Introduction to the Basics of Distribution and Logistics | What is Distribution and Logistics? – ways | transportation | inventory
Introduction to the Basics of Distribution and Logistics | What is Distribution and Logistics?
The different ways that you can transport things are called modes. Air, rail, trucks and ships are all modes of transportation. Selecting the right mode for a shipment involves a tradeoff between cost and speed. Airplanes move freight faster than trucks and trucks are faster than ships. So why don’t we just ship everything by air? Of course, it’s because air freight is much more expensive than packing stuff into a container on a ship. Now sometimes it’s totally worth paying a premium for faster shipments, for example if you’re shipping perishable products like flowers or fresh fruit or for items that are needed urgently.
But for commodities like coal and for lower value products like packaged food, choosing a slower mode of transportation can lower your costs and that will increase your profits. Another one of the differences between transportation modes is reliability. You measure transportation reliability with a metric for on-time deliveries or OTD. And that brings us to the second part of logistics which is inventory.
Inventory decisions generally involve making a tradeoff between cost and customer service. Customers want their products right away so the faster that you can deliver them, the better service you could provide, but that means you need to have products in inventory which cost money. Specifically, it ties up the money that you have available to run your business, your working capital, and that’s the same pot of money that you could be using to hire more people, build new stores, or pay dividends to your shareholders.
So there’s an art to figuring out how much inventory you should have. That includes forecasting what you think your demand will be, planning for when you need to place replenishment orders, and optimizing your internal processes and equipment to keep products moving smoothly.
Transportation and inventory are critically important to any company that does manufacturing, but they’re also important for retailers, wholesalers and distributors. In fact, some folks will argue that logistics is supply chain management. So no matter which are you are in you’ll need to be prepared your knowledge of transportation and inventory and how logistics fits into the supply chain.