Inventory

Inventory levels also affect customer satisfaction. The major problem is deciding how much stock should be held. Logistics managers have to decide on how to maintain the delicate balance between carrying too much inventory and carrying too little. Carrying too much inventory results in higher-than-necessary inventory carrying costs and stock obsolescence. Carrying too little may result in stock-outs, costly emergency shipments or production, customer dissatisfaction or. worse, lost sales as unserved customers defect to a competitor. In making inventory decisions, management must balance the costs of carrying larger inventories against resulting sales and profits.

Inventory decisions involve knowing both when to order and how much to order. In deciding when to order, the company balances the risks of running out of stock against the costs of carrying too much. In deciding how much to order, tire company needs to balance order-processing costs against inventory carrying costs. Larger average-order size means fewer orders and lower order-processing costs, but it also means larger inventory carrying costs.

During the past decade, many companies have greatly reduced their inventories and related costs through juat-in-time (JIT) logistics systems. Through such systems, producers and retailers carry only small inventories of parts or merchandise, often only enough for a few days of operations. New stock arrives at the factory or retail outlet exactly when needed, rather than being stored in inventory until being used, JIT systems require accurate forecasting along with fast, frequent and flexible delivery, so that new supplies will be available when needed. However, these systems result in substantial savings in inventory carrying and handling costs. By keeping the flow in the pipeline - raw materials, work-in-progress, finished goods - to a minimum, suppliers can enhance logistics efficiency, while ensuring that customer service objectives are regularly met.

Sophisticated distribution, providers, operating in today's global markets, integrate transportation and computer-based tec (mo logics to ensure that tfxev deliver the highest level of service to customers.

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Transportation decisions have a critical impact on logistics costs. The choice of transportation carriers affects the pricing of products, delivery performance and condition of the goods when they arrive - all of which will ultimately affect customer satisfaction.

In shipping goods to its warehouses, dealers and customers, the company can choose among five transportation modes: road, rail, water, pipeline and air.

ROAD. Trucks are highly flexible in their routing and time schedules. They arc efficient for short hauls of high-value merchandise, hi the EU, the bulk of goods traded is moved by road vehicles. The Conference of European Transport Ministers (CEMT) reported that transport volumes in the EU have risen by more than 50 per cent in the last 20 years. The hulk of this growth has been in road transport, which accounts for over 74 per cent of European freight transport/" Haulage rates for different cargo loads over different distances among EU member nations do, however, vary - Greek domestic rates are the lowest, followed by UK rates: German haulage costs are the highest, with France and Italy close behind in the high end of the rate spectrum.J! The gradual deregulation and removal of restrictive practices in the road transport market in the EU is expected ro increase intra-EU haulage competition, with a downward pressure on rates. Also, there will be greater freedom for international hauliers to transport goods between destinations within one country, thereby raising the efficiency in use of trucks.

RAIL. Railroads are one of the most cost-effective modes for shipping large amounts of bulk products - coal, sand, minerals, farm and forest products - over long distances. In Europe, rail accounts for just over 17 per cent of total freight traffic. Ongoing developments, such as the Clumnel Tunnel and its associated freight links, together with the EU's efforts to speed up the development of rail freight and combined road/rail transport services throughout Europe - including the opening up of networks in eastern Europe - are pushing rail transport much more firmly into the general distribution spotlight:

A European 'rail renaissance' will cost a staggering ecu300 billion. The importance given to railways is apparent from the European Commission's list of two dozen or more priority transport projects. Nine ot' them are high-speed rail links, including the Brenner rail tunnel through the Austrian Alps and the Kehninarn Belt Baltic fixed link running between Denmark and Germany. However, real collaboration and standardization among Europe's railways is indispensable for reinforcing rail's presence on main cross-border routes. While there is some evidence that Europe's new railways are attracting passengers back, the revitalizatiori of rail freight may take some time. There is optimism in the air as authorities and politicians alike agree that it is not a simple question of road versus rail - Europe must have both.22

WATER. In countries favourably served by coastal and inland waterways, a large amount of goods can be moved by ships and barges. On the one hand, the cost of water transportation is very low for shipping bulky, low-value, non-perishable products such as sand, coal, grain, oil and metallic ores - a single coaster or ro-ro (roll on, roll off) ship can carry the same cargo as dozens of trains or hundreds of trucks. On the other hand, water transportation is the slowest transportation mode arid is sometimes affected by the weather. Again, producers and suppliers have to make choice decisions based on trade-offs between speed, security and costs of transportation.

In the EU. waterways' share of freight transport volume is around 8 per cent -low compared to rail and roads. Its full potential, however, cannot be realized without harmonization of European shipping and port policies and pricing systems, and the removal of existing restrictive and unnecessary legislation. German operators, for example, have been set against traditional cheaper rivals in Holland, Belgium and France. Despite the problems, the EU and member governments are set on pushing ahead with ambitious plans to upgrade Europe's waterway network, with hopes pinned on a healthier waterway freight industry in the future.2-1

PIPELINE. Pipelines are a specialized means of shipping raw commodities such as petroleum, natural gas and chemicals from sources to markets. Pipeline shipment of petroleum products costs less than rail shipment, but more than water shipment. Host pipelines are used by their owners to ship their own products.

AlR. Although the use of air carriers tends to be restricted to low-bulk goods, they are becoming more important as a transportation mode. Air-freight rates are much higher than rail or truck rates, but air freight is ideal when speed is needed or distant markets have to be reached. Among the most frequently air-freighted products are perishables (fresh fish, cut flowers) and high-value, low-bulk items (technical instruments, jewellery). Companies find that air freight also reduces inventory levels, packaging costs and the number of warehouses needed.

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