From an economic perspective, the transportation cost is considered to be the cost that is associated with the per unit of distance that is measured between the consumer and the production site, which is actually added to the good (McAuliffe, 1999). It is among the elements of the “total cost concept” which is considered by management when planning related to logistics as it is considered to be important for the different decisions made with regard to the goods and facilities (Blauwens, de Baere, & van de Voorde, 2007).
Where the cost of transportation becomes lower, then there is the substantially the same effect produced when one moves the goods closer to the consumers or where it is picked up by the clients (Klages, 2007). In consideration of the transportation costs for Canbides, it is seen that it is necessary to cosnider the factors of production capacity, monthly demands, and shipping costs from the three production locations, transfer facilities, and the four warehouses.
In computing for the most efficient transportation route, these factors have been considered and it is found that there are two routes which can be used in order to deliver the goods from the different production facilities to the respective warehouses in the different areas. In the route drawn below, there are two options which are deemed to be the most efficient and the most cost-effective. The letters P means production facility, T means transfer facility, and W means warehouse.
The cost associated with P2 to W2 is $25130, P3 to W2 is $19770, P1 to W1 is $39350, P1 to W2 is $25615, and P1 to W4 is $83,820. The costs for this are taken by multiplying the number of truckloads with that of the number of trucks that are to be sent from one point to another. While there may be transfers which take place, the goal of attaining a low cost is achieved through this and the company is ensured that the transportation costs are at its lowest that ensure that resources are not wasted for logistical purposes.
Indeed, the use of transfer points is necessary because it allows for the products of the different production facilities to be lumped together and shipped to the different warehouses that would allow for the production facilities to enjoy the lower rates which are availed of by one production facility in using a transfer point. More so, there are instances where the transfer points provide lower transportation costs when the goods are shipped through it compared to the instances where the goods are directly sent from the production facilities to the sites.
Thus, the transfer points are indeed one way for the production facilities to be able to cut their transportation costs. This may also be the result of the varying costs of fuel and other associated expenses from different states and counties. Thus, it sometimes becomes better to simply send the goods from one transfer point to another than to directly ship it from the production facility and take the long travel from there to another warehouse without stopping by the transfer points.
In conclusion, there are two routes which are found to be cost-effective and the use of the transfer points are considered to be important in this case because of the impact it has on the costs and the ability of production facilities to lump their goods together.
Blauwens, G. , de Baere, P. , & van de Voorde, E. (2007). Transportation economics (2nd Ed. ). Antwerpen: Uitgeverij De Boeck Klages, K. (2007). Ecological crop geography. New York: Macmillan Company. McAuliffe, R. (1999). The Blackwell encyclopedic dictionary of managerial economics. Malden, MA: Blackwell Publishers, Inc.