transport management & theory practices (13)
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Management of Transportation
Seventh Edition Coyle, Novack, Gibson & Bardi
© 2011 Cengage Learning
Chapter 13Shipper Strategies
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Transportation Management
• Term applied to the shipper’s purchase and control of transportation services– Replaced traffic management– Now has strategic and operational orientation– Changing goals over time, evaluated based on
• Minimize transport costs
• Minimize total logistics costs
• Meet customer service goals in cost-efficient manner
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Transportation Management
• Trans. mgmt. as a procurement function– Procurement -
obtaining goods and services for the firm, includes analysis and activities
• Quality
• Pricing
• Specification
• Supply source
• Negotiations
• Inspection and assurance of quality
• Timing
• Conducting value analysis of alternative methods and sources
• Capital analysis
• Make or buy decision
• Legal and regulatory constrains
• General management© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Shipper Transportation Strategy
• Designed to support logistics, corporate, and supply chain strategies
• General strategy (applies to all shipment types)– Proactive management
• Problem solving orientation
• Seek ways to use transport for competitive advantage
– Improve information • Availability (flow), quality, use for manager to plan & control
transportation activities
• Transportation costs, shipment volume, carrier performance are typical data collected, essential for carrier negotiation, contracting, etc
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Figure 13-1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Shipper Transport Strategy, cont’d
• General strategy, cont’d– Limit number of carriers used
• Strengthens market power
• “Core” carriers; Risk: increases dependability on carriers used
– Carrier negotiation• Market power determines the shipper’s ability to negotiate
acceptable rates and services
• Also determines by the characteristics of freight – low density, hard to handle, easily damaged, low value, empty backhaul, etc
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Shipper Transport Strategy, cont’d
• General strategy, cont’d– Contracting
• Realize the lower rates and necessary service levels
• During the term of contract, the shipper is guaranteed the contract rate and service, equipment and liability
– Review private motor carrier transport • Outsourced?
• Some shippers manage their private fleets as a profit centers
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Shipper Transport Strategy, cont’d• Small shipment strategy
– Thrust – to reduce high transport costs/lbs. associated with small shipments
– Freight consolidation• Match shipments going to same geographic area
• Facilitated by order entry system
– Utilize pooling services for different consignees
– Stopping-in-transit service allows shipper to load a number of shipments on a vehicle and stop along the way to unload the individual shipment
– Avoid private carriage
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Table 13-1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Figure 13-2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Shipper Transport Strategy, cont’d• Bulk shipment strategy
– Long-term contracting• Recognition of mutual dependency
– Seek balanced (by direction) loads – eliminate the empty backhaul costs
• Inbound transportation strategy– Taken on added significance
• Manipulate terms of sale
– Use same general strategy thrusts– Reverse logistics
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Shipper Transport Strategy, cont’d
• Reverse logistics – The handling of return goods, as well as salvage and
scrap disposal (waste materials)
– Buyer may return items to the seller due to product defects, overages, shipping errors
– Customers return products for warranty repair, replacement, remanufacturing, or recycling,
– Reverse logistics are high relative to forward logistics costs some as much as five to nine times more than moving the same product from producer to consumer
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Line Aspects of Transport Mgmt.
• Daily activities of transport management
• Shipment planning– Monitor flow requirements, schedule shipping
• Carrier selection
• Ordering service– More frequent use of electronic means
• Expediting/tracing– Critical control tool
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Line Aspects of Trans. Mgmt., cont’d
• Pre-auditing/rating– Determining proper freight charges
• Auditing/paying the freight bill
• Detention/demurrage processes
• Claims– Carrier liability– Carmack Amendment exceptions to liability– Claims filing process
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Line Aspects of Trans. Mgmt., cont’d
• Private car and motor carrier fleet mgmt.
• Transportation budget management
• Staff and administrative aspects
• Mode selection
• Monitoring service quality– Developing and using carrier evaluation reports
• Service/supply assurance
• Negotiations© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Line Aspects of Trans. Mgmt., cont’d
• Regulatory matters• Policy matters• Planning annual transport requirements• Budgeting• Information systems• Systems analysis• Management and executive development• Trans. dept. human resources management
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Mode Selection Process
• Transport selection decision: 2-part decision– Mode selection– Carrier selection
• Process begins with cost and service goals– Definition of cost and service measures
• Selection criteria/measures– Transportation costs
• Rates and charges assessed by mode
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Mode Selection Process, cont’d
• Selection criteria/measures, cont’d– Transit time and transit time reliability
• Affect inventory and stockout costs
– Accessibility– Capability– Security, damage, loss
• Affect inventory and stockout costs
• Strategic significance of mode selection© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Carrier Selection Process
• Can consider same five selection criteria– Usually, accessibility and capability are similar
among carriers in a given mode– Often more specific measures utilized– Relative importance
• Transit time reliability• Transport rate• Total transit time• Willingness to negotiate• Carrier financial stability
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Relationship Management
• Core aspect of the boundary-spanning environment of logistics and SC mgmt.
• For each non-in-house activity, firm must develop proper relationship with suppliers
• Well executed relationship management between shipper/carrier is critical given position of transport – Last link between shipper and customer– Potential role in corporate strategy
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Types of Buyer/Seller Relationships
• Arm’s length relationships – Most common: transaction-specific ;
relationships last for a single transaction between two parties, and no commitments are made for future transaction
– Defining factor in supplier selection: usually price• Reduced opportunity for long-term cost reduction
– Viewed by many as inefficient– Appropriate when service is viewed as commodity
or standard requirement
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
22© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Figure 13-4
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Types of Buyer/Seller Relationships, cont’d
• Type I partnerships– Partnership definition
• On-going, commitment over extended time, sharing of info., risks and rewards
– Type I: Short-term contractual relationship• Little investment required• Limited scope of activities• Common in transport
– Ex: 1 year contract, guaranteed delivery times, min. dedicated fleet, guaranteed minimum volume
– Price is volume driven
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Types of Buyer/Seller Relationships, cont’d
• Type II partnerships– Longer-term contractual relationship– May require investments– Broader scope of activities– Transport examples
• Carrier certification programs, core carrier programs– Guaranteed annual volumes
– Dedicated freight lanes
– Incentives for cost reduction
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Types of Buyer/Seller Relationships, cont’d
• Type III partnerships– Not governed by usual contracts
• Documentation outlines general operations and management philosophy
– No formal endpoint – evergreen contact– Substantial joint ownership of assets and sharing
of activities• High risk, investment, potential rewards for both
– In transport, carrier would perform many services beyond basic transport in such relationships
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Types of Buyer/Seller Relationships, cont’d
• Joint ventures– Purpose/outcome: creation of a new firm– Investments required by both parties– Long-term type of relationship
• Vertical integration– Driven by “make or buy” decision– Common transport ex: private fleets
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Why Enter Relationships?
• Definition and background of 3rd parties • Availability of external suppliers• Cost efficiencies
– Economies of scale and scope– Moving assets off the balance sheet
• Access to third-party expertise– Facilitates focusing on core competency
• Customer service– Issue of control
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Table 13-4
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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