Logistics Processes and Variables

In the world of buying and selling consumer goods, logistics management involves the coordination of a variety of interrelated activities aimed at achieving optimal service and cost performance (Ballou, 2004; Stock and Lambert, 2001). Each activity can be classified as falling into one of three high-level functional areas: customer service, inventory control, and transportation management

Customer service activities involve identifying and locking in order fulfillment targets, ideally at the customer and stock-keeping unit level. These market-oriented metrics subsequently influence the service and cost objectives of the remaining two functional areas. Upon the identification of order fulfillment requirements, the levels of both inventory and transportation capabilities are collectively determined to support order fulfillment targets at the lowest total operational cost. While construction projects exhibit logistics variables similar to those found in conventional manufacturing processes, variations exist in how they are measured and applied.

For built to order (BTO) projects, the structural specifications, price, and completion time as stipulated in the contract is directly comparable to an order fulfillment target of a consumer goods supplier. This deliverable then would guide subsequent decisions regarding the amount and frequency of purchased inventory and the transportation activities required to support them. Within a construction environment, however, materials inventory are not recognized and measured in the same manner as consumer goods inventory. A commercial building is fixed asset and no alternative exists but to purchase a predetermined volume of materials as dictated by the building’s specifications and the sequence of construction activities. Materials that are purchased earlier in the project will generate higher carrying costs than those purchased at later stages but the overall carrying cost effect would appear to be negligible.

The highest cost among the major logistics functions is most often attributed to transportation operations (Stock and Lambert, 2001). For most supply chain applications, the total cost from buying transportation services reflects the modes that are selected (i. e. air, ground, and water) as well as the distance and direction of shipments moving via those modes. Consistent with the adage “you get what you pay for”, the per-pound freight charge for a small shipment that is rapidly transported over long distances is typically higher than that for a larger shipment that is transported at a slower speed over a shorter distance. Exceptions to this rule of thumb can be traced to the supply and demand of transportation equipment, non-linear ton-mile economics, and any additional services provided by the carrier.

Construction methods utilizing off-site prefabrication will naturally bear higher costs for transportation than conventional on-site methods. This can be attributed to any combination of the following: an increase in the total number of shipments, the distance and direction of shipments, and shipment configurations requiring higher-cost transportation capabilities.

In addition to transportation services, the facilities and manpower necessary for constructing a building will be reflected by the construction methods used. The nature of assembly processes and their locations in relation to those of their suppliers and to the building site will be important factors in determining the impact of logistics variables. Conventional, on-site “stick” construction will typically require less fixed overhead and less transportation activity than methods employing panelized or modularized components that are assembled off-site.

This paper focuses on the direct costs associated with the transportation alternatives pertaining to supply and assembly configurations of the various alternatives. Because of effects purported to be negligible in a close BTO operation, inventory carrying costs were not included in this analysis. Likewise, off-site overhead of the fabricators is considered a sunk cost and has not been incorporated into the model.