because railway stations and airports are some of the most
densely populated sites anywhere, crowd control and safety have been issues that have preoccupied
managers for a long time. Access is monitored and controlled, and movements are channeled along
pathways that provide safe access to and from platforms and gates.

In the freight industry, security concerns have been directed into two areas: worker safety and theft.
Traditionally, freight terminals have been dangerous workplaces. With heavy goods being moved around
yards and loaded onto vehicles using large mobile machines or manually, accidents were systemic.
Significant improvements have been made over the years, through worker education and better
organization of operations, but freight terminals are still comparatively hazardous.

The issue of theft has been one of the most severe problems confronting all types of freight terminals,
especially where high-value goods are being handled. Docks have particularly been seen as places where
organized crime has established control over local labor unions. Over the years, access to freight
terminals has been increasingly restricted, and the deployment of security personnel has helped control
thefts somewhat.

The most visible emerging form of security threat is cyber security to which transportation
infrastructures and organizations are particularly vulnerable. The growth in the use of information
technologies and their associated networks have opened new forms of vulnerability as control and
management systems can be remotely accessed.


Trans
port Security Dimensions
 T
ransport Security Measures

The foundation of transport security includes several dimensions and potential measures:

 Dimensions. Particularly concerning the integrity of the passengers or cargo, the route, and the
information systems (IT security) managing the transport chain.
 Measures. The set of procedures that can be implemented to maintain the integrity of the passengers or
cargo, namely inspections, the security of facilities and personnel, as well as of the data and the
supporting information systems.

The expected outcomes of these measures include:

 Reduced risk of travel or trade disruptions in response to security threats.

 Improved security against theft and diversion of cargo, with reductions in direct losses (cargo and
sometimes the vehicle) and indirect costs (e.g. higher insurance premiums).
 Improved security against illegal transport of passengers and goods such as counterfeits, narcotics and
weapons, and of persons.
 Improved reliance on the information systems supporting the complex transactions generated by
transport activities.
 Reduced risk of evasion of duties and taxes.
 Increased confidence in the international trading system by current and potential shippers of goods.
 Improved screening process (cost and time) and simplified procedures.

Still, despite the qualitative benefits, the setting and implementation of security measures come at a
cost that must be assumed by the shippers and eventually by the consumers or by the passengers. It has
been estimated that an increase of 1% in the costs of trading internationally would cause a decrease in
trade flows in the range of 2 to 3%. Therefore, security-based measures could increase total costs between
1% and 3%, having a negative impact on international trade. Additionally, the impacts are not uniformly
assumed as developing economies, particularly export-oriented economies, tend to have higher transport
costs. A major goal is, therefore, to comply with security measures in the most cost-effective way.

 Physical Security of Passengers

Airports have been the focus of security concerns for many decades. High-jacking aircraft came to the
fore in the 1970s, when terrorist groups in the Middle East exploited the lack of security to commandeer
planes for ransom and publicity. Refugees fleeing dictatorships also found taking over aircraft a possible
route to freedom. In response, the airline industry and the international regulatory body, ICAO,
established screening procedures for passengers and luggage. This process seems to have worked in the
short run at least, with reductions in hijackings. However, terrorists changed their tactics by placing
bombs in un-accompanied luggage and packages, as for example in the Air India crash off Ireland in 1985
and the Lockerbie, Scotland, the crash of Pan Am 103 in 1988. Still, air travel remains the safest
transportation mode with fatalities steadily decreasing over the years.

The growth in passenger traffic and the development of the hub and spoke networks placed a great deal of
strain on the security process. There were wide disparities in the effectiveness of passenger
screening at different airports, and because passengers were being routed by hubs, the number of
passengers in transit through the hub airports grew significantly. Concerns were being raised, but the
costs of improving screening and the need to process ever-larger numbers of passengers and maintain
flight schedules caused most carriers to oppose tighter security measures.

The situation was changed irrevocably by the events of September 11, 2001. The US government created
the Department of Homeland Security, which in turn established a Transportation Security Authority
(TSA) to oversee the imposition of strict new security measures on the industry. Security can now
account for between 20 and 30% of the operating costs of an airport. Security involves many steps, from
restricting access to airport facilities, fortifying cockpits, the setting of no-fly lists, to the more extensive
security screening of passengers and their luggage. Screening includes restrictions on what can be
personally carried in airplanes such as gels and liquids. For foreign nationals, inspection employs
biometric identification, which at present involves checking fingerprints, but in the future may include
retinal scans and facial pattern recognition.

and Role of Technology.

Innovations in transportation technology are essentially born out of three necessities: efficiency,
ease and safety. Scientists and transportation industry professionals work side-by-side to ensure
that these new technologies get more people (or things) to their destination faster, safer and with
the fewest amount of resources possible. For example, this is why we’ve seen a shift away from
coal-powered trains towards ultra-fast bullet trains, luxurious aircrafts to budget-friendly, cost-
saving models and a switch from gas guzzling vehicles to 100% electric cars.

As technologies like AI, data science, manufacturing and deep learning become more advanced,
so too will vehicles themselves. These fields act as the backbone for everything from
autonomous vehicles to aerospace travel, and even function as the basis for transportation
platforms like Uber and Lyft. Because of the enormous potential these technologies hold,
transportation technology has become one of the fastest-growing and highly-contested fields in
 the world. Thousands of startups are racing to create the “next big thing” in the world of
transportation

Transportation technology is in the midst of a revolution. New technologies are improving

the efficiency of existing transportation methods, while new inventions are poised to entirely
reshape the way we move.
Five technologies have risen to the forefront of the latest transportation revolution.

 The Internet of Things

The Internet of Things assumes that all people and items can be connected through networks.
These vast connected networks could potentially influence many aspects of our daily driving:

 Route Planning — Sensors in the vehicle communicate with GPS services to determine the best
route, which is then displayed on a head-up display that physically directs the driver along route.
 Accident Prevention — Sensors alert drivers to the position of other vehicles on the road and
prevent collisions. The cars can even override driver controls to avoid an accident.
 Safety — A series of sensors in the seat belt can track the driver’s physiological indicators and
determine whether the driver is fatigued or intoxicated. If the driver fails any of the tests
performed by the sensors, the vehicle becomes inoperable.
 Autonomous Cars

The advent of self-driving driving cars such as the Google car and Telsa are making the idea of
autonomous cars a reality. Several, states across the country have begun passing laws to regulate
the technology and encourage its development. However, the safety and public acceptance of
these autonomous vehicles have been a question of public interest and concern. Moreover, a
series of accidents in the summer of 2016 increased the debate about the safety of autonomous
vehicles.

With continued research and development, autonomous car technology will likely become a
safer alternative to human drivers, with additional economic and environmental benefits.
Removing human control from the vehicle will potentially help cars reach their designed fuel
economy, leading to less gas consumption and reduced cost of vehicle ownership.

 Lightweight Vehicle Materials

Automobile manufacturers are under increasing pressure to deliver vehicles with high
performance and excellent efficiency. Studies have shown that reducing the weight of the vehicle
by as little as 10% can improve fuel economy by 6% or more. The federal government estimates
that if just 25% of cars used lighter-weight materials, the country would consume 5 billion fewer
gallons of gas each year by 2030.
The focus of lightweight materials research is to move away from cast iron and steel. The
leading candidates to replace these metals in the near future are magnesium-aluminum alloys and
carbon fiber construction. However, questions still exist about whether the materials can hold up
under the forces of highway accidents, and whether manufacturers will be able to produce
lightweight materials at a low enough cost for automakers.

 On-Demand Ride Services

Less than two years ago, Uber and Lyft dramatically changed the way people in large cities find
transportation. With an app, riders can summon a vehicle to their location, any time they want it.
The services have already eroded the profits of cab companies and decreased DUI rates in many
cities.

While on-demand ride services are a hit with riders, there are serious legal and ethical questions
that are causing governments to re-evaluate authorization for Uber and Lyft to work in their
jurisdictions. The primary concern is that Uber and Lyft drivers are considered contract earners
and not employees, leaving them with the burden of income tax but few benefits. On the other
hand, safer roads and greater flexibility are attractive for riders.

 Hyperloop

The most ambitious of all of the technologies changing transportation is SpaceX’s Hyperloop.
The concept is a pneumatic tube that uses a series of linear induction motors and compressors to
propel vehicles at super-fast speeds. The first proposed Hyperloop would connect Los Angeles
and San Francisco and allow passengers to complete the 350-mile trip in just more than half an
hour.
Time will tell if the Hyperloop’s technology will be the future of long-distance travel in the
United States. As an emerging technology, the initial cost is astronomical, with estimates of the
first line placed at more than $6 billion. however, the project’s private funding limits the impact
on government spending.
New technologies have caused a fundamental shift in the way people see transportation. Minor
changes to existing methods of transportation could have a considerable impact in the near
future, while the introduction of completely new technology, like the Hyperloop, might usher in
a new transportation revolution.

THE END
WISH YOU ALL GOOD LUCK