Define and discuss time and space utility
Products must be transported from the place where they are produced to the place where customers demand it to be delivered. The value-add that the product gains due to its transport is called space utility. The time utility is the length of time before or between the product deliveries, which consists of mostly storage and inventory time. When the organizations are able to deliver the goods at a time they are needed, then their time utility increases.
What is the Total Cost Analysis and how does is affect logistics?
Total cost analysis provides the methodology for integration of logistics, manufacturing, and procuring costs across the network. This is done to achieve three levels of optimality where the first level looks at interrelationships between transportation, warehousing, customer service, and inventory. The second level looks at other areas that are impacted by logistics such as marketing and manufacturing, while the third level looks beyond the organization, but within the supply chain and tries to optimize the whole supply chain for cost effectiveness. Due to this integrated approach, individual areas might be negatively affected, but the net effect would be positive.
What is the Business Logistics function and how does Transportation impact it?
Business logistics is the planning and implementation of storage of raw materials, inventory, and finished goods in an efficient and effective manner. This includes the flow and transportation of product from the warehouse to the consumer. To practice the most cost effective business logistics, it is necessary for the organization to have an economical and response transportation network, as most goods are rarely used where they are produced and have to be transported elsewhere.
Define whether a Motor Carrier’s costs are more Fixed or Variable. Explain your answer.
Motor carrier costs are mostly variable with about 70 to 90 percent being the variable costs. The remaining 10 to 30 percent is the fixed cost. Motor carriers use highways, which are built using public investment, resulting in the low fixed costs. Carriers only have to pay interest on vehicles and terminals, depreciation, garages, offices, and similar overheads. Even the terminals required are small. Variable costs are mainly made up of labor costs and fuel costs. The labor costs include 40% of the overall cost whereas the fuel cost includes 20% and the rest includes maintenance and purchase of equipment for transport, which is a variable cost.
What is the role of “discounts” in LTL Pricing?
LTL (less-than-truckload) motor carriers have traditionally offered heavy discounts for the past two decades. This is especially true for large companies, which can command discounts up to 50 to 60 percent, while some large companies getting discounts in the range of 80 percent. The discounts being offered by the LTL carriers have to be filed with the regional Surface Transport Board (STB) and there is no need for them to seek prior government or rate- bureau approvals for providing these discounts.
Define and discuss Demand Elasticity.
Demand elasticity defines the customer’s sensitivity to changes in price resulting in an increase of demand and total revenues when the prices for an item are decreased and vice versa. When the demand is inelastic, changes in the prices only result in small changes in the demand and revenue. Therefore, demand elasticity can be defined as the ratio of change in the demand quantity to the change of price expressed as percentages.
elasticity = % change in quantity ÷ % change in price
What are user charges? What is the purpose of such charges?
When a public utility is created, the users have to payback for the public assistance either to finance the construction or to cover the operating costs. The payback is in the form of user charges. The federal fuel tax, barge fuel tax, airport landing fees, and road tolls are all are different forms of the user charges. The function of user charges is not only to finance the construction or operating costs but also to level the playing field for different types of competitive intermodal transportation forms.
What factors have contributed to private carriage becoming so prevalent in the motor-carrier area?
The motor carrier industry has few capital constraints and even fewer regulatory constraints, therefore is constrained by marketplace competition rather than any other consideration. For large and small companies that have special requirements for shipping, private carriers are a viable option. They can be operated in controlled conditions and are highly dependable as they are mostly owned by the organization or leased by them. Due to the above reasons, the private carriage has become prevalent in the motor carrier industry.
Explain the difference between intramodal and intermodal competition in the railroad industry. Which form of competition is most beneficial to shippers? Why?
Intramodal competition is the completion between different railroad carriers, which server in the same geographic area. However, due to market competition and huge outlays required for starting and operating railroads, there has been a consolidation in the railroad carriers resulting in a decrease in intramodal competition. Intermodal competition is the competition between different modes of transportation such as the railroad and highway transportation. Due to government expenditure on local and highway systems, the railways have become less competitive. The intermodal competition has resulted in rate reductions and provision of tailored services to the customers so this form of competition has been the most beneficial.
What is the cost structure of the Air Industry? How does it compare with others modes? How does this affect pricing?
Logistic Management: Global Logistics Management
Describe the economic factors that indicate International Transportation will become increasingly important in the future.
The U.S. trades will almost all nations except for those exempted due to political reasons. More than a 1000 billion USD trade is an international trade with about 11 countries. North American Free Trade Agreement (NAFTA) and other world trade agreements have eased the trade regulations and tariffs thereby increasing the scope for trade between the U.S. and other countries. Due to these reasons, it can be considered that the importance of international trade has increased.
Discuss the advantages and disadvantages of using an International Freight Forwarder.
Shippers of small quantities have to rely on international freight forwarders to get rate savings to ship their goods by booking partial space in advance, as otherwise booking the space costs them more because they would otherwise have to book the entire space themselves, which is expensive and results in wastage. When more than one airline has to be used or intermodal transportation has to be used, the freight forwarders provide a convenience, as they do not have to deal with different air carriers and the carriers of the other modes. They also provide expertise in handling cargo in different countries and the different regulatory as well as logistic requirements, negating the need for small organizations to acquire this expertise. However, they are relatively expensive.
What is a released value rate and how does it affect a shipper’s Transportation costs?
In general, motor carriers are liable for the full value of the goods at the destination. However, they can limit their liability by automatically specifying the released value rate, which can be overturned by the shipper. When the shipper accepts the lower released value rate, a lower rate is provided, otherwise, the shipper pays the full rate.
What are the various factors used in classifying commodities for tariff purposes?
The four factors that are used in classifying commodities for tariff purposes are product density, storability, handling, and liability. Greater amount of weight of higher density products can be hauled and hence it has a lower cost per hundredweight, therefore they have a lower classification (cwt) and conversely, lower density products cost more to be hauled, therefore higher classification. When products are of non-regular size, weight, height, or shape, their storability and handling becomes difficult and hence their transportation cost increases, giving them a higher classification. When high-value goods or goods that are susceptible to damage have to be shipped, the carriers face higher liability, which results in the classification being higher.
Describe the financial ratios used by carriers to measure profitability, liquidity, and solvency.
The common financial ratios used to measure profitability are profit margin, operating ratio, return on assets, and return on equity. The common ratios used to measure liquidity include current ratio, acid test ratio, working capital, and cash flow. The common ratios used to measure solvency are the debt ratio and debt-to-equity ratio.
What are the purposes of the Bill-of-Lading and what information should they include?
Bill-of-lading is an operating document used to initiate the transportation of the goods, which acts as the receipt for the goods with a description of the goods and defines the contractual terms between the shipper and the carrier. It can also be an evidence of the title for the goods and is a legally required document. It should contain the origin and destination of the shipment, the carrier information; any special instructions for delivery such as temperature control and so on, shipment description, and billing details.
Discuss how a shipper’s implementation of a TRP System will impact its carriers.
TRP (transportation requirements planning) system is implemented to share the information regarding shipment transportation to enable efficiencies and effectiveness of freight transportation. If both the shipper and the carrier have the technology to implement the TRP system, then the system allows for real-time status reporting. The shipper has to input the freight transportation details while the carrier has to input the capacity and pricing information, which will allow the TRP to consolidate the freight and provide optimization for the carrier so that there is a continuous movement of freight.
Distinguish between line and staff management responsibilities.
Line management is a part of transportation management (earlier called traffic management). It deals with the planning of the shipments, selection of the carriers, and providing information for implementing the ordering service. It also involves expediting and tracking the shipments, pre-auditing the rates (freight charges) to determine their correctness, auditing the bills and paying them, taking care of detention and demurrages, handling claims, managing the fleets of private cars or motor carriers, and managing the transport budget. The staff management responsibilities include activities that increase the cost efficiency and improve customer service.
Identify any five topics addressed in a transportation contract and explain their importance to the contract.
The following five topics are addressed in the transportation contract:
Responsibility for Goods: The value, the liability of the goods, and the claims process are determined by the shipper and carrier and CFR Title 49 helps in this. The claims process is governed by Uniform Commercial Code (UCC).
The term, Termination, and Modification: Since contracts are bound to have start and end dates, the term of the contract is mentioned in the contract. However, the end dates can automatically change based on automatic extensions. It should address early termination by either party. The contract should address the circumstances under which the contract can be modified.
Volume requirement: The shipper’s consideration consists of minimum volume commitments on the part of the shipper as well as any third-party commitments.
The scope of operations: This mentions what is and what is not the responsibility of the parties in a detailed manner. Each activity, such as vehicle loading, unloading, and other such activities have to be assigned responsible parties.
Performance standards: Any performance standards related to transit time, damage rate, billing accuracy and so on must be mentioned in this.
Logistic Management: Warehousing
Discuss the importance of the role of warehousing as a component of business logistics in today's competitive environment.
Business logistics is an integration of many business functions such as transportation, warehousing, procurement, inventory control, and customer service as well as other functions. Logistics, when used as a competitive strategy, is about fastest product delivery and shortest order cycle. A productive warehouse reduces the order cycle time, improves performance and the quality of the performance, and improves asset productivity. Warehousing will improve the time utility of the product as it allows the product to be available at a time it is needed most.
Discuss the origination of the term "JIT" and how it affects the logistics process.
JIT (Just in Time) is also known as kanban. There are myths related to the origin of the term JIT. There is a myth that it is a Japanese idea, but it a form of postponement strategy that was already being practiced by wholesale and retail distributors. Kanban expects the product to be delivered in perfect condition at the perfect time, which is the concept on which JIT is based on. When warehousing is used for production logistics, which is used to house semi-finished products, the JIT principle can be used. While JIT had eliminated the need for warehouses in Japan, it created the need for more warehouses in the U.S. at different locations that are near the production locations, with the warehouses being for flow-through rather than for storage.
Explain the unique qualities of the CHEP Pallet system process.
CHEP (Commonwealth Handling and Equipment Pool) pallet was one of the pioneers in pallet standardizations in Australia. When it entered the U.S., it had unique specifications such as being made from the wood of southern pine or Douglas pine, a weight of 65 pounds, and a 40-inch by the 48-inch surface. The bottom deck covered 57 percent of the surface while the loading deck covered 81 percent of the surface. These pallets were leased by the CHEP system rather than being sold, with the pallet owner being responsible for the maintenance of the pallets. After the pallet is emptied, it must be leased again or returned to the lessor, but a two-day supply of pallets must be retained by each manufacturer at the facility that uses the system. CHEP collected fee only for lost pallets and intentionally abused pallets.
Complete business analyses of the best way to transport machinery valued at $50,000 from Marietta, GA to Rome, Italy, comparing air vs. Ship:
The inventory cost of the $50,000 transport machinery @ 13% per annum is equal to $18 per day (rounded).
There is a saving of $199 by air transportation.
Calculate the Effective Cost per hour on the job for Rates of Pay per employee.
Total days paid = 250
Annual cost = $15,000
Fringes @ 16.5% = $2,475
Supervision cost per employee = $17,000/8 = $2,125
Total annual cost = $19,600
Effective cost = $19,600/(223x8) = $11 per hour (rounded)
In estimating the elapsed time of relocating the inventory of a warehouse, calculate the total number of days that will be required using only one continuous single truck and single shift operations.
Volume
Inventory loads transferred 124 loads
Additional support services loads 5 loads
Total loads to be transferred 129 loads
Time
Truck traveled, one way loaded 25 minutes
Return trip, not loaded 25 minutes
Out loading, one operator 18 minutes
Unloading & put away, one operator 15 minutes
Total roundtrip cycle time 83 minutes
Time available: one shift operation
Available truck time 7.5 hours = 450 minutes
Minus allowance for delays/interruptions 10%
Effective available truck time per shift 450 – 45 = 405 minutes
@ 83 minutes, the number of round trips per shift is 4.9 loads/truck/shift or 5 load/truck/shift with a slight increase in efficiency.
129 loads/4 per day= 32.25 days (if only full loads are considered)
129 loads/4.9 per day = 26.3 days
129 loads/5 per day = 25.8 days if a slight improvement in efficiency is considered.
Discuss the impact of Bar Coding technology on warehousing efficiencies.
A grouping of lines, bars, and spaces arranged in a special pattern form a bar code. A scanner passes over the code, reads the reflected light from the code. A line or dark bar would absorb light and would be converted to a zero whereas the intervening space would reflect light and converted to a one forming a binary code. This is processed using a special algorithm resulting in a meaningful data being created. Bar codes are encountered by consumers in daily lives at many places such as their license plates and in most shopping malls where all products have bar codes that are scanned for automatic bill generation. It can be used to update inventory automatically in an error-free manner. The product identification is accurate, storage location can be determined quickly, shipping errors due to identification errors can be eliminated, and the count of items can be verified easily. It also helps in case of broken-case order-picking and automated sorting. Barcoding achieves improved accuracy and productivity, better space utilization, and quick return on investment. Barcode does not work if the supporting systems are not available such as good documentation and warehouse discipline. Pitfalls include resistance from employees, quality of labels, and the possibility that the pallet or package might already have a bar code affixed by one of the supply chain partners, which has to be ignored.
Differentiate between "Warehousing" as a function versus "Warehousing" as part of the process of logistics.
Warehousing as a function is to store goods so that they can be transported at the right time. Therefore, goods had to be stored at different locations so that the most optimum location can be selected based on the time-based competition that different companies resorted to as part of the competitive strategy. Warehousing as part of logistics is more about material handling rather than storage.
Describe the major activities associated with Cross Docking and discuss at least 4 (four) benefits achieved through Cross Docking.
Cross docking happens when freight moves in and out of the distribution center without ever getting stored in them, thereby facilitating a fast inventory turnover of goods. Cross docking involves the receipt, sorting, routing, and shipment of products as well as value-added services such as repackaging and kitting. Typically, the cross-dock operator receives the entire load and assembles the outbound orders based on the manifest provided. If the inbound load is not sorted, then the cross-dock operator has to perform the segregation and match the shipping labels with the shipping manifest. There can be a case where the inbound load has to be blended with existing load in the warehouse, which has to be performed by the cross-dock operator. Cross docking is beneficial in the following ways:
Reduces material handling and the associated labor costs as well the risks
Reduces the time is taken for the products to reach the distributor or customer
Streamlines the supply chain and reduces the warehouse space required
OSHA requires that critical injuries be reported, keep a record of serious work-related injuries, while minor injuries do not require any record keeping. Therefore, Dan must evaluate which of the three prior work-related injuries are serious and the records have to be updated.
A summary of injuries or illnesses of the previous year has to be posted during the February through April period. Dan should ensure that these records are current and available.
If the warehouse has a written safety and health program that meets the OSHA criteria and low illness rate, then the warehouse could qualify for focused inspection, hence records to show these are existing should be readied
The next step is to ensure that a representative who is charged with representing company’s interests is selected. The representative should ideally be a safety director or safety manager.
Educate all the non-managerial employees about the appropriate behavior during the OSHA inspection
Prepare all management employees regarding the interviews
Talk to the legal counsel and advise him/her to be ready
Perform a housekeeping audit
Ensure that the facility is clean
Logistic Management: Global Logistics Management
Discuss Non-vessel operating common carriers (NVOCCs).
A Non-vessel-operating common carrier (NVOCC) is an intermediary similar to a forwarder also called consolidators or NVOs and can be independent or owned by freight forwarders, or be part of large transportation companies. They lease containers, pay flat freight all kinds (FAK) rate, and sell space to less-than-container-load (LCL) shippers, apart from providing services required to move goods from point-to-point similar to a forwarder. NVOCCs in the U.S. handle about 10 percent of the annual volume of ocean shipping.
What are the advantages of Intermodalism for International shipments?
Containerization has enabled intermodalism, which is the carriage of goods using more than one mode of transportation under one intermodal “through” bill-of-lading. Due to the advantage of containerization, goods can be loaded anywhere that can be reached by truck or a rail and moved between different modes of transport across geographies without the container cargo being unloaded or handled. Due to the single bill-of-lading, which eliminates the burden of making the different arrangements for interconnections for both the consignee and the shipper, the entire process of shipping is simplified, paperwork is reduced, and damage is reduced due to the reduction of cargo handling.
Define and discuss the topic flags of convenience.
Owners living in one nation may register the vessel in another for reasons of convenience and therefore flies a different country’s flag; it is considered that the vessel is flying a “flag of convenience.” The reason for this could be to avoid high labor costs associated with the home country, which is dependent on the flag of the vessel. Another reason for using flags of convenience is to escape from difficult political conditions. Such kinds of vessels are said to be flagged out, generally have harsh working conditions, low pay, and unsafe working conditions.
Describe the vessel chartering process.
Brokers are used to handling the chartering process with brokers representing both the charterers and owners of the vessels. Users can use a single broker or contact different brokers and select the one that offers the best terms and similarly the owners can operate through a single broker or receive biddings. The shipper requests his broker for a vessel with the required specifications, which are forwarded to the brokers of the owners. The broker makes an offer with a specified deadline to the shipper’s broker, which is then countered with a slightly lower bid with a lesser deadline. This process repeats until the deal goes through or falls apart. Both the brokers might be negotiating with multiple parties at the same time. A charter agreement follows, and the shipping occurs after the charter agreement is completed.
Discuss the logistical constraints involved in shipments moving between the U.S. and Mexico.
Mexico was supposed to lift the restrictions on U.S. truckers according to the U.S. motor carrier act 1982, but Mexico does not comply and strictly enforces the restrictions. Foreign trucks in the U.S. have to operate in special commercial zones, but these are not being enforced properly due to which the Mexican truckers operate outside the zones using equipment that is unsafe, and pay lower wages. As the U.S. equipment will be stripped once it enters Mexico, the cargo has to be transferred from the U.S. equipment to Mexican equipment. Traffic flow is slow as it is examined for drugs and aliens. A day-trip insurance is required for Mexican truck drivers, but it is difficult to find companies that provide the insurance. Highway transportation equipment has to comply with Federal Motor Carrier Safety Assistance Program, which is another issue.
Describe the functions performed by an export management company.
Export management companies (EMC) act as intermediaries that market products overseas with three to five years exclusive contracts. EMCs investigate potential customer’s credit standing, find overseas markets for domestic companies, and service them. They prepare documentation, appoint freight forwarders, arrange for any special needs, insurance, and negotiate rates. They provide marketing and sales capabilities as well as provide feedback on any modifications needed for successful market entry as fitting a product to the market is essential in international business. EMCs also design the promotional material, represent the manufacturer at the tradeshows, and respond to any inquiries.
For International shipments, when must all documents be ready and in good order? Why is this important?
All the documentation for the international shipments must be available at the point of importation and most of the documentation is required at the point of exportation. Documentation plays the role of a trade barrier as documentation such as import license, which is a permission granted by the government allowing the trader to import the goods that are permitted, in permitted quantities. Lacking the documentation, the goods would be denied entry, fined, or the goods might be confiscated.
Distinguish between a sight draft and a time draft.
A draft is a demand for payment. A sight draft is payable on presentation. In some cases, the seller might insist on payment in advance in which case the sight draft is employed, which matures when the goods arrive at the destination port and is payable before the buyer obtains possession and after the seller dispatches the goods. It is comparable to cash on delivery (COD) domestic sale. The time draft becomes payable after a fixed period following the delivery of goods at the buyer's warehouse.
List and briefly describe the four distinctive competencies associated with world-class logistics practices.
The four distinctive competencies associated with world-class logistics are:
Positioning: The operations are guided by the selection of structural and strategic approaches, with strategy, supply chain, network, and organization as sub-dimensions
Integration: The process of establishing creative methods of doing what needs to be done with unification of supply chain, information technology usage, sharing information sharing, connectivity, standardization, simplification, and discipline as sub-dimensions
Agility: achieving and retaining competitiveness and customer success with relevance, flexibility, and accommodation as sub-dimensions
Measurement: monitoring the operations internally and externally with functional and process assessment and benchmarking as sub-dimensions
What is a commercial diversion, and what is its significance to International trade?
Commercial diversion leads to gray marketing as the buyer of the goods misleads the seller about the intended sales channels but places them in direct competition against seller’s goods. The export prices are generally priced lower than the domestic prices as the costs of domestic advertising and research and development are not apportioned to the export prices. The commercial diversion exploits this difference in the prices.
