Logistics, Transportation, Distribution, and Customer Fulfillment
Cost–service trade-offs across the network
Logistics design trades transportation, inventory carrying, warehousing, and service risk against each other. Know modal characteristics: road (flexible, fast, costly for long haul), rail (heavy, low cost, long haul), ocean (cheapest, slowest, highest pipeline inventory), air (fastest, expensive, for high-value/perishable), and intermodal. Understand FTL vs LTL economics, consolidation, milk runs, backhauling, and cube/weight utilization. Distribution choices include direct-to-customer, cross-docking (flow-through with little storage), DCs, hub-and-spoke, and 3PL/4PL outsourcing.
In the warehouse, focus on receiving, put-away, slotting, picking methods (zone, batch, wave), packing, and shipping; picking productivity usually dominates cost. Customer fulfillment metrics: perfect order index (on-time, complete, damage-free, correct documentation), OTIF, fill rate (line vs order vs unit), order cycle time, and cost-to-serve. Incoterms allocate cost, risk, and title transfer - know that risk transfer point can differ from cost responsibility.
Traps: choosing the lowest freight rate while ignoring pipeline inventory and stockout cost; confusing fill rate definitions; assuming cross-docking adds storage; applying air freight only to premium goods without quantifying inventory carrying savings; and misreading Incoterms risk transfer.
Rule of thumb: compare total landed cost = freight + duties + handling + inventory carrying (including in-transit) + service failure cost.
Worked example: Ocean at $2,000 per container with 35 days transit versus air at $12,000 with 5 days. For $500,000 of inventory at 20% annual carrying cost, the extra 30 days of pipeline inventory costs about $8,200 - narrowing, but not closing, the gap; add stockout and markdown risk before deciding.