The Role of Logistics and Transportation Sector Essay Example
The Role of Logistics and Transportation Sector Essay Example

The Role of Logistics and Transportation Sector Essay Example

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  • Pages: 13 (3525 words)
  • Published: April 28, 2017
  • Type: Research Paper
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CULS TABLE OF CONTENTS

Introduction

In order to promote such global logistic networks, which are also compatible with sustainability objectives, governments need to develop and implement cohesive transport policies both individually and collectively. New strategic uses of logistics will continually alter the nature and culture of operations in companies; governments will have to match these changes. However, it is important for governments to fully understand the concepts of logistics and to stimulate economic competitiveness to achieve positive economic development.

At the same time, governments need to reduce any negative impacts, so as to achieve a more balanced approach to economic growth, including sustainable development. This report discuss the importance of logistics and transportation sector in the global world economy for the economic development process; identifies the major contributions of logistics and transportation to economic development with the referen

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ce to specific examples; makes an overview of provision of logistics infrastructure. The importance of logistics and transportation in the world.

The term logistics means -“the process of planning, implementing and controlling the efficient flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements. ”  Logistics has been called by many names, including the following: Business logistics, Channel management, Distribution, Industrial logistics, Logistical management, Materials management, Physical distribution, Quick-response systems, Supply chain management, Supply management.

What these terms have in common is that they deal with the management of the flow of goods or materials from point of origin to point of consumption, and in some cases, even to the point of disposal. The Council of Logistics Management (CLM), one of the leading professional organizations for logistics personnel,

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uses the term in logistics management to describe: the process of planning, implementing and controlling the effective flow and storage of goods, services, and related information from point of customers’ consumption requirements.

This definition includes the flow of materials and services in both the manufacturing and service sectors. The service sector includes entities such as the government, hospitals, hanks, retailers and wholesalers. In addition, disposal, recycling, and reuse of the products need to the considered because logistics is becoming increasingly responsible for issues such as removing packaging materials once a product is delivered and removing old equipment.

Logistics is relevant to all enterprises, including government, institutions such as hospitals and schools, and service organizations such as retailers, banks, and financial organizations. Some of the many activities encompassed under the logistics umbrella, which illustrates that logistics depends upon natural, human, financial, and information resources for input. Suppliers provide raw materials which logistics manage in the form of raw materials, in-process inventory and finished goods. Management actions provide the framework for logistics activities through the process of planning, implementation, and control.

The outputs of the logistics system are a competitive advantage, time and place utility, efficient movement to the customer, and providing a logistics service mix such that logistics becomes a proprietary asset of the organization. The logistics market place is one of major opportunity. The globalization that is a by-product of extensive use of the Internet has increased the need for a flexible logistics infrastructure to support a global supply chain, enabling the movement of goods from a growing number of source locations to meet market demand.

Supply chain costs are significant. According to a report on the Third Party

Logistics market place, (conducted by Piper Jaffray Research, dated January 1999) supply chain logistics costs in 1997 were an estimated $862 billion in the US alone –global logistics costs estimated at $3. 4 trillion annually. Depending on industry sector, supply chain logistics costs account from 5% to 50% of a product’s delivered cost. As such, supply chain management has been raising in strategic importance, providing an area of potential strategic advantage for global players.

A study performed by Pittiglio Rabin Todd & McGrath (PRTM) found that best-practice supply chain management companies had associated costs that were approximately 50% less than the median company within their industry. In addition, it is estimated that world-class supply chains hold up to 50% less inventory in their distribution channels. This is significant – not only is it possible to reduce inventory holding costs, a responsive supply chain will facilitate reduced ‘time to market’ – a strategy that has resulted in market growth for organizations like Dell Computers. Major channel drivers

The key players in the logistics arena are inter-related and are impacted by the same business drivers: ? Need to provide enhanced customer service capabilities, to include web-based order entry as well as real time order and shipment visibility ? Increased competition through Internet access, with associated price pressure. ?         Need to provide business to business e-commerce with key supply chain partners ? Need to integrate all supply chain partners – no matter how small ?         Integration of supply chain data into ERP (Enterprise Resource Planning) systems to drive business process

Competitive global marketplace of logistics and transportation The days of single companies designing a product from scratch, building that product and then selling

it in the marketplace themselves are all but over. In today's day and age, this process is simply much too expensive for companies to do and stay competitive. In the present day, companies are coming up with the design and outsourcing different parts of the manufacturing process all over the world. American companies have suppliers everywhere from Detroit to Pakistan. Companies ship, assemble and sell products all over the world.

This recent globalization of the economy has made it necessary for companies to completely revise their logistical systems allowing them to compete in an environment like this. Companies no longer have the option of buying a part from the factory down the street, because it's easier than figuring out a way to fly it in cheaper from across the country or overseas. The marketplace is so competitive that companies have to acquire parts as cheaply as possible. They have to find efficient ways to acquire parts that are located thousands and thousands of miles from their own location.

They have to find ways to get these products in the correct condition and on time so that they can assemble products that are high quality and that meet deadlines for their customers. Customers will no longer settle for products that are late and that don't meet specifications. They'll simply go somewhere else and get their needs fulfilled. The new demands of the global marketplace have caused incredible pressures on antiquated logistical systems of American companies. The improvements needed in American logistical systems in order to compete in the more competitive global marketplace are numerous.

First, the methods that companies use to transport materials and parts from factory to factory

need to become more flexible and organized. If a company finds a supplier that will give them a part cheaper than the existing one, then the company has to be ready to switch suppliers at a moment's notice. In many cases up to this point, companies have simply chosen to continue to use the inferior part because getting the product from a different supplier in a different location has been too hard or too expensive. If American companies want to compete in the global marketplace then this is simply not acceptable.

When a company is presented with an opportunity like this, they have to embrace it and be able to make the transition seamlessly. Having a logistical system that is reliable and flexible can make this happen. If a company's logistics system is efficient than they should be able to handle the nominal extra shipping cost with little difficulty. Even though they might have to add another vehicle to get the parts, they should be able to adjust other routes to decrease the cost. This is what other more competitive companies are doing and this is why they are succeeding in the global marketplace while American companies are failing.

Logistics in the global marketplace is a lot different than logistics in the domestic market and since the economy is becoming a global economy if many American companies don't want to become obsolete they will have to change the way they do things. Logistics contribution to the economy. Economic developments in recent years have led to the creation of complex company networks and systems of goods flow - in the process, the globalization of procurement, production, and sales,

as well as the division of labor, have increased.

In addition, the complexity of international logistics systems in many sectors has grown as a result of increasing product variations and differentiation. Another factor is that many companies are concentrating on their core skills and are reducing their vertical integration. The efficient management of the resulting global flows of goods has boosted both the business and economic significance of logistics. Logistics plays a key role in the economy in two significant ways. First, logistics is one of the major expenditures for businesses, thereby affecting and being affected by other economic activities.

In the United States, for example, logistics contributed approximately 10. 1 percent of GDI in 2007. U. S. industry spent approximately $507 billion on transportation of freight and about $84 billion on warehousing, storage and carrying inventory. These and other logistics expenses added up to about $1033 billion. Second, logistics supports the movement and flow of many economic transactions; it is an important activity in facilitating the sale of virtually all goods and services. To understand this role from a systems perspective, it can be considered that if goods do not arrive on time, ustomers cannot buy them. If goods do not arrive in the proper place, or in the proper condition, no sale can be made. Thus, all economic activity throughout the supply chain will suffer. One of the fundamental ways that logistics adds value is by creating utility. From an economic standpoint, utility represents the value or usefulness that an item or service has in fulfilling a want or need. There are four types of utility: form, possession, time, and place. The latter two, time

and place utility, are intimately supported by logistics.

While form and possession utility are not specifically related to logistics, neither would be possible without getting the right items needed for consumption or production to the right place at the right time and in the right condition at the right cost. The microeconomic significance of logistics can be clearly shown by the logistics market in Germany. Driven in particular by the European Union’s eastern enlargement, logistics has steadily grown in recent years, particularly in Germany. Among business sectors, the logistics market in Germany ranks third, behind the automotive industry and health care.

In 2006, revenue totaled €170 billion. A total of 2. 5 million people were employed by logistics service providers as well as industrial and trade companies. The traditional logistics sectors of transport, storage and transshipping generated the largest share of overall logistics revenue. In addition to logistics service providers and the internal logistics operations of industrial and trade companies, the macroeconomic impact of logistics extends to the logistics supplier sector. Supply products include vehicle, conveyor, and warehouse technology, IT systems, property, operating materials, fuel and related services.

Together with these supplier products, the macroeconomic impact of logistics totals €240 billion and 3 million employees. If logistics-dependent employment in other business areas, e. g. , in transport infrastructure and construction, is considered, an additional 1. 6 million are added to the total The close relationship between economic growth and logistics Mobility is a critical condition for gains to be achieved in productivity, growth and employment in a macroeconomic context. The connection between economic growth and demand for product-transporting services is the result of various effects.

These effects can clearly

show the growing significance of the economic sector of goods distribution: The effect of goods volume For a long time, it was assumed that in highly developed economies fewer and fewer quantities of goods were produced for the macro logistics system and that the transport volume rose at a slower pace than the economy. Today, it can be assumed that the development actually goes in the opposite direction as a result of the increasing inter-company division of labor created by intensified outsourcing in some highly developed countries.

Transport intensity - that is, transport performance per production quantity unit - increases for many types of goods. Individual parts or components of a product are transported numerous times during various stages of the value chain, e. g. , transports between plants . The effect of goods structure In highly developed economies, the number of high-quality consumer and production goods rises. The share of mass goods, on the other hand, stagnates or even falls. The distribution of goods then shifts to high-quality products that must be shipped quickly.

Because of the relatively low costs, road transports Road transport generally benefit. Railroads and inland water transports generally suffer because of their low speed. The effect of logistics Logistics systems constantly undergo optimization. Supply chain management, production-synchronization deliveries that employ just-in-time concepts, the forgoing of storage and global outsourcing are just a few examples of this. But the application of modern logistics concepts affects the economic sector of goods distribution.

This is because the new logistics focus of industrial and trade companies has altered the demands placed on the goods-distribution system. Road transports can react relatively flexibly and well to these demands. Railroads

and inland water transports have a difficult time making this switch. At the same time, air-freight transports profit from time-critical shipments. The effect of integration The creation of large economic regions gives rise to international, cross-border logistics systems. For instance, the European Union and egulations from the World Trade Organization (WTO) have propelled Globalization in the goods-distribution sector. As economic regions spread, cross-border trade expands, and the distances that must be covered by logistics systems lengthen. The effect of integration describes the increasing demands placed on the economic sector of goods distribution that are arising from the creation of larger economic regions and cross-border logistics systems. Share of logistics costs in gross domestic product of European Countries Logistics and internationalization Nowadays the process of internationalization and globalization is unstoppable.

The growth of Internet trading and e-commerce, as well, demands a fast delivery reaction. Therefore, a strong need in modifying logistic systems has occurred. First of all, the internationalization of transport activities requires co-ordinated rule. Secondly, the whole transportation system needs outstanding financing, deliverers demand new facilities etc. To continue with, companies look for a short or just-in-time delivery sources. These trends form up rapid changes in supply chain functions and demands. It is obvious that existing roads, rails, ports, etc. are under great pressure.

In that case, infrastructure changes are essentially needed. And the most important part is that all these changes require lots and lots of investments in order to comply with new regulations. “Logistics is the sector on which the global economy will increasingly rely. It also means that logistics will no longer be a mere facilitator of economic growth, but will increasingly drive the

direction of economic development”. To match all the requirements, logistics sector needs new financing and operating schemes. Traditionally, the public sector has played main role in the development of transportation.

Governmental policies influenced the national planning, design, construction standards, and requirements of infrastructure. Much of the historic and continuing provision of major infrastructure has been met through government funding rather than through private sector investment. For many years the assumption was that infrastructure serves the public good and is, therefore, a government responsibility. However, in many countries there is an idea to reduce reliance on government borrowing by increasing private sector involvement in financing and operating of their infrastructure.

The main target area for this is the provision of logistics infrastructure, because of its direct commercial relationship with businesses. We suppose that there are four key reasons, why the new schemes of concerning logistics infrastructure are essential. Firstly, government expenditures on transport infrastructure, especially roads, have come under increasing attention from other sectors. As a result, public funds often do not have enough resources to meet growing demands for new logistics systems. Secondly, public sector financing probably may not be efficient.

Because of the weak stimulation the whole structure is a financial risk. Thirdly, there are some new technologies that allow the private sector to provide services exclusively. Fourthly, the public sector is not always able to recover the full cost of providing public services from users. In that case, different innovative funding schemes may be possible to use, such as independent private companies, like Private Finance Initiative and other public-private joint ventures. As a result private sector could increase the incentive to minimize costs, reduce development inefficiencies,

and offer higher-valued services to users.

However, there are few problems that could occur and offset the advantages of private financing. First of all, the profit objective of the private sector may tend to disregard the negative effects of the project (e. g. congestion, environmental degradation) in order to cut costs. Secondly, the danger of monopolist pricing must also be considered. For governments, there is a growing tendency to place vital infrastructure projects, programmes and services under the care of the private sector. In fact, this could lead to lesser governmental control and reduced management costs of public services.

One organizational strategy may be to establish public corporations. These independent agencies could identify, encourage and assist in transportation projects with private funds. Such agencies create a bridge between the public and private sectors. However, a properly defined charter must be drawn up to ensure that they do not become substitutes for private development. So, in financing logistics infrastructure, the objective is to maximize return from investment in infrastructure while minimizing costs by creating an efficient well-managed project.

The returns expected from investment reflect the level of risk. The appropriate identification, allocation, and management of risk, therefore, will become critical to creating the most cost effective and efficient financing structure. Many transportation projects involve considerable commercial and policy risks that call for government guarantees. Government guarantees against risks are a major issue in private financing and public/private partnerships. On the one hand, if a government shoulders most of the risks, the private sector loses its incentive to minimize costs.

On the other hand, if government does not share the risks, the project may appear too risky to attract private sector

investment. This arrangement requires maintaining a delicate balance. It will especially important to synchronize guarantees with major environmental protection efforts. So, equitable distribution of costs and benefits may be achieved by internalizing external costs (e. g. congestion taxes). People will pay for the use of a facility if they feel that they benefit from it (e. g. airport, road, port, terminal, and rail network).

Logistics infrastructures should be used more efficiently with peak-load pricing. For instance, landing and parking fees of aircraft are differentiated at congested airports. The volume of both domestic and international logistics flows has increased rapidly in Asian countries in response to the expansion of global operations. Significant logistics infrastructure development is occurring in some countries in Asia. The extensive distances between countries within the region are motivating development of air, sea and intermodal transportation.

However, logistics infrastructure and institutional measures in Asia lag far behind developments in North America and Europe. Congestion on streets, at ports and at airports reduces logistics efficiency. The lack of sufficient infrastructure therefore can be a barrier to economic development. Reasons contributing to the lack of efficiency in transport logistics throughout Asia include insufficient funds for infrastructure provision, poor policy direction by governments, prioritization of policies that favor industrial sector growth, and inability to meet the demands created by high economic growth.

Transport policy is characterized by a lack of understanding of the importance of developing efficient logistics infrastructures and places priority on passenger transportation (e. g. prohibiting trucks on roads during weekends). These disparities in policy are making affect the balance between the supply of and demand for logistics infrastructure. Conclusion Making a conclusion of this project we

would like to remind that logistics and transportation sector is a really important sector in the world economy.

If we compare world economy to the human body, where everything is perfectly balanced, the logistics and transportation sector would be the blood vessels. Transport extends the range of sources of supply of goods to be consumed in an area, making it possible for user to get resources at cheap price and high quality. The use of more efficient systems of supply results in an increase in the total amount of goods available for consumption. Since the supply of goods is no longer dependent on the type of mode, items can be supplied by some alternative resources if usual source cannot supply what is needed.

In this project we showed such things as a close relationship between economic growth and logistics, showed the dependence between logistics and globalization and integration processes. Transportation directly or indirectly affects many other areas of society, for example, almost all cities uses 20-30 percent of its land in transport facilities. Increased travel requirements also require additional land for transport facilities. A good transportation system takes a considerable amount of land from society. The primary function of transportation is the transfer of messages and information.

 

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