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Inventory and Transportation Management

Inventory is considered to be the second major component of logistics. The risks related to holding inventory increase with the movement of products down the supply chain in the direction of the customer. The cost of carrying inventory is influenced by the cost of the capital tied up in the inventory. Inventory management is a major element of a logistical strategy that is integrated to achieve service goals, to gain appropriate service level through increasing inventory, using fast transportation, collaboration with customers and service providers to reduce uncertainty.

Inventory management is the process of implementing inventory policy. The reactive or pull inventory approach uses customer demand to pull product through a distribution channel. The planning approach allocates inventory based on forecasted demand and product availability.

Another visible element of logistics is transportation. Transpor­tation enterprises provide two major kinds of services: product movement and product storage.

The basic task of transportation is to move inventory to the next stage of a business process despite the state of this inventory (raw material, components, work-in-process, finished goods). The process of transportation facilitates commercial activity and consumes time and financial resources. Product storage is less visible but not less important than its movement. Vehicles can also be used as a place for storage of inventories, however, rather expensive one. Warehouse is not so expensive way of storing goods. Diversion is the other form of temporary product storage. It occurs when in the process of transportation the destination of shipment is changed.

The transportation environment impacts the range of decisions to be implemented in logistical system. These decisions are influenced by six transport participants: shipper, destination party (consignee), carriers and agents, government, the Internet and the public. The freight transportation structure involves routes, vehicles and carriers that operate within five basic transportation modes. A mode stands for the main transportation method or form. These modes are: rail, highway, water, pipeline and air.

Transportation management is the set of activities ensuring proper arrangement for an inventory to be moved in a timely and economical manner. It includes responsibilities of determining whether transportation services should be performed using private capacity or for-hire specialists, decisions concerning in- and outsourcing, operational expectations, etc.

To understand effective logistic strategy properly, we should cover the four main points of transportation economics: the factors that drive transport cost, the cost classifications, carrier pricing strategy and transportation rates and ratings.

The main economic drivers for transportation costs are: distance that directly contributes to labour, fuel and maintenance expenses; volume presupposing load volume that forces transportation manager to consolidate small loads into larger loads; product density, a combination of weight and volume, that is important since transportation cost for any movement is quoted in a unit of currency per a unit of weight; storability referring to how product case dimensions fit into transportation equipment; handling equipment necessary for loading and unloading trucks, railcars or ships; liability involving product characteristics that may result in damage and making carriers be financially responsible for losses; marketing representing lane volume and balance influence transportation cost.

Cost classification (structure) falls into fixed, joint and common costs. Fixed costs are expenses that do not change in a period of time and must be serviced even if a company does not operate. Joint costs are expenses unavoidably created by a decision to provide a particular service. Common costs are terminal and management expenses and are characterized as overhead.

Carriers pricing strategies involve cost-of-service strategy, value-of-service strategy, combination pricing strategy and net-rate pricing strategy.

Performance of a transportation service demands well-organized documentation. Its primary purpose is to protect the interest of all parties involved in a transaction. The basic documents are the bill of lading, the freight bill and shipment manifest. The bill of lading is the document used in purchasing transport services. It helps to register products and quantities shipped. This receipt serves as a basis for a claim in the case of damage or loss. A carrier is obliged to follow the instructions in this document. The freight bill represents a carrier's method of charging for transportation services performed. Shipment manifest goes through individual stops or consignees when multiple shipments are placed on a single vehicle. Its goal is to provide a single document defining contents of the load.

Thus, we may consider inventory and transportation mana­gement to be the major procedures held in business to make logistical process sound and transparent.