The fundamental principles guiding logistics management and operations are:
1. Economy of scale
It refers to the characteristics that transportation cost per unit of weight decreases when the size of shipment increases e.g. truck load shipment or full container load shipment. It is also generally true that larger capacity transportation vehicles such as rail or water are less expensive per unit of weight that smaller capacity vehicles. Logistics economies of scale exist because fixed expenses associated with moving a load can be spread over the load weights.
Fixed expenses include:
- administrative cost of taking orders
- equipment cost
- time for positioning vehicles for loading/ unloading
2. Economy of distance
It refers to the characteristics that transportation cost per unit of distance decreases as distance increases. Transportation economy of distance is also referred to as the tapering principle since rate or charges taper (reduce) with distance. The rational of distance economies is similar to that of economies of scale.