Reading material

IT 1.0.- Transport as a value-added tool

The purpose of transport is to add value to production and distribution. Depending upon the markets and
the value chains they are servicing, transport services can be differentiated according to criteria such as
costs, time reliability and risk. Efficient transport contributes to added-value in four major interrelated ways:

1. Production costs. Derived from the improved efficiency of manufacturing with appropriate
shipment size, packaging and inventory levels. Thus, transport services contribute to the reduction
of production costs by streamlining the supply chain.
2. Location. Transport services adds value by taking better advantage of various locations, implying
access to expanded markets (more customers) and lower distribution costs.
3. Time. Added value derived from having goods and services available when required along the
supply chain (e.g. lower lead times) with better inventory and transportation management.
4. Control. Added value derived from controlling most, if not all, the stages along the supply chain,
from production to distribution. By better synchronizing cycles and lead times, logistics enables
better marketing and demand response, thus anticipating flows and allocating distribution
resources accordingly.

A variety of factors are jointly shaping the configuration of supply chains:

• Transport costs. Considers the full array of costs to make products available to the final consumer.
Supply chain managers are particularly sensitive to the stability of the cost structure (consistent
costs) implying that routes having cost fluctuations may be discarded in favor to routes of a higher
cost, but with less volatility. Costs are therefore standard criteria where the cheapest routing
option is sought, as long as the cost structure remains stable as supply chains are unlikely to be
modified if a cost advantage is only temporary. The concept of cost is relative since its importance
is in relation to the value of the cargo being carried. Cost considerations tend to concern more
containerized goods that have a low value, such as commodities (e.g. paper) than high value goods
(e.g. electronics).
• Transit time. A factor that is increasingly being considered since it strongly influence inventory
carrying costs and inventory cycle time in supply chain management. So, for cargo that has a higher
value (clothing) or is perishable (reefers) the routing option that is the fastest and/or shortest will
be preferred.
• Reliability. Relates to a factor that is mitigated by contemporary supply chain management
practices. For several supply chains, time can be a secondary factor as long as shipments arrive at
the distribution center within an expected time frame. If shipments are regular and that this
reliability remains consistent, it is possible to organize supply chains accordingly by having more
inventory in transit.
• Supply chain risk. Relates to a factor that is generally imponderable and generally involving the
level of confidence that the shipment will reach its final destination within expected costs, time and
reliability considerations. In some cases, risk can also involve potential cargo damage or theft. Low
risks routes are obviously preferred over higher risk routes.