LOGISTICS AND TRANSPORT MANAGEMENT

“LOGISTICS MANAGEMENT”
INTRODUCTION:
This chapter focuses on how logistics has developed over time, explains the system approach as
it applies to logistics, explores the role of logistics in the economy and the firms and examines
the key interfaces of logistics wide other marketing activities. It also shows the relationship
between the systems concept of the total cost of ownership perspective wide the summary of key
tradeoffs and current issues in logistics management.

Definition of logistics management

The council of logistics management (CLM), one of the leading professional organizations for
logistics personnel, uses the term logistics management to describe “the process of planning,
implementing and controlling the efficient, effective flow and storage of goods, services and
related information from the point of origin 6to the point of consumption for the purpose of
conforming to customer’s requirement”

This definition includes the flow of materials and services in both the manufacturing and services
sectors. The service sector hospitals, bank, retailers and wholesalers

Logistics management in addition also includes the ultimate disposal, recycling and re-uses of
the products because logistics is becoming increasing responsible for issues such as removing,
packaging etc. once materials are delivered to the consumers.

Logistics has been called by many names including:-

 Business logistics
 Channel management
 Distribution logistics
 Industrial logistics
 Materials management
 Physical distribution
 Quick responses system

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  Supply management
 Supply chain management

What this term has in common is that they deal with the management of the flow of goods or
materials from a point of origin to a point of consumption in some cases even to the point of
disposal.

COMPONENTS OFF LOGISTICS MANAGEMENT

INPUT INTO OUTPUT OF

MANAGEMENT ACTIONS
LOGISTICS LOGISTICS
Planning Implementation Control

Natural
Resources Marketing
orientation

Customers
Time and place
In-process
Suppliers

Human
Inventory
materials

Finished
Resource
goods utility
Raw

Efficient
Financial
movement to
Resources
customers

Information Proprietary
Resources assets

LOGISTICS ACTIVITIES

- Customer service - Material handling

- Demand forecasting - Order processing
- Distribution communication - Procurement
- Inventory control - Packaging

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The diagram above illustrated that logistics is dependent up onin puts such as Natural resources,
Human resources, financials and information resources manages to produce finished goods
through management actions and logistics systems are competitive advantages (marketing
orientation). Time and place utility efficient movements to customers and providing logistics
services mix such that logistics becomes proprietary assets of the organization.

THE DEVELOPMENT OF LOGISTICS

Logistics activity is thousands of years old, dating back to the earliest form of organized trade;
however as an area of study it first began to gain attention in the early 1990 in the distribution of
firm’s product as a way to support the organizations business strategy and as a way of providing
time and place utility.

Following the clear importance of the contribution of logistics towards allied victory of the world
war II, logistics began to receive increased reorganization and emphases, just the same way in
the Persian Gulf war in 1990 – 19, the ability to efficiently and effectively distribute and store
supplies and personnel where the key factors in the success of the us Armed forces against the
Iraqi forces of Saddam Hussein.

The first declared logistics text books and other information began to appear in the earlier 1960’s
which is also the same time peter Drucker, a business expert Author, management guru stated
that “logistics was one of the last real frontiers of opportunity for organization wishing to
improve their corporate efficiency.”

THE FACTORS THAT HAVE INCREASED INTEREST IN LOGISTICS

MANAGEMENT

The following factors have had to the development of logistics in organizations and economy.

1) Derulegation
2) Competitive pressure
3) Cost control
4) Information technology
5) Channel power
6) Profit leverage

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 7) Consumer demands

Derulegation;

The fuel crisis of 1970’s and 80’s gave organization more options in choosing between different
transportation modes and as a result transporters or carriers became more creative, fixable,
customer oriented and competitive.

Therefore to manage this, organizations had to developed activities of logistics such as

transpirations, inventory management etc. this increased the development of logistics among
organizations.

Competitive pressure;

With rising interest rates and increasing energy costs, logistics received more aftention as a
major cost driver. In addition logistics become a more critical issue for May organization
because of globalization of the industry. This also enables the growth of the world class
competitions from other nations that caused organizations to look for ways of differentiating
their products with other products supplied by other organizations.

Cost control;

Another factor strongly contributing to the logistics is the continued and growing emphasis on
cost control. A survey indicates that organization believe that the most important way to improve
company’s profitability is through cost cutting and cost control. Thus despite all the talk and
emphasize on two issues, organizations are using logistics in their activities in controlling the
costs especially in quantity and customer services.

Information technology;

It has ready exploded and has given organization ability to better their transactions such as in
ordering, movement in and out of materials strange of goods etc. these transactions or activities
are for logistics that organizations are undertaking.

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Therefore if (IT) has been computerized, it makes the worker of logistics easy especially in
increasing the ability to manage the movement of materials into the firm and out of the firm to
the customers as well as optimizing inventory levels. Systems such as MRP, MRP II, DRP, DRP
II, JIT. These systems have been development by organizations to link many materials
management activities from order system to inventory management i.e. managing the movement
of goods or raw-materials from the suppliers in to the firm through programming as well as
managing the distribution of finished products from the firm to the customers on the
programmed basis (DRP, DRP II, JIT).

Channel power;

The shifting of channel power firm manufacturers top whole sales to distributors has also had a
profound impact on logistics. This is seen with competition for goods in many outlets run out of
stock and the consumers only find out that it’s the retail shops that run out of stock and not in the
factory. This means that the retailers are the ones to determine what is in stock and thus
increasing the role of logistics in distribution of a commodity at a retail outlet.

Profit leverage;

It is illustrated that logistics is able to save 1 cellar in logistics costs and this contributions much
greater impact on the organizations profitability. In most organizations sales revenue increases
are more difficult to achieve than in logistics costs reductions.

Consumer’s demands;

The consumers to day are looking for products that can satisfy their needs and therefore a firm
has to provide a customer with what he or she wants thus providing a service to meet the
requirement of a customer. Before providing a service or a product, you need to understand the
needs of a customer so that a service strategy is designed to meet customer’s expectations.
Therefore customer’s services and demands have accelerated therefore development of logistics
in providing customer’s service.

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REVISION QUESTIONS

1. (a) Define the term logistics management by giving authority.

(b) Describe the historical development of logistics in organizations.

2. Illustrate diagrammatically and explain the components of logistics management.

3. Identity and explain the factors that have accelerated the development of logistics in
organizations and economy.

SYSTEMS APPROACH/INTEGRATION

The systems approach is a critical concept in logistics management. Logistics is in itself a

system. A system is a network of related activities with the purpose of affecting other activities
and also being affected by those activities, affect one another.

The logistics systems have related activities for the orderly flow of materials in to the firm and
from the firm to the customers. The system approach is therefore a simplistic and yet powerful
paradigm for understanding interrelationships.

The systems approach simply state that “all functions or activities need to be understand in terms
of how they affect and are affected by other activities with which they interact”. This can be seen
where an organization might want to have high inventory levels in order to improve customer
service but high inventory levels will increase the storage cost.

Therefore, it’s better to understand the channel wide implications of logistics to improve service
levels became excess inventory will begin to build up in the supply chain and increase the cost
through hand the channel, but again on the other hand it serves as a buffer to protect against
uncertainty of how other channel members will behave the following diagram below shows the
systems approach of logistics.

Buffer it means reserves stock for uncertainties.

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 Distribution channel: how logistics manages to flow through the channel.

Supplier Customer
Distribution

Centre
Customer
Carrier

Customer

Customer
Manufacturing

Supplier Site

Carrier

Customer
Distribution

Centre

Supplier Carrier
Carrier

Customer

The above diagram shows that the materials flows from left to right but logistics can also be
movement from right to left under what is known as reverse logistics.

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THE ROLE OF LOGISTICS IN THE ECONOMY AND ORGANIZATIONS

The following are some of the importance of logistics:-

1. Logistics contributes to GDP (gross domestics product) logistics plays a key roles in the
economy into two significant ways; first, logistics is one of the major expenditures for
business, thereby affecting and being affected by other economic activities e.g. in the
UK, logistics contributes approximately 10.5% of GDP and in the USA, industry spent
approximately 451 billion us dollar on transportation of freight, $311billion on
warehousing, storing and carrying inventory.

Therefore these would translate into profits for many of the companies and thus improving the
efficiency of logistics operations in an economy as a whole.

2. Logistics supports movement of economic activities; logistics facilitates the movement of

all goods and services. To understand this role from the system perspective considers that
if goods do not arrived on time, customers cannot buy them. If goods do not arrive in the
proper place on in the proper conditions, no sale can be made. Thus all economics
activitiesthroughout the supply chain will suffer.
3. Logistics adds value; one of the fundamental ways that logistics adds valve is by creating
utility from an economic stand point. Utility represent the valve/usefulness that an item or
service possesses.

Utility can be informed of time and place utility or form or possession utility. Form utility is a
process of creating usefulness in the commodity e.g. creating the changing the commodity from
one position to another to suit the customers such as changing timber into furniture that is
designed by a customer. Also when a manufacture transforms parts and other raw materials in to
transform utility is created.

Possession utility is the valve added t a product or service because the customer is able to take
actual possession. Time utility is created by delivering product to a customer at that time that the
customer needs it. Whileplace utility is created by delivering a product to where a customer is
located

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Logistics supports marketing; marketing concept is based on marketing management philosophy
which holds that achieving organizational goals will depend on determining the needs and wants
of the market and delivering the desired products more effectively and efficiently. Thus the
marketing concept is a customer’s driven perspective became a business exist as to meet
customer’s needs.

The relationship between logistics and three critical elements of marketing concept such as
customer’s satisfaction, integrated profit

The 4p’s of marketing mix require that for a firm to be successful, any marketing effort must
integrate the ideals of having:-

(1) The right product

(2) At the right price
(3) Publicized with the right promotion
4. Available at the right place; Logistics plays a critical role particularly in support of
getting the product to the right place. Therefore a product or a service provides
customer’s satisfaction only if it’s available to the customer when and where it’s needed.
5. Making trade off; it’s important to understand that a central goal of an organization is to
maximize long term profitability or effective use of assets I the public or nonprofit
sectors. One of the key ways to accomplish that is through examining tradeoffs among
alternatives thereby reducing the overall total costs of activities within system.
6. Customer service; this is an output of the logistics system. For many organizations,
customer service may be the key way to gain competitive advantage by adjusting
customer service levels to meet what the customer desires and is willing to pay; the
organizations may simultaneously improve service levels and reduce costs.
7. Total cost concepts; this is a key to effectively manage logistics processes. The goal of an
organization should be to reduce the total costs of logistics activities rather than focusing
on each activity in isolation.

Reducing costs in one area such as transportation may drive up inventory carrying costs as
more inventories will be required to cover longer transit time on balance against grater
uncertainties in transit times.

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 LOGISTICS AND MARKETING MIX INTERFACE

Logistics and marketing interact with in the distribution channel. The marketing mix also
commonly known as the 4p’s of marketing required that for a firm to be successful, any
marketing effort must integrate the ideas of hawing.

1) The right product

2) At the right price
3) Publicized with the right promotion and available in
4) The right place

Logistics plays a critical role in support of getting the product to the right place so that a product
or a service provides customers satisfactions. The 4p’s of marketing are discussed below:-

1) Product; this refers to a set of utilities that customer receives as a result of purchase of the
lower price of a product. Management may decide o reduce product quality, eliminate
product features, reduce the quantity of a product, reduce, customer’s service or warranty
support.

However, any of these actions may reduce the attraction of a product for customers hence
creating a loss of customer and there by a reducing in long term profit. To avoid making poor
decisions, managements need to understand the trade off and inter relationship between logistics
and other marketing activities.

2) Place; this is the key elements of the marketing links with which logistics inter faces
directly. Place expenditures support the levels of customers which are provided by the
organization and this may include on time delivery, high order fill rates, transit time and
similar issues.
3) The price; this is the amount of money that the customer pays for the product or strive.
Some of the items that should be factored (consider) in to price include discounts for
buying in large quantities, for belonging to a certain class of customers, discounts for
prompt payments and rebate (means a reduction in tax).

A supplier may attempt to increase sales by reducing the price of this product, changing the
terms and conditions of a products or service offering. Such a strategy may create higher unit

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sales but not enough to offset the lower price hence guiding lower profits. This is particular true
in mature industries where customer demand relatively fixed and the competition may fellow the
price decrease. The sales and profitability of the entire industry will suffer.

4) Promotion; selling valve added to customers, promotion of the product or service

encompasses both personal selling’s and advertising. Whereas increasing advertises
expenditure can have a positive impact on sales. There is a point of dominating turn,
appoint where extra money being spent does not yield sufficiently high increases in sales
or profits to justify the added expense.

It’s important for organizations to understand when they reach that point so that they can avoid
missal locating funds.

Key logistics activities

The following are the key activities required to facilitate flow product from a point of origin to a
point of consumption and these activities are part of overall logistics process:-

1. Procurement
2. Demand forecasting/ planning
3. Customers services
4. Inventory management
5. Logistics communication
6. Materials handling
7. Order processing
8. Packaging
9. A parts and service support
10. Plant and warehouse site selection
11. Return goods handling
12. Reverse logistics
13. Traffic and transportation
14. Ware housing and storage

The above activities of logistics are discussed below:-

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 1. Procurement: this is the purpose of materials and services from outside organization to
support the firms operations from production, sales and logistics. Procurement is also
referred to as purchasing, supply management and by other names and includes activities
such as supplier selection, negotiation of price, supplier assessment.
2. Demand forecasting/planning; there are many types of demands forecasts e.g. marketing
forecasts, based on customer demand, manufacturing forecasts, forecasting on production
requirements etc. logistics usually becomes an activity of fore casting demand in terms of
how much should be ordered from its suppliers through purchasing and how much of a
finished product should be transported to customers or how much of a product should be
held in each market that the organization service.
3. Customers service; this has been defined as “customer oriented philosophy which
integrates and manages all demands of customers with interface with in and pre-
determined optimum cost service mix”.

Customer service is the output of logistics system and it involves getting the right product to the
right customer and at the right place, in the right condition, at the right time and at the lowest
price total cast possible. These are called five R.S (5R’s/ 6R’s) of logistics system.

4. Inventory management; this involves trade-off the level of inventory held op achieve
high customers service levels with the cost of holding inventory including; capital tied up
in inventory variable storage costs and obsolescence.

It is estimated that the inventory carrying costs range from 14% to 50% the valve of inventory on
annual basis. Therefore these costs must be reduced by applying effective logistics management
through trade off of materials procured with the inventory held to achieve economic order
quantity (EOQ).

LOGISTICS COMMUNICATION

Communications are becoming increasing automated, complex and rapid. Logistics and
organizations, Logistics communications occurs between the following:-

i. The organizations and suppliers as well as customers

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 ii. Internal communication with in the organization such as engineering department,
accounting, marketing and production
iii. The various members of the supply chain such as in term and secondary customers and
suppliers who not be directly linked to the firm

Communication therefore is the key to the efficient functioning of any system whether in
distribution systems of an organization or outside supply chain. communication system can be a
key sources of competitive advantages of an organization e.g. an organization that has
computerized it’s communication system will be effective and efficient specially when I’s linked
to suppliers and actual customers so that the firm can be able to acquire supplies timely and an
regular basis as well as customers getting products in time whenever they require them i.e. just in
time (JIT).

5. Material handling; this is abroad area that includes virtually all the aspects of the most of
raw materials, work-in-progress or finished goods with in the firm, plant, or warehouse.
Because an organization incurs cost without adding valve each time an item, most or is
handled, a primary objectives of materials handling is to eliminate handling whenever
[possible by minimizing travel distance inventory levels, mishandling, pilferage and
damage. Thus by carefully analysis materials management. Organization can save
significant amount of money.
6. Order processing; this involves the system that an organization has by making orders
from customs, checking of the status of orders and communicating to customers about
these orders part of the order processing includes; checking inventory, status, customers
credit, inventory and valuable.

Order processing is broad and highly automated area and it’s a key interface with in the
organization. Increasingly organization are turning to advanced order processing method
such as Electronic Data Interchange (EDI), Electronic Fund Transfer (EFT) etc to speed up
the process and improve accuracy and efficiency.

7. Packaging; packaging for a logistics perspective, it serve as a protector of a commodity

as well as storage. Where as in marketing packaging is valuable as a form of advertising

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 and can convey information to customers because of a pleasing pocketing hence attracting
a customer’s attention.

Therefore pocketing can ease movement and storage by properly designing package for a
product.

8. Parts and services support; logistics is also responsible for proving/ providing after sales
services support. These dealers, stocking affair amount of spares and a manufacturing
product for customers and responding quickly to the demand for repaired.
9. Plant and warehouse site selection; determining the location of the company’s plant and
warehouse is a strategic decision that affects not only the cost of transport in bound and
out bound logistics but also customers services levels and speed of response.
10. Returns good handling; returns may take place because of the problem with the
performance of the items or simply because the customer changes his mind. Returns
goods handling small quantities of goodfrom the cost of moving a product back to the firm
affects negatively the channel of distribution in logistics system.
11. Reverse logistics; logistics is also involved in the movement from right to left especially
in the removal, disposal and re-use of materials. This could be seen while leftover from
the production, distribution and packaging process are put in to use through recycling or
any other process in to finished goods and this is termed as reverse logistics.
12. Traffic and transportation; this activity is to provide for the movement of materials and
goods from the point of origin to the point of consumption and to the ultimate point of
disposal. Transportation involves the selection of the ode of transport, routing, of
shipments assuring compliance with regulation of transportation in a region and a region
and selection of carriers.
13. Warehouse and storage; warehousing support time and place utility by allowing an item
to be produced and held for later consumption. It can be held near the location where it
will be needed or transported later. Therefore warehousing and storage activities related to
warehouse layout, design, ownership, automation, training of employees and related
issues.

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 THE RELATIONSHIP OF LOGISTICS ACTIVITIES TO LOGISTICS COSTS

CUSTOMER SERVICE

- Customer service support

- Parts and services support
- Return goods handling

INVENTORY CARRYING TRANSPORTATION

- Inventory management - Traffic and Transportation

- Packaging
- Insurance
- Reverse logistics

LOT QUANTITY WARE HOUSING

- Material handling - Site selection
- Procurement - Warehousing/storage
- Plant construction

ORDER PROCESSING

- Order processing
- Logistics communications
- Demand forecasting
- Order entry

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DEVELOPING LOGISTICS STRATEGIES

Understanding the organizations overall strategic and the key trade-offs is important to the
development of logistics strategic. The goal in logistics is to support he customer service in an
effective and efficient manner.

To achieve all this, the logistics function and the organizational management need to know the
following:-

1. What a customer desires in terms of customer level services and capabilities.

2. How the competition performance is measured in terms of customer service
3. How is the organization performing compared with the competition and in particular on
those areas that the customer perceives as important.

Answering the above questions especially 1 and 2 requires understanding a marketing and
logistics audith of the external environment while question 3 requires to conduct the internal
audit in conduction with cust5omer service based in analysis that an organization can identity
such as SWOT analysis.

After these, objectives or goals fro logistics functions are thus formulated based on objectives or
alterative.

Strategic in support of the objectives

The analysis should include the implementation of performance, parameters, as well as analysis
of alternatives thus the system approach is required once a decision is made concerning logistics
strategy. This requires organization to ensure that its current logistics structure is in the future
plan or adjust the channel strategy because is an important concern of logistics profession.

FUTURE CHALLENGES AND AREAS FOR LOGISTICS PERFORMANCE

IMPROVEMENT

As the role of logistics grows and takes a greater importance in achieving the overall goals,
logistics will meet the challenges but improve the performance to support these goals. Some of
the key challenges and issues that logistics will face today and will continue to face in the future
include the following:-

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1. Greater participation; in setting the organizational strategic and planning processes; this
shows the increasing participation of logistics functions in competitive strategy where
activities such as inventory planning and positioning, customer services etc. have
become important parts of the organizations planning process.
2. Total quality management (TQM); this is philosophy that should be included
(incorporated) in all aspects of logistics operations. TQM involves being proactive in
performing the right activity in the right way, in the first time and continuing to perform
it to the required level. Therefore TQM is integrated in designing logistics systems to
achieve the desired result in performing logistics activities.
3. Just – in – time (JIT); this is an inventory management philosophy aimed at reducing
wastes and redundant inventory by delivering products, components just when an
organization needs them. JIT requires close coordination of demand needs among
logistics, carriers, suppliers and a manufacturing plant.
4. Identification for opportunities for using logistics as weapon in the markets; logistics
function needs to identify those opportunities that can result into competitive advantage
for it to achieve the best practices in logistics strategy such opportunities may include
strategy alliances with suppliers and customers, global logistics and information system.

At the same time, the challenges of these opportunities especially in their implementation
should be discoursed so that it becomes possible to correct them.

5. The use of quick response; this is a retail sector strategy which combines a number of
tactics to improve inventory management and efficiency while speeding inventory flows.
Quick response applies to JIT principles through out the entre supply chain from raw-
materials suppliers to ultimate customers demand.

The concept works by combining EDI and bar-coding tectinology so that sales tracked. This
information can then be passed into a manufacturer who can then notify its raw-materials
suppliers and schedule production and the deliveries as required meeting replenishment
needs.

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6. Accounting for logistics costs; the focus of management should be to minimize logistics
costs for a given customers service levels, this it’s important to understand the costs
associated with logistics.
7. Global improved logistics; many leading companies are heavy involved in international
market through purchasing in puts to production and other imports, exports, joint
ventures, alliances with foreign subsidiaries etc. therefore this requires a need for
familiarity with global logistics and logistics net works.
8. Participation of logistics professional on work teams; logistics information systems and
participation of logistics professional is part of organization ability to use logistics as a
completive weapon based on its ability to adjust actual logistics performance lead tine.
This means the ability to a monitor customer’s demands and inventory levels as they
occur in a timely manner to prevent stock outs as well as communicating potential
problems to integrated professionals requires excellent integrated professionals and
logistics information systems.
9. Out sourcing, partnership and strategic alliances; during the 1980’s, any organization
began to recognize that they could not effectively and efficiently do every thingthem
selves and still remain competitive. Therefore they began to look for third partly
specialist to perform certain activities which are non- core and this is known as out
sourcing.

One the other hand partnership are established for long term relation ship which will benefits
all their partners and this called strategic alliances.

10. Green marketing; environmental issues have been an area for growing concerns and
attention for business on a global scale e.g. transportation and disposal of hazardous and
dangerous materials complicates the job of logistics and this is called green market
therefore organization are looking at ways of reducing the costs associated with green a
marketing especially in re-packaging, re-using, re-applying, obsolete materials.

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CUSTOMER SERVICE

Customer service is often confused with the concept of customer satisfaction in contrast to
customers service, customer satisfaction normally called the marketing mix or 4p’s of marketing
i.e. products, promotion, price and place. Therefore customer satisfaction is a broad concept that
includes customer service.

Customer service can be defined as the process which takes place between buyers, a seller and a
third party such the process results in a valued added to the product or service exchanged.

It is very expensive to win customer and therefore keeping customers should be a paramount
concern. There is need to determine what customers needs in terms of service levels and
delivering upon these in a cost effective and efficient manner and this should be a logistics
function. This should be done based on the philosophy of to, which says “do it right first time.”
This prevents complains from ever occurring.

A recent study conducted in American firms indicates that for every customer that complains, he
will tell more others as nine, who may simply choose to stop doing business with the
organization. This is because they usually tell their associates about their negative experiences
with a particular supplier.

In addition, if customers are handled well, complaining customers actually be-come more loyal
and a times likely to do business with that organization a gain in the future. Thus customer’s
service will avoid handling problems and achieve high levels of customer’s service and this in
turn contributes to high levels of customer satisfaction.

ELEMENTS OF CUSTOMER SERVICE

There are three groups under which customer service is classified:-

(1) Pre-transaction element (before sale)

(2) Transaction element (during sale)
(3) Post – transaction element (after sale)

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 PRE-TRANSACTION ELEMENT

- Written statement of policy

- Customer receives a policy
- Organization structure
- System flexibility
- Management

TRANSACTION ELEMENT

CUSTOMER - Stock out level

- Order information availability
SERVICE
- Element of order cycle
ELEMENTS - Expedite
- Transshipment
- System accuracy
- Order convenience
- Product substitution

POST-TRANSACTION ELEMENT

- Installation warranty
- Product tracking
- Customer claims/complains
- Temporary replacement of a product

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PER-TRANSACTION ELEMENTS

These are elements of customer services which are found related to the organizational policies
regarding customer service and can have significant impact on customers perceptions of the
organization and there overall satisfactions. However, per-transaction elements are not directly
related to logistics or customer service but they must be formulated before the organization can
consistently implement and execute its customer service opportunities these elements are
explained as below:-

(1) Written statement of a policy; the organization policy will define service standards which
should be filed to customer needs. It should also include ways of tracking or tacking
service performance and frequency of reporting actual performance which is measurable
and actionable.
(2) Customer receives a policy; this is a written policy which lets the customer know what he
is to expects and helps to safe guard against any unreasonable expectations. It should
provide the customer with information about how to respond if expected service levels
are not achieved by the firm.
(3) Organization structure; this should be designed to suit the needs of an organization in
terms of its customers service goals. A structure should facilitate both internal and
external communication of policies.
(4) System flexibility; organizations should design systems that are flexible so that in case of
changes, systems should adopt to new changes in the organization.
(5) Management service; an organization is expected to provided service it’s customers and
to do this effectively and efficiently so that an organization gets a good reputation both
with in and outside the organization.

TRANSACTION ELEMENTS

These are elements which are very important during the sale of a product.

1. A stock out level; this measures a product availability and the stock out should be
monitored in order to track potential problems. When stock out occur, the organization
should Endeavour to maintain good customer will by fostering the suitable substitutes,

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 drop-shipping from another location to the customers or where possible expediting the
shipment once the stock is running out of hand.
2. Order information availability; customer’s expectation regarding access to all types of
information related to their orders have increased dramatically because of improved
technology that has benefited firms such availability of information using computers or
inventory status, order status, expected shipping date and back- order status etc. This can
be facilitated effectively and efficiently.
3. Elements of order cycle; this is the total time when a customer initiates the order and
receipt of the order and this is known as lead time, thus if a sales person obtains an order
from a customer and held’s it for five days before entering the order in the system, that
adds more five days to the order cycle time, even through those five days where invisible
to the distribution centre.

Elements of order cycle include:-

a) Order placement
b) Order entry
c) Order processing
d) Order picking, packing and shipment
e) Transits time
f) Actual delivery process

4. Expedit shipment; the firm that provides goods or services to customers must be able to
serve them properly and one way to do that is to process their orders as soon as they are
received, following the head time in which the order should be delivered to the customer.
Therefore expediting is one of the main elements of transaction and of done well, will
result in to customer service.
5. Transshipment; this refers to shipping products between various distribution locations.
Companies should have a policy in place concerning transshipment as opposed to back-
ordering or drop-shipping but from the firm directly or indirectly to customer using
various locations or porter.

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 6. System accuracy;in addition to obtain a wide Varity of data, customers expect that the
information they receive about their orders and stock levels will be accurate. In
accuracies should be noted and corrected as quickly as possible while continuing
problems should be avoided.
7. Order convenience; this refers to how easy it is for the customer to place an order
customers prefer suppliers who are user-friendly other wise customers may experience
dissatisfaction. Therefore order related problems should be monitored and identified by
talking directly with customers where those problems are noted and corrected.
8. Production substitution;this occurs when the products that a customer ordered is not
available but of replaced by a different products but of a similar nature and can perform
just as well or even better. Thus, the ability to provide a customer with acceptable
substitutes may improve the firm’s service level, then with a customer dose not want the
substitute but the real commodity ordered for.

POST TRANSACTION ELEMENTS

These are elements of customer services that support a product or service after a customer has
received the product or a service.

Installation warranty; these elements are especially important for purchase of capita equipment
such that when a capital equipment fails to perform, they are substituted or repaired or serviced.

Product tracking; this is also referred to as product tracing which is an important customer
service element e.g. in order to inform the customer’s of potential problems, firms must be able
to recall potentially dangerous product from the market once the potential hazards have been
identified.

Customer’s claims/complains and returns;to resolve customer complains, an accurate on line

information system is needed to process the data from the customer by providing the customer
with the most current information available. Logistics systems are designed to move product to
customers and the costs of handling complains and returns tend to be high.

Temporary replacement of a product; depending on the time, having a back- up product

temporarily available when the item is being serviced can be critical e.g. some cars at a low

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changes while their cars (customers) are being serviced to minimize incontinence and create
more loyal customers.

HOW TO ESTABLISH CUSTOMER SERVICE STRATEGY

The management often treats all the customers are the same, not recognizing that different
customers want different levels and type of services. As a result, customer service standards tend
to be based on industrial norms. Historical practices and management judgment of what the
customers really deserts.

It is essential that the firm establishes customer service policies based on customer requirements
and supportive of the overall marketing strategy e.g. what is the point of manufacturing a great
product, pricing it competively and promoting it well and readily available to the customer but
when the policies are poor. Therefore customers service policies should be cost effective and
efficient, contributing favorably to the firms overall profitability.

METHODS OF ESTABLISHING CUSTOMER SERVICE STRATEGIES

A number of methods have been identified and some of them include:-

1. Bench marking competitions

2. Determining customer service levels based on customer reactions to stock outs at the
retail level
3. Cost revenue trade offs
4. ABC analysis of customer service
5. Customer service audit

Bench marking competitors

Competitive benchmarking should be performed in conjunction with customer surveys that

measure the importance of various customers of specific competitors while protecting its key
customers from potential competitor in-roads

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Customer reactions to stock outs

Most manufacturers don’t seal exclusively to end-users but instead they sell to wholesalers or
other intermediaries who sell to final consumers. For this reasons, it may be difficult for a
manufacturer to assess the impacts of stock outs on end-users.

Therefore, one way to establish the desirable levels of customer service is to check at the retail
level to determine the customer response to stock outs which include substituting brands or the
some brand, switching brands or perhaps going to a different store to buy the items.

COST REVENUE TRADE OFFS

The total of logistics expenditures such as carrying inventory, transportation, information, order
processing etc, can be viewed through company’s expenditures on customer service.

This strategy of revenue trade-offs is to provide the organization with the lowest total logistics
costs while at the same time getting benefits for customer service level.

ABC ANALYSIS OF CUSTOMER SERVICE

This is also called pare to law/rule. ABC is an abbreviation for activity best costing or
abbreviated as always better control.

This is an analysis that classifies items according to their relative importance.

The logic behind ABC classification is that some customers or products are more important and
beneficial to a firm then others. Using profitability as an example the most profitable customers
are those of class “A” followed by class “B” and least by class “C”.

Therefore, customer service should be provided based on how important a customer is.

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Customer service audit

Customer service audit is used as a means of evaluating the level of service a company is
providing to its customers by observing and assessing a product or service in relation to a
customer.

The objectives of customer service audit include;-

1. To identify critical customer service element

2. To identify how performance of those elements is controlled
3. To assess the quality and capabilities of the internal information system

STAGES OF CUSTOMER SERVICE AUDIT

External customer service audit

This identifies the elements of customer service and also determining customer perception of the
service being offered by the firm

Internal customer service audit

This reviews the firm’s current service levels e.g. how the customer service is currently
measured within the firm.

Indentifying opportunities and methods for improvements

This enables the firm to identify problems of customer service so as to improve on the services.
This is done by segmenting the markets or customers in order o increase profitability.

Establishing customer service levels

The must set target service geographic areas, channel of distribution and product line

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TRANSPORT MANAGEMENT

Introduction

Freight management is seen as gigantic cost problem and for that reason it’s essential to
understand and correctly solve the problem. This is especially seen in costing fleet operations so
that the fleet is properly organized and effectively managed.

Too many operators today are using too many vehicles because their routing system is
inadequate routing is not an easy task because of the number of many variables that affect it such
as the number of locations, time, distance e.t.c.

In transport management, there is also a challenge on the part of the transport manager in
handling various aspects of his job especially in dealing wide the people as situations that arise
daily may not be planned in advice. If no plan exists for such situations, then the manager and
the company is in a very transport manager must define his roles in the most vital factor through
management by objectives (MBO)

Transport manager and his job

Until comparatively recently, a transport manager was probably the most underrated manager.

In the business world, usually he was placed at the end of the management line after marketing
production, financial and personnel management. Often, he was regarded as a dwarf of ex-driver
type of individual who rarely understood or new little about management techniques and
methods but only vehicles.

While it is true that transport management has been a sadly neglected subject in the past, the
matter has now taken a turn in transport manager’s favour. This is because of cost saving and
operating potentials to be derived from inefficient transport system especially people like
distributors, employees, associations, consultants and academics are now paying this age old
industry a good deal of attention.

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The role of transport managers has therefore taken on the new perspective where anything is now
being done to further this development. It should therefore be noted that the transport managers
training requires extensive fields like operations, financial matters and personnel matters to deal
with day to day tasks of the industry.

Although the transport managers job may vary from company to company a good deal of his
work will never be less remain constant e.g. a driver and vehicle management, cost control,
vehicle maintenance, routing, scheduling etc because these are officially transport matters.

Therefore, the managers job should be clearly defined paper with all job descriptions to ensure
that the transport manager is a ware of the fundamentals of his job, purpose, whom of the reports
to and who report to him, line relationships, his limits of authority, his key tasks or duties and
most importantly the goals and targets for which he is personally responsible.

The main areas of the transport manager’s job description

His job description may include the following areas;-

Main purpose of the job

This provides efficient overall control of fleet activities and attainment of the goals and
objectives is defined in the fleet operating budget and supporting schedules.

Position in an organization

A transport manager reports to the general manager and he has also immediate subordinates and
functional relationships both internally and externally, necessary for the performance of duties.

Job resources

These are the resources within the manager’s charge which he must use to produce results e.g.
personnel, vehicles and other facilities.

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Personal activities

These are activities which are not delegated by the manager and they should be listed in the order
of importance

Limits of authority

The transport manager should have a limit in exercising his authority e.g. authority to make
capital expenditure, petty cash expenditure, operating expenditures engagement and dismissal of
staff, overtime authorization, changing policies and established procedure etc.

Major responsibilities for results

This is an important point of the job description which specifies the quantified targets or
objectives which operating period e.g. fleet utilization, turnover expenditure control, profit
maximization etc.

VEHICLE MANAGEMENT

Goods vehicles should be of right shape and size and of the right number maintained and
replaced at the right time.

AREAS OF VEHICLE MANAGEMENT

Vehicle maintenance

The degree of vehicle maintenance required depends upon a number of factors such vehicle
design and suitability to the job, operating conditions, terrain and climate, drivering skills,
maintenance policy and regulations governing vehicle road worthiness.

The transport manager or any person in charge of transport should certify (a prove) himself that
his vehicles are road worthy when they leave the yard. Poorly maintained vehicles can kill,iccur
the operator in heavy fines and upset the scheduling routine. Therefore these are enough reasons
for effective management of vehicles.

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The transport manager and the fleet engineer have an implied responsibility to the company
customers, drivers, the public maintain the fleet in effective working order.

The maintenance policy is the best way of controlling the maintenance problem and the policy
should be in writing, specifying the procedures and the format to be adopted. The format should
include a maintenance schedule; where by vehicles undergo regular inspection checks and
routine maintenance at selected intervals.

Vehicle replacement

Although vehicles will run forever if properly maintained but they will be good reasons for
replacing them at certain intervals. Some for replacing vehicles include;-

The escalation (spread) of maintenance costs as a vehicle gets older.

There is need to invest in more vehicles to enhance operating efficiency and preserve the
company images.

When should a vehicle be replaced?

The answer to this question depends upon the company policy and the reasons for replacement.
Some operators are known base their replacement policy on plant replacement theory which
takes into account capital, maintenance and depreciation costs which are also know as vehicle
running costs.

Vehicle legislation

The movement of vehicles while delivering goods is being regulated by the acts and other
regulation. Therefore there is need for a transport manager to be aware of these regulations
governing his fleet.

The rules and regulations are numerous and should be understood and applied in confined
company situation.

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Some of these acts and regulations applied especially to road transport include;-

i. Highways Act 1959, 1961 and 1971

ii. Road traffic Act 1960, 1962 and 1972
iii. Road traffic Amendment Act 1967
iv. Carriage of goods by road Act 1968
v. Transport Act 1968

4. Driver management

The employment training and motivation of drivers and the need to ensure that they work within
the parameters of the company procedure and the law are the important factors of transport
management. The fact that drivers spend most of their time a way from the depot during working
hours is a sufficient reason to impose driver controls where necessary.

The effective utilization of vehicle is to a large extend in a driver’s hands because of problems
such as queuing due to road conditions high street packing restriction etc only be minimized by
the drivers competence in dealing with such situations.

Therefore many operators employ productivity skills to motivate drivers in improving their
performance. Motivating factors other than financial reward include; general conditions of
service such as sickness, whole day training and developmental opportunity to inspire confidence
among employees.

FLEET SIZE

This is the number of vehicles used for carrying out daily tasks of delivering goods to the various
points up and down the country.

A smaller fleet of the right size could earn a higher return on the capital vehicle that may be ideal
for part of the time because of lack of orders or poor utilization

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Factors affecting fleet size

These will depend upon the number of interrelated factors namely;-

i. Anticipated total traffic demand

ii. Whether special or general purpose traffic
iii. Seasonal fluctuations in demand
iv. The number of points and a customer location
v. Operating efficiency
vi. Driver availability
vii. Design and capacity
viii. Routing, loading and scheduling techniques

VEHICLE ROUTING AND DEPOTS SITTING

Routing is defined as the maximum utilization of vehicles at a minimum costs.

Minimum cost is often identified as a operating costs which are normally variable costs. The aim
should therefore be the maximum employment of the minimum number of vehicles over the
short rest possible distances. This would ensure a highly effective transport system at a minimum
operating costs and minimum investments.

FACTORS AFFECTING ROUTING

These are;-

i. Fleet size
ii. Design and capacity
iii. Number of collection or delivery points
iv. Number of location of depots
v. Driver and vehicle restraints e.g. driving laws, maintenance requirements.
vi. Time, distances and speeds
vii. Population density e.g. in busy cities and difficult areas such as the highlands
viii. Road conditions e.g. Highways, port holes etc

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 ix. The type of traffic e.g. live stock, perishables
x. Special distribution requirements

METHODS OF DEPOT CITING

In looking at the methods, the best location for the depots is the one that provides the best
customer service the least cost. Some of the methods include;

The keefer method

This is a method for locating a single depot. This method is arrived at were the customer a
location in one area is decided upon, such that a depot is cited at the centre of each customer also
known as a centre of gravity method.

The geographic demand method

This method involves a number of customer clusters such that a depot is cited in or nearest to the
location with the biggest demand e.g. if there were two demand locations A and B, A had a
largest demand, the depot should be cited at A while leaving the smaller volume of goods to be
delivered to B thus reducing transport cost.

Multi-disport methods or system

This system is used for many disport locations such that the country is divided into control
regions and operating areas.

METHODS OF VEHICLE POUTING

Routing methods can either be manual or computerized and vehicle routing methods must aim to
marry a number of variables such as distance, speed, number of drops, call times etc with a fleet
of vehicles employed from specific locations or disports to meet the varying demands of
customers in the most effective way.

The methods include;-

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Travelling salesmen method

This was developed in 1930’s in order to have salesmen’s time and distance from their starting of
point to their farthest point and back again. This is applied to save vehicle miles and thereby
reducing operating costs such as fuel, oil and tyres.

Distance savings method

This method was developed on the assumption that miles need to be minimized which vehicle
capacity is limited. It consists of joining a number of delivery points into pairs in order to select
the best routes. Thus the two nearest delivery points are paired

Pigeon hole system

This system is used to cover a particular region, area or zone in terms of locations e.g. pigeon
whole for Kampala district could include Bwayisse, Lubaga, Nakawaetc

INTRODUCTION TO COSTING IN TRANSPORT MANAGEMENT

COSTING TERMINOLOGIES

Cost unit

This is a unit of quantity in which costs may be ascertain or expressed e.g. km run, cubimitre
(M3), mode park etc

Cost centre

This is a location or a central centre which costs are charged example a vehicle which is charged
annually such as license, insurance, depreciation etc

Indirect costs

These are costs which are not whole identified with the cost centre or a cost unit but which can
be apportioned to cost centers or cost units e.g. management and administrative expenses.

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Fixed costs

This is a cost which does not vary with mileage or vehicle activity. Before a vehicle is allowed to
operate, must first incur certain or annual fixed costs such as salaries, rent, rates, telephone
charges etc.

Variable costs

These are costs which vary with mileage e.g. fuel, oil, tyersetc

Semi fixed costs

This is partly fixed and partly variable e.g. a telephone bill such that a service is fixed and a unit
is variable

Overheads

This is essentially an indirect which arises from the overall business activity and is usually but
not always of an administrative nature e.g. directors and office salaries, stationery, telephone
charges etc.

VEHICLE COSTS AND THEIR SOURCES

VEHICLE FIXED COSTS

Licenses

These include road fund licenses and carrier’s licenses. These are fixed costs with which the
transport operators have to pay per vehicle.

Insurance

This is another fixed cost which is dependent on a number of factors such as area of business
type of load, special risk, and number of vehicles in a fleet etc.

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Depreciation

This takes place in ware and tears of a vehicle as it gets older or as it covers many kilometers and
thus therefore has to be computed to determine the depreciation

Overhead charges

These should be separated into fleet costs and business costs. These are as a result of fleet
operations and general administration of a business.

Rent and rates or garaging

These are the charges for rent and rates which are normally based on an area such as workshop,
packing area rent etc.

VEHICLE VARIABLE COSTS

Fuel

This is the most significant variable cost because vehicles consume a lot of fuel in terns of total
vehicle costs

Oil

Engine oil is the smallest variable cost so long as a vehicle is carefully driven and maintained.
Oil should be bought in bulk so long as there is adequate storage space and security in order to
obtain bulk discounts.

Tyres

Tyre costs should be deducted from a vehicles capital cost before depreciation is calculated. This
is because most tyres have to be replaced within a year or sold

Repairs and maintenance

This is the largest variable cost and is made up of labour, materials and overheads.

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Sundries

These include such items as bridge and road tolls, packing fees etc

TYRE RECORD
Size ……………………..…………...make………..…………………..…..supplier……………………
Date…………………………...……..cost………………………….………depot……………….……

Date Vehicle Wheel position Tyre KM Vehicle Km Reason for Disposal

change old trye

FUEL AND ISSUE SHEET

Depot……………..……………………................. Date…………………………...……..
Pump …………………………………………….

Vehicle Speed Pump Diseal Petrol Oil Drivers

Reg Reading Reading Signature

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