Logistics in the Economy

   Logistics is in important component of GDP

   Logistics plays a key role in the economy in two significant ways. First, logistics is one of the major expenditures for businesses, thereby affecting and being affected by other economic activities. In the United States, for example, logistics contributed approximately 10.3 percent of GDI in 1996. U.S. industry spent approximately $451 billion on transportation of freight and about $311 billion on warehousing, storage and carrying inventory. These and other logistics expenses added up to about $797 billion.

   Second, logistics supports the movement and flow of many economic transactions; it is an important activity in facilitating the sale of virtually all goods and services. To understand this role from a systems perspective, consider that if goods do not arrive on time, customers cannot buy them. If goods do not arrive in the proper place, or in the proper condition, no sale can be made. Thus, all economic activity throughout the supply chain will suffer.

   One of the fundamental ways that logistics adds value is by creating utility. From an economic standpoint, utility represents the value or usefulness that an item or service has in fulfilling a want or need. There are four types of utility: form, possession, lime, and place. The later two, time and place utility, are intimately supported by logistics.

   While form and possession utility are not specifically related to logistics, neither would be possible without getting the right items needed for consumption or production to the right place at the right time and in the right condition at the right cost. These ''five rights of logistics" credited to K. Grosvenor Plowman, are the essence of the two utilities provided by logistics: time and place utility.


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