transportation management
TRANSCRIPT
Supply Chain Management
Transportation Management
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Why has logistics become increasingly important?
Cost reduction pressures are severe Logistics has a high impact on customer service A strong need exists for demand and supply
planning consistency A focus on core competencies has placed
logistics in the outsourcing “spotlight” Development of IT technology supports
integrated logistics management
Logistics Overview
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Value-added Transportation Concept
Supplier Manufacturer Customer
Inbound Outbound
Product/Info Flows
Info/Return Goods Flows
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Role of TransportationTime and Place Utility:Movement across space or distance.
Place utility - Where it is needed Time utility - created or added by the
warehousing & storage of product until it isneeded.
Also a factor in time utility; it determines how fast and how consistently a product move from one point to another.
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Transportation Role in Value Attainment Process
• Critical element of structure, capacity, and movement decisions
• Both between supply chain members and intra-organizational
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Transportation-Related Service Elements Speed: time-in-transit Availability: accessible to customers when they
want it Dependability: pick-up and delivery time variability Flexibility: adjustment to shipper’s needs
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Role of Transportation in Logistics & Supply Chain Management Transportation Functions, Principles,
ParticipantsTransportation RegulationTransportation Industry StructureTransportation Services
Industry Deregulation
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Economies of Scale
Transportation Cost per Book
Number of Books in Shipment
$.10/book
$100/book
1 1000
The more items (weight) is transported, the less the transportation costs per item (unit of weight)
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Economies of DistanceTapering Principle
Transportation Cost per Mile
Shipment Distance1 mile 1000 miles
$50/mile
$.05/mile$.10/mile
500 miles
The larger the distance, the less the transportation costs per unit of distance (e.g., per mile)
Transportation rates are distance related, not distance proportional
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Transportation Participants
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Economic
Types of Transportation Regulation
• Investments in transportation infrastructure (e.g., highways, airports, ports)
• Control of routes, pricing, schedules
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Economic
Types of Transportation Regulation
• Investments in transportation infrastructure (e.g., highways, airports, ports)
• Control of routes, pricing, schedules
Social/Safety• Protect the public, the environment
• Make sure equipment operates safely, cleanly • Safe transportation of hazardous materials (HAZMAT)• Regulating hours worked
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Pipeline Water
Rail
Air
Highway
Five Basic Transportation Modes
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Basic Modes of TransportationFixed Variable Traffic costs costs composition
Rail high low bulk food, mining, oilheavy mfg
Motor low medium consumer goods,medium/light mfg
Water medium low bulk food, mining, chemicals
Air low high high-value goods,rush shipments
Pipe high low petroleum, chemicals,mineral slurry
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Containerization
Significant growth during Vietnam War Improves efficiency, protects material,
reduces handling & pilferage Sizes: 20 ft (TEU) or 40 ft (FEU) Shorter to permit multiple units on railcars
TEU: 20’ equivalent unit FEU: 40’ Equivalent Unit
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Transportation Functions, Principles, Participants
Transportation Regulation Transportation Industry Structure
Transportation ServicesNon Operating IntermediariesTraditional Transportation CarriersPackage Services Intermodal Transportation
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Third Party Providers The offering of nearly any form of
transportation to a shipper or receiver as part of a total package of logistics services
Shipper or user avoids capital outlays and investment
Focus on core competency--let experts do logistics
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Freight Forwarders Formerly common carriers
– non-asset owning Earn difference between what they charge
(LTL, LCL) and what they pay (CL, TL) Issue bill of lading
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Freight Brokers Intermediaries who bring shippers and carriers
together for a fee Find customers for carriers or carriers for shippers Reduce burden for carriers & shippers Find best means/rate for shippers Help maximize capacity for carrier Information Systems expanding opportunities
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Owner-Operator Own or lease a truck and trailer and make
services available to for-hire carriers Contract out their services to other carriers Provide overflow capacity and flexibility Reduce financial risk to carriers
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Express & Courier TCS, UPS, FEDEX, DHL Fast, door-to-door service Operate large network of terminals, pick up
and delivery vehicles, and line haul Typically under 200 lbs Compete with Postal Service Future good due to expansion and
innovative practices
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What is Intermodal Transportation? The use of two or modes of transportation in moving a
shipment from origin to destination Mostly associated with “piggyback” or container
shipments Combines advantages (and disadvantages) of each
mode used Reduces risk of theft and loss Shortens customer order cycle time and effectively
reduces costs Promotes “seamless” product movement: Eliminates
unnecessary handling
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Intermodal
Enables shippers to benefit from advantages of multiple modes of transportation
minimizes disadvantages of individual modes
Rail
Air Water
Truck
Transshipment Transshipment is the shipment of goods or
containers to an intermediate destination, then to yet another destination.
One possible reason for transshipment is to change the means of transport during the journey (e.g., Machinery from India is often imported through transshipment via Dubai)
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Changing Transportation Environment
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Changing Transportation Environment
Deregulation Time-based competition Expanding geographic coverage Information technology Social and environmental concerns
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Selected Results of the Changing Environment - Economic Impact
Increased competition in individual markets - both within modes and between modes
More efficient carrier operations - less interlining, more direct routing, efficient pricing
Transportation costs declined in real terms and as percent of GDP
Transportation service quality improved
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Selected Results of the Changing Environment - Industry Impact
Consolidation in rail, air and LTL trucking Proliferation of TL carriers Strong growth in regional trucking - networks TL growing faster than LTL Air freight growth Intermodal growth: rail-truck, air-truck, rail-ship Growth of “one-stop shopping” - 3PL Private fleet conversion
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Selected Results of the Changing Environment - Market Impact
Demand for fast, dependable, responsive service at lower cost
Demand for a broader range of services to integrate supply chain functions
Core carrier concept - interdependence between shipper-carrier
Customized price/service packages/contracts Relational view of transportation as a “value-
added” service
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Transportation Management
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Transportation Management
Network Freight Flows: Macro-Decisions
Micro-Decisions Information Systems Support
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Transportation Decision Making in an Integrated Supply Chain
Supplier Manufacturer Customer
Inbound Outbound
Dec
isio
n Fl
ow
Understand total network flows
Understand individual lane flows
Understand current carrier usage patterns
Make mode/carrier decisions
Routing/Scheduling, Load Planning, etc.
Strategic
Operational
Macro
Micro
Dec
isio
n Sc
ope
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Network Freight Flows: A Fully Integrated Approach Managing Inbound-Outbound flows in an
optimal manner requires firm to have a good handle on the entire logistics process
Traditionally view transportation in a vacuum-- need to look at it in the context of the total logistics system
Greatest improvement opportunities lie in integrating transportation with other logistics functional areas such as purchasing, inventory control, forecasting and production scheduling
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Approach to Analysis
1. Analyze lane densities/frequencies: what opportunities emerge for:
inbound/outbound consolidation vehicle consolidation temporal consolidation network consolidation - cross dock
potential (hub and spoke systems)
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Approach to Analysis (cont.)2. Once opportunities for consolidation are visible, make
mode/carrier selection based on service/cost mix Given similar service, are rates better on 1
mode/carrier than another? Does any mode/carrier have relative strengths in a
particular lane? Any backhaul opportunities?
3. If so, look to consolidate loads on mode/carrier with best cost structure - assign private fleet to most costly routes
In the freight industry, freight carried by a trucker to return to his home with a loaded truck, rather than an empty one (as opposed to headhaul, the outgoing freight).
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Consolidation Opportunities
• Inbound-Outbound flow consolidation: look for opportunities to combine inbound/ outbound freight
• Vehicle consolidation: use one vehicle/multi stops for LTL volumes vs. one shipment to each
• Temporal consolidation: hold orders until large volume shipment possible
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Suggested Analyses
Network flows Lane densities, frequencies, consistency Freight distribution by mode, carrier Consolidation opportunities
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Summary
Identify:
Opportunities to achieve balanced flows - obtain
lower rates for providing loads both ways
Significant volumes for rate negotiation
Vehicle/temporal consolidation opportunities
Advantages of reducing number of carriers
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Key Principles of TransportationManagement
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I. Improving Efficiency Rule of efficiency: Straight line, minimize stopping--
avoid damage and cost (delay) Minimize handling: Avoid “handshakes” and attempt to
make process “seamless” Full capacity: Reduce cost per unit Break bulk & consolidation on long haul Avoid empty backhauls Effective Scheduling: “Optimize” labor and equipment
(5%-10%) Transportation rates are distance related, not distance
proportional
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II. Efficient Use of Technology & Equipment
High utilization of expensive assets
Larger the vehicle, the lower the cost per unit
Speed does not equal economical operations
Minimize vehicle gross weight Standardized vehicles and
equipment Balance specialization with
adaptability Examine trade-offs between IT
and traditional logistics functions
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III. Coordinate Operations Coordinate operations with requirements to
ensure trade-offs and appropriate level of service
Cost accountability as part of performance measurement
Reliability is sometimes better than speed Look for opportunities to innovate, but
recognize proven principles
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Customer Service Measures
Order cycle lead time Stock availability/fill rates/stock-outs/back
orders/partial shipments Record integrity Frequency of delivery Delivery reliability Order tracing capability Volume flexibility
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Customer Service Measures
Invoice accuracy Order status information Technical support responsiveness Unscheduled service responsiveness Speed of product feature changes Product and service quality
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Total Cost Concept The total cost concept recognizes that an optimum cost in one
area or function may not lead to an optimum total system cost Total cost analysis requires the management of supply chain
trade-offs Logistical activity areas that drive total logistics costs:
Customer service level costs Inventory carrying costs Lot quantity costs Order processing and information costs Warehousing costs Transportation costs
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Summary-1
The transportation mode available to the logistics manager consists of the basic mode, intermodal and indirect and special carrier
The carrier selection is two fold, selection of the mode and selection of the specific carrier
Factors determining carrier selection include transportation rate, transit time, reliability, capability, accessibility and security
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Summary-2 Railroads offer low cost for long hauls of large volumes,
but they have accessibility limitation and long transit time.
Motor carriers are very accessible and move product in small quantities with low consistent transit times. However their costs are higher than the other modes except air
Water transportation is relatively low cost and is desirable for moving large volume over long distances. The prime disadvantage is long transit time and service disruption caused by weather
Air carriers have very low transit times but very high rates.
Pipelines offer very low rates for the movement of liquids but are not a viable option for manufactured goods.
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Summary-3 Intermodal transportation is the combination of two or
more basic modes to provide through movement. The dominant form is rail-truck or piggyback
Containerization is the shipping of freight in a box or container that is subsequently transferred from one carrier to another. It reduces freight handling and damage while improving transit time.
The transportation system includes a number of indirect and special carriers such as small package carriers, consolidators, freight forwarder, shipper associations, brokers and intermodal marketing companies.
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Reference: The Management of Business Logistics by
J. J. Coyle, E. J. Bardi and C. J. Langley Jr.