2. Competitive Considerations

The selection of a transport mode may be used to create a competitive service advan­tage. When a buyer in a supply channel purchases goods from more than one sup­plier, the logistics service offered, as well as price, influences supplier selection. Conversely, if the suppliers select the transport mode to be used in their respective channels, they can control this particular element of the logistics service offering and thus influence the buyer's patronage. To the buyer, better transport service (lower transit time and transit-time variability) means that lower inventory levels can be maintained and/or operating schedules can be met with greater certainty. In order to encourage choice of the most desirable transport service, and thereby lower its costs, the buyer offers to the supplier the only thing that it can —patronage. The buyer's action may be to shift its share of purchases toward the supplier offering the pre­ferred transport service. The profit from this increased business may defray the cost associated with a more premium transport service and encourage a supplier to seek the transport service that is appealing to the buyer rather than simply the one offer­ing the lowest cost.

When there is choice among supply sources in the distribution channel, trans­port service selection becomes a joint decision between supplier and buyer. The supplier competes for the buyer's patronage through the transport mode choice. A rational buyer responds to the choice by offering the supplier more business. How much more business a buyer should offer depends on the transport service differen­tial created among competing suppliers. For a supplier to settle on a single transport service is difficult in a dynamic, competitive environment where suppliers can offer services to counter those of competing suppliers, and the relationship between trans­port service choice and the degree of patronage potentially offered by buyers is hard to estimate. A simple example is shown where there are no service countermoves made by a competing supplier, and the extent to which purchases are shifted to the supplier with the more favorable transport service is known.

Exercises.

1)Answer the questions.

1. Why is transportation so important for logistics?

2. What factors should a logistician take into account when taking transportation decisions?

3. How may a transport mode be selected?

4. What can you say about transportation scheduling?

5. Why is transport service selection a joint decision of a buyer and a supplier?

2)Make word combinations.

1. competing	a) choice
2. transport	b) cost
3. joint	c) levels
4. supply	d) supplier
5. transport mode	e) off
6. the lowest	f) advantage
7. inventory	g) scheduling
8. air	h) cost
9. trade	i) service
10. competitive	j) objectives
11. production	k) transport
12. indirect	l) time
13. to meet	m) decision
14. transit	n) sources

Part 2. Vehicle Routing.

Because transportation costs typically range between one-third and two-thirds of total logistics costs, improving efficiency through the maximum utilization of trans­portation equipment and personnel is a major concern. The length of time that goods are in transit reflects on the number of shipments that can be made with a vehicle within a given period and on the total transportation costs for all shipments. To reduce transportation costs and to improve customer service, finding the best paths that a vehicle should follow through a network of roads, rail lines, shipping lanes, or air navigational routes that will minimize time or distance is a frequent decision problem.

Although there are many variations of routing problems, we can reduce them to a few basic types. There is the problem of finding a path through a network where the origin point is different from the destination point. There is a similar problem where there are multiple origin and destination points. Moreover, there is the prob­lem of routing when origin and destination points are the same. Consider how each type might be solved.