transport management & theory practices (14)

Management of Transportation

Seventh Edition Coyle, Novack, Gibson & Bardi

© 2011 Cengage Learning

Chapter 14Transportation Challenges and

Issues

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.

© 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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Introduction

• Transport is an enabler of economic, political, and social development

• In recent decades, consistently low fuel prices and powers of intense competition push transport rates lower and improve service levels

• Times may be changing. Pressures from: – Fuel price volatility– Capacity constraints– Environmental-related impacts

Congestion and Transport Infrastructure

• Congestion in transport network increases supply chain costs– Uncertainty created by congestion delays

requires retailers to carry additional inventory– Delays require carriers to purchase and operate

additional transport equipment and utilize additional labor

– Delays on the network also impose additional costs at transport terminals


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Highway Congestion and Infrastructure

• High percentage of National Highway System operates under congested conditions– Top 10 bottlenecks create 1.5 million annual

truck hours of delay at $30/hr. Cost does not include inventory-related shipper costs

• Forecasts indicate congestion will worsen– Funding under existing tax structure not

sufficient to even maintain existing service levels


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Railroad Congestion and Infrastructure

• Surging demand for trailer-on-flatcar (TOFC) and container-on-flatcar (COFC) services– Creating congestion on portions of mainline rail

network– Projections indicate congestion will spread to 30%

of network by 2035 if capacity not increased

• Principal means for adding capacity –double tracking portions of mainlines– Investment expense is a constraint


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Waterway Congestion and Infrastructure

• Aging inland waterways infrastructure cause bottlenecks– 31% of vessel passages experience delays

• Coastal ports, particularly on West Coast, under congestion pressures due to:– Growth of international trade traffic– Deeper channel draft and dockside requirements

due to larger containership capacities


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Waterway Congestion and Infrastructure

• Port congestion relief strategies– Investments to deepen channels– Investment in technology and equipment by

carriers and port operators. Intended to:• Speed ship loading and unloading operations

• Relieve landside congestion in terminals and improve access to port areas

– Longer port operating hours– Challenge to balance with environmental concerns


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Sustainability: The Green Supply Chain

• Can “carbon footprint” and firm costs be reduced simultaneously?– More firms discover the answer is yes

• What is “carbon footprint?”– Generally associated with the amount of carbon

dioxide (CO2) emissions– Some argue for more comprehensive definition

encompassing full life cycle greenhouse gas emissions


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• What is “carbon footprint?”– the amount of carbon (usually in tonnes) being

emitted by an activity or organization (Global Footprint Network)

– The total amount of greenhouse gases produced to directly and indirectly support human activities, usually expressed in equivalent tons of carbon dioxide (CO2).


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• What is “carbon footprint?”– Your carbon footprint is the sum of all emissions of CO2 (carbon

dioxide), which were induced by your activities in a given time frame.

– Each of the following activities add 1 kg of CO2 to your personal carbon footprint:

• Travel by public transportation (train or bus) a distance of 10 to 12 km (6.5 to 7 miles)

• Drive with your car a distance of 6 km or 3.75 miles (assuming 7.3 litres petrol per 100 km or 39 mpg)

• Fly with a plane a distance of 2.2 km or 1.375 miles.

• Operate your computer for 32 hours (60 Watt consumption assumed)

• Production of 5 plastic bags

• Production of 2 plastic bottles


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• What is “carbon footprint?”– Greenhouse gases can be emitted through transport, land

clearance, and the production and consumption of food, fuels, manufactured goods, materials, wood, roads, buildings, and services

– Scholars suggest the most effective way to decrease a carbon footprint is to either decrease the amount of energy needed for production or to decrease the dependence on carbon emitting fuels


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• Forces motivating business interest– Corporate responsibility to society– Desire to increase or maintain brand reputation– Competitive pressures– Internal and external stakeholder pressures or

expectations– Desire to lower fuel costs– Current and potential regulatory pressures


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• Logistics-related impacts on the green supply chain– Fuel consumption/efficiency– Packaging and waste disposal– Systems interrelationships

• Transport consolidation vs. inventory cost tradeoff– Transport maxims: “don’t ship air” and “don’t ship water”

– Consolidation reduces network miles, fuel consumption

– Consolidation means larger shipment sizes and may impact supply chain responsiveness


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– Systems interrelationships (cont.)• Packaging for market appeal vs. transport cost

– Market appeal often drives tendency toward larger packages

– Larger packages contain more air and take up more space in transport vehicle – result is more transport used to move given amount of product

• Adding water to product to “enhance” product and market appeal vs. transport cost

– Adding water to liquid products gives appearance to consumer of getting more for the money

– Adding water increases transport, warehousing, packaging and retail costs

– Example: Walmart initiative with liquid detergents


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• Carrier efforts to reduce fuel consumption– Purchase more fuel efficient equipment– Use of “clean” fuels and hybrid vehicles– Working with shippers to:

• Reduce overall network miles

• Increase load consolidation opportunities

– Participation in the EPA’s “Smart Way Transport Partnership”


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Sustainability: The Green Supply Chain• Many opportunities for greener supply chain exist

– Subway restaurants provide one example

– Goal : to become the greenest quick-serve restaurant by eliminating waste and inefficiency in

• Energy

• Resource utilization

• Waste materials

• Food safety

– Results • reduced carbon emissions by 120,000 metric tons

• Reduced oil consumption by 277,000 barrels/annually

• Reduced truck miles by 9.3 million miles and shipment by 16,653


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Fuel Cost and Consumption

• Wild swings in fuel prices since 2005 creates significant supply chain cost uncertainty– Fuel price volatility impacts some modes more

than others due to differences in fuel intensity

• Motor carriers– Very fuel intensive, approaching annual labor

costs as the largest expense category– Annual fuel cost rose 70% from 2004-2008– Fuel surcharges used to pass along higher fuel

prices when possible© 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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• Air carriers– Fuel intensive, the most sensitive mode to fuel

cost changes– Fuel is now the largest operating expense item

• Traditionally, fuel was 12%-15% of operating costs

• In 2007, fuel rose to 30% of operating costs, contributing greatly to some airline bankruptcies

– Surcharges used to recover higher fuel costs• However, intense competition deters surcharges


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• Water carriers– Water carriage is relatively fuel efficient– Nonetheless, fuel price increases do impact

operating costs, particularly for ocean carriers• Marine bunker fuel prices rose 100% from 2005 to

mid-2008

• For some, fuel reached 50%-60% of operating costs

– Fuel surcharges have been imposed but again, competition puts downward pressure on prices and deters significant surcharges


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• Rail carriers– Rail is a relatively fuel efficient mode– Rail has not been impacted to the same degree as

other modes by the rise in fuel prices– Rail benefits from fuel price increases as some

traffic shifts to intermodal service for long hauls

• Pipeline carriers– Pipelines are a relatively fuel efficient mode– Costs not significantly impacted by higher fuel

costs© 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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Fuel Cost and Consumption• Carrier responses

– Fuel surcharges have been the principal response• Surcharges have become more sophisticated,

involving formulas that closely match fuel price fluctuations

• However, no standard industry practice on surcharge formulas or policy

– Service capacity and network rationalization• Reduce linehaul cruise speed

• Focus efforts on shorter traffic lanes

• Cutting or reducing service on unprofitable routes


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– Improve operating efficiency of carriers• Fleet replacement

– More fuel efficient, lighter weight vehicles

– Alternative fuel vehicles

– Use IT to improve operations through greater visibility of assets

• Track and trace equipment in real time– Improves security, enables fleet size reduction, increases

responsiveness to exception reports

• Enables more timely and accurate information sharing between carriers and shippers


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Collaboration and Visibility: Art and Science

• The “science” dimension – Refers to the models and software apps. used to

improve supply chain design and execution. Examples:

• Network optimization models• Warehouse Management Systems (WMS)• Transportation Management Systems (TMS)• Scheduling models, inventory control models

– Also refers to application of technology such as RFID tags and GPS systems


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• The “art” dimension– Refers to the relationship building within and

between organizations that is necessary for collaborative supply chain management

– Collaboration fosters leveraging opportunities– Operations level collaboration initiatives include:

• Coordinating shipping and loading/unloading times at DCs

• Longer hours of operation at drop yards and DCs

• Faster payments for carriers

• Sharing capacity needs forecasts with carriers© 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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– Strategic level collaboration initiatives• Many are focused on sharing information

– In vendor managed inventory programs, customer data covering on-hand inventory, SKUs on order, sales and stockouts by SKU, inventory turns forecasts, and promotional forecasts are shared with the vendor

– The same info is shared with the logistics service provider

– The info enable the vendor and logistics provider to dramatically

» Reduce DC out-of-stocks and number of expedited orders

» Increase inventory turns

» Smooth the flow of products through the supply chain

» Improve scheduling of pickups/deliveries, reduce empty miles


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• Visibility – what does it mean?– No universal definition

• Initially referred to ability to “see” assets, such as – Amount of inventory on-hand

– Number and location of equipment

– Visibility application capabilities have expanded• Status of orders, inventory turns, status of shipments across

the supply chain, alerts on service disruptions

• Information has become more useful for decision making


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– Dole, Inc. track and trace program is example of enhanced visibility capability

• Application is fully automated– Uses RFID, GPS and cell phone technologies

– Coverage starts in harvest fields and runs through cooling center warehouses, carrier terminals and sorting plants

– Products are tagged as they leave the fields

– Time and quantities are tracked, temperature will be added

• Enables better understanding of how product moves through the supply chain

• Provides alerts if time and temperature move out of control

• May lead to supply chain design/operation improvement


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transport management & theory practices (14)

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highway congestion

waterway congestion

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railroad congestion