Transportation is the movement of materials and products. Logistics involves the movement and transport of materials and products, as well as their storage and packaging.
Definition of Transportation
Transportation involves the movement of goods and raw materials. This includes shipment of raw materials to the manufacturer and movement of finished product to the customer. Transportation also includes the movement of parts to assembly areas as they are assembled.
Definition of Logistics
Logistics includes the management of freight, warehousing of materials and productions, and inventory management. Logistics also includes the packaging of products for storage and shipment. Logistics involves both internal and external distribution networks.
How to Minimize Transportation Costs
The easiest way to minimize transportation costs is to eliminate unnecessary transportation. You can do this by finding closer suppliers. You can reduce transportation costs by consolidating shipments, buying partially assembled products from vendors and reducing the number of trips needed to ship in raw materials. Having work stations within the factory close to each other minimizes material transportation, which is a non-value-added labor cost. Consolidating transportation service providers increases the volume each transportation firm provides and can allow for a negotiated volume discount.
How to Minimize Logistical Costs
Logistical costs are directly reduced by just in time, or JIT, manufacturing. Use material resource planning or MRP systems to time orders so that a minimum of stock is on hand. Order parts in packaging that can be directly sent and stocked in the warehouse. This eliminates the wasteful process of receiving, unpacking and then labeling product for the company’s own inventory management system. Work with suppliers to have bar code labels or RFID chips that are cross-compatible, allowing the entire supply chain to use the same part numbers and equipment to track and manage inventory.
How to Mitigate Transportation and Logistical Risk
Consolidating shipments increases the risk of a lost shipment bringing a JIT assembly line to a standstill. A surprise shortage will shut down production. This means that JIT requires a secure supply chain. The orders must be able to be delivered quickly and rapidly, with a minimum risk of delays. This is the reason many JIT suppliers build factories or distribution centers close to their major suppliers. If the supplier is close by, a shutdown of air traffic or a massive traffic jam across town will not prevent parts from being walked over.
Suppliers that are not located close by must have multiple backup routes for their product. If the overnight delivery truck is unable to depart on time, there needs to be a mitigation plan in place, such as reserve vehicles or shipping companies on retainer that can send out another vehicle and team to unload the down vehicle, reload to the new vehicle, and then deliver the parts and material.
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