ie 8580 module 2: transportation in the supply chain

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IE 8580 Module 2: Transportation in the Supply Chain Lecture 2.2: Transportation Design, Modes, & Issues

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Page 1: IE 8580 Module 2: Transportation in the Supply Chain

IE8580Module2:TransportationintheSupplyChain

Lecture2.2:TransportationDesign,Modes,&Issues

Page 2: IE 8580 Module 2: Transportation in the Supply Chain

TransportationDecisions- Carriers

• Carrier– partythatmovesortransportstheproduct• Factorsaffectingcarrierdecisions:

– Vehicle-relatedcost• costofowningvehicles

– Fixedoperatingcost• fixedcostsindependentofvehicleusage(terminal/portcosts,laborcosts)

– Trip-relatedcost• functionoftripdurationanddistance(fuelanddrivercosts)

– Quantity-relatedcost• loading/unloading,portionoffuelcost

– Overheadcost• costsassociatedwithplanning,design,andscheduling,aswellasinformationtechnologyoverhead

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Page 3: IE 8580 Module 2: Transportation in the Supply Chain

TransportationDecisions- Shippers

• Shipper– partythatrequiresthemovementoftheproductbetweentwopointsinthesupplychain

• Factorsaffectingshippersdecisions– Transportationcost

• foroutsourcedtransportation– Inventorycost

• inparticular,costofinventoryinthepipeline– Facilitycost

• costofalllocationsinthesystem;onlyvariableinnetworkdesignphase– Processingcost

• loading/unloadingandprocessingcosts– Servicelevelcost

• costofnotmeetingcustomerrequirements

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Page 4: IE 8580 Module 2: Transportation in the Supply Chain

TransportationModes

• Trucks– TL– LTL

• Rail• Air• PackageCarriers• Water• Pipeline

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Page 5: IE 8580 Module 2: Transportation in the Supply Chain

Truckload(TL)/LessThanTruckload(LTL)

• Over75%ofUSfreightbill• Point-to-pointdeliveries,mediumspeed,averagetogoodreliability

• Truckload(TL)vs.less-than-truckload(LTL)– Truckloadpricesarechargedpermilesinceyoueffectivelyreservetheentiretruck’scapacity

– LTLpricesareafunctionofdistanceandloadsize– TruckloadischeaperperunitweightsinceLTLcarriersincurmoredowntimeduetoloadingandunloadingatmultipledropoff points

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Page 6: IE 8580 Module 2: Transportation in the Supply Chain

LessThanTruckload(LTL)

• TL– Lowfixedandvariablecosts– MajorIssues

• Utilization• Consistentservice,backhauls

• LTL– Higherfixedcosts(terminals)andlowvariablecosts– Majorissues:

• Locationofconsolidationfacilities• Utilization,vehiclerouting,customerservice

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Page 7: IE 8580 Module 2: Transportation in the Supply Chain

Air

• Fastandexpensive• Small,high-valueitemsandemergencyshipments(limitedloadsize)

• Requirestransporttoandfromairport• Highreliability• Keyissues:

– Location/numberofhubs– Locationoffleetbases/crewbases– Scheduleoptimization– Fleetassignment,crewscheduling,yieldmanagement

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Page 8: IE 8580 Module 2: Transportation in the Supply Chain

PackageCarriers

• CompanieslikeFedEx,UPS,USPS– Smallpackagesrangingfromletterstoshipmentsof~150pounds

• Expensive• Rapidandreliabledelivery(valueaddedservices)• Smallandtime-sensitiveshipments• Preferredmodefore-businesses• Consolidationofshipments(especiallyimportantforpackagecarriersthatuseairasaprimarymethodoftransport)

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Page 9: IE 8580 Module 2: Transportation in the Supply Chain

Rail

• Keyissues:– Schedulingtominimizedelays/improveservice– Off-trackdelays(atpickupanddeliveryend)– Yardoperations– Variabilityofdeliverytimes

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Page 10: IE 8580 Module 2: Transportation in the Supply Chain

WaterandPipeline

• Water– Limitedtocertainareas,highportcosts– Extremelyhighloadcapability,verylowunitcosts– Slowandleastreliableperformance– Dominantmodeinglobaltrade

• Pipeline– Limitedproducts,crudepetroleum,refinedpetroleumproducts,naturalgas

– Bestforlargeandpredictabledemand– Highestpercentageoffixedcosts

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Page 11: IE 8580 Module 2: Transportation in the Supply Chain

Intermodal

• Useofmorethanonemodeoftransportationtomoveashipmenttoitsdestination

• Mostcommonexample:rail/truck• Alsowater/rail/truckorwater/truck• Grownconsiderablywithincreaseduseofcontainers• Increasedglobaltradehasalsoincreaseduseofintermodaltransportation

• Moreconvenientforshippers(oneentityprovidesthecompleteservice)

• Keyissueinvolvestheexchangeofinformationtofacilitatetransferbetweendifferenttransportmodes

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Page 12: IE 8580 Module 2: Transportation in the Supply Chain

DesignOptionsforaTransportationNetwork

• Whatarethetransportationoptions?Whichonetoselect?Onwhatbasis?– Directshippingnetwork– Directshippingwithmilkruns– AllshipmentsviacentralDC– ShippingviaDCusingmilkruns– Tailorednetwork

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Page 13: IE 8580 Module 2: Transportation in the Supply Chain

Waystoexecutedirectshipment

• Directshipmentnetwork

IE8580,[email protected]

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Page 14: IE 8580 Module 2: Transportation in the Supply Chain

Waystoexecutedirectshipment

• Directshipmentnetwork• Milkruns

IE8580,[email protected]

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Page 15: IE 8580 Module 2: Transportation in the Supply Chain

Waystoexecutedirectshipment

• Directshipmentnetwork• Milkruns• Milkrunsw/aDC

IE8580,[email protected]

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Page 16: IE 8580 Module 2: Transportation in the Supply Chain

Waystoexecutedirectshipment

• Directshipmentnetwork• Milkruns• Milkrunsw/aDC• Linehaulw/crossdocking

IE8580,[email protected]

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Page 17: IE 8580 Module 2: Transportation in the Supply Chain

TransportationNetworkDesign

NetworkStructure Pros Cons

DirectShippingNointermediatewarehouseSimpletocoordinate

HighInventory(largelots)Highreceivingexpense

DirectShippingwithMilkRuns

LowertransportationcostwithsmalllotsLowerinventory

Increasedcoordinationcomplexity

CentralDCwithinventory

Lowerinboundtransp.costduetoconsolidation

IncreasedinventorycostIncreasedDChandling

CentralDCwithcrossdocking

LowinventoryLowtransp.costthroughconsolidation

Increasedcoordinationcomplexity

ShippingviaDCwithmilkruns

Loweroutboundtransp.costwithsmalllots

Furtherincreaseincoordinationcomplexity

Tailorednetwork Transportationmeetsindividualproduct/storeneeds Highestcomplexity

Page 18: IE 8580 Module 2: Transportation in the Supply Chain

Trade-offsinTransportationDesign

• Transportationandinventorycosttrade-off– Choiceoftransportationmode– Inventoryaggregation– Transportationcostandresponsivenesstrade-off

• Transportationmodechoice– Amanagermustaccountforinventorycostswhenselectingamodeoftransportation

– Amodewithhighertransportationcostscanbejustifiedifitresultsinsignificantlylowerinventories

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