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ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
ch01 transport supply chain economy.ppt
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ch01 transport supply chain economy.ppt

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  • 1. Transportation Sixth Edition Coyle, Bardi, & Novack © 2006 Thomson Chapter 1 Transportation, the Supply Chain, and the Economy
  • 2. Chapter 1 Topics <ul><li>The 2000s: A Decade of Challenge </li></ul><ul><li>The Logistics Concept </li></ul><ul><li>The Supply Chain Concept </li></ul><ul><li>Total Cost Analysis </li></ul><ul><li>Business Logistics Activities </li></ul><ul><li>Transportation and the Economy </li></ul>
  • 3. Chapter 1 Topics, cont’d <ul><li>Historical Significance </li></ul><ul><li>Economic Significance </li></ul><ul><li>Environmental Significance </li></ul><ul><li>Social Significance </li></ul><ul><li>Political Significance </li></ul><ul><li>Overview of Modern Transportation </li></ul><ul><li>Overview of Transportation Trends </li></ul>
  • 4. Chapter 1 Topics, cont’d <ul><li>Demand for Transportation </li></ul><ul><li>Demand Measurement Units </li></ul><ul><li>Level of Aggregation </li></ul><ul><li>Demand Elasticity </li></ul><ul><li>Freight Transportation </li></ul><ul><li>Value of Service </li></ul><ul><li>Passenger Transportation </li></ul>
  • 5. The 2000s: Decade of Challenge <ul><li>1990s put focus on business fundamentals </li></ul><ul><ul><li>Quality, value add of customer service </li></ul></ul><ul><li>First decade of 2000s </li></ul><ul><ul><li>Ever increasing customer expectations </li></ul></ul><ul><ul><li>Increasing strategic and operational roles for transport, logistics, and supply chain management in meeting higher expectations </li></ul></ul>
  • 6. The 2000s: Decade of Challenge, cont’d <ul><li>Continuously emerging challenges: </li></ul><ul><ul><li>Increasing e-business activity via Internet </li></ul></ul><ul><ul><ul><li>Fulfillment characterized by </li></ul></ul></ul><ul><ul><ul><ul><li>smaller shipment sizes </li></ul></ul></ul></ul><ul><ul><ul><ul><li>more frequent deliveries </li></ul></ul></ul></ul><ul><ul><ul><ul><li>residential delivery requirements </li></ul></ul></ul></ul><ul><ul><ul><ul><li>push to reduce inventory levels </li></ul></ul></ul></ul><ul><ul><li>Increasing world trade and global business operations </li></ul></ul><ul><ul><ul><li>Lengthening and more transport intensive supply chains </li></ul></ul></ul>
  • 7. The 2000s: Decade of Challenge, cont’d <ul><li>Continuously emerging challenges, cont’d </li></ul><ul><ul><li>Changing nature of business alliances </li></ul></ul><ul><ul><ul><li>Push for asset productivity and improved processes </li></ul></ul></ul><ul><ul><ul><li>Expanding scope of 3PL services </li></ul></ul></ul><ul><ul><ul><li>Alliances among competitors </li></ul></ul></ul><ul><ul><li>Ever changing, more capable technology </li></ul></ul><ul><ul><ul><li>Many operating efficiencies </li></ul></ul></ul><ul><ul><ul><li>Communications (Ex: GPS) </li></ul></ul></ul><ul><ul><ul><li>Data capturing (Ex: RFID) </li></ul></ul></ul>
  • 8. The Logistics Concept <ul><li>Military origins </li></ul><ul><li>Early business applications </li></ul><ul><ul><li>Physical distribution integration </li></ul></ul><ul><ul><li>Materials management integration </li></ul></ul><ul><li>Definition </li></ul><ul><ul><li>Process orientation </li></ul></ul><ul><ul><li>Integrated management </li></ul></ul><ul><ul><li>Systems decision-making framework </li></ul></ul><ul><ul><li>Focus on customer requirements </li></ul></ul>
  • 9.  
  • 10.  
  • 11. The Supply Chain Concept <ul><li>Integrated product, information, and cash flow management throughout channels </li></ul><ul><li>Multi-firm orientation </li></ul><ul><ul><li>Not synonymous with logistics </li></ul></ul><ul><li>Significant role for transportation </li></ul><ul><li>Logistics as enabler of enterprise model </li></ul>
  • 12.  
  • 13. Total-Cost Analysis <ul><li>Interdependencies </li></ul><ul><ul><li>Among logistics activities </li></ul></ul><ul><ul><li>Between functional areas within firm </li></ul></ul><ul><ul><li>Between firm and supply chain partners </li></ul></ul><ul><li>Cost trade-offs within systems </li></ul><ul><ul><li>Need for system-wide analysis </li></ul></ul><ul><li>Objective of total-cost reduction </li></ul><ul><li>Importance of service level choice </li></ul><ul><ul><li>Relation to revenue generation, strategy </li></ul></ul>
  • 14. Business Logistics Activities <ul><li>Movement-storage interaction </li></ul><ul><li>Impact of transportation decisions on other corporate functions </li></ul><ul><li>Utility creation </li></ul><ul><li>Materials management </li></ul><ul><li>Physical distribution </li></ul>
  • 15.  
  • 16. Transportation and the Economy <ul><li>Transportation: a tool of civilized societies </li></ul><ul><ul><li>Essential element of daily life </li></ul></ul><ul><li>Conceptual views of transportation </li></ul><ul><ul><li>Enabler of utility creation </li></ul></ul><ul><ul><li>As a bundle of services at a certain cost </li></ul></ul><ul><ul><li>Factor of production </li></ul></ul><ul><ul><li>Market access </li></ul></ul><ul><ul><li>Spatial and temporal relationships </li></ul></ul>
  • 17. Historical Significance <ul><li>Development of civilization </li></ul><ul><li>Creation of social structures </li></ul><ul><li>Communication </li></ul><ul><li>Facilitation of trade </li></ul><ul><li>Military conquest and national defense </li></ul>
  • 18. Economic Significance Conceptual Foundations <ul><li>Value of goods </li></ul><ul><ul><li>Place utility, Lardner’s Law, producer-consumer gap </li></ul></ul><ul><ul><li>Time and quantity utilities </li></ul></ul><ul><li>Utility of goods: additional concepts </li></ul><ul><ul><li>Geographic specialization </li></ul></ul><ul><ul><li>Large-scale production </li></ul></ul><ul><ul><li>Increased competition </li></ul></ul><ul><ul><li>Land values </li></ul></ul>
  • 19.  
  • 20.  
  • 21. Economic Significance, cont’d <ul><li>Transportation patterns </li></ul><ul><ul><li>Patterns of trade </li></ul></ul><ul><ul><li>Impact on population locations </li></ul></ul><ul><li>Gross Domestic Product (GDP) </li></ul><ul><ul><li>Measure of the size of the economy </li></ul></ul><ul><ul><ul><li>Transport: 15.7% of GDP in 2001 </li></ul></ul></ul><ul><ul><ul><li>Downward trend due to improving transport productivity </li></ul></ul></ul><ul><li>Modal split – passengers, freight </li></ul>
  • 22.  
  • 23.  
  • 24.  
  • 25. Environmental Significance <ul><li>The Environment </li></ul><ul><ul><li>Air quality </li></ul></ul><ul><ul><li>Acid rain </li></ul></ul><ul><ul><li>Global climate changes </li></ul></ul><ul><ul><li>Maritime and water quality </li></ul></ul><ul><ul><li>Noise </li></ul></ul><ul><li>Safety </li></ul><ul><li>Substance Abuse </li></ul>
  • 26. Social Significance <ul><li>Employment </li></ul><ul><ul><li>Approx. 4.7 million(10%) workers employed in transport in U.S. (2000) </li></ul></ul><ul><ul><li>Employment growing </li></ul></ul><ul><li>Enhancement of health and welfare </li></ul><ul><ul><li>Social integration </li></ul></ul><ul><ul><li>Famine and other disaster relief efforts </li></ul></ul>
  • 27.  
  • 28. Political Significance <ul><li>Governmental responsibility </li></ul><ul><ul><li>Regulatory role examples </li></ul></ul><ul><ul><ul><li>Common carrier concept </li></ul></ul></ul><ul><ul><ul><li>Power of eminent domain </li></ul></ul></ul><ul><ul><li>Promotional role examples </li></ul></ul><ul><ul><ul><li>Facilitation of commerce </li></ul></ul></ul><ul><ul><ul><li>Preservation of national defense </li></ul></ul></ul>
  • 29. Overview of Modern Transportation <ul><li>Prior material: broad impact of transport </li></ul><ul><ul><li>Economic (micro and macro) </li></ul></ul><ul><ul><li>environmental, social, political </li></ul></ul><ul><li>Three decision-making groups shape the transport system : </li></ul><ul><ul><li>Users: create the demand requirements </li></ul></ul><ul><ul><li>Providers: supply, operate, and manage services to meet demand </li></ul></ul><ul><ul><li>Government: develop policy, supply infrastructure, and regulate </li></ul></ul>
  • 30. Overview of Transportation Trends <ul><li>Key trends in demand for transport services </li></ul><ul><li>Key trends in supply, operation, and management of transport services </li></ul><ul><li>Key trends in government policy and regulation </li></ul>
  • 31. Demand for Transportation <ul><li>Demand measurement units </li></ul><ul><ul><li>Ton-miles (freight) </li></ul></ul><ul><ul><li>Passenger-miles (people) </li></ul></ul><ul><ul><li>Heterogeneous units: Two units may have </li></ul></ul><ul><ul><ul><li>Very different costs of production </li></ul></ul></ul><ul><ul><ul><li>Very different service requirements </li></ul></ul></ul><ul><li>Levels of aggregation </li></ul><ul><ul><li>Total </li></ul></ul><ul><ul><li>By mode </li></ul></ul><ul><ul><li>By carrier </li></ul></ul>
  • 32. Demand (price) elasticity <ul><li>Sensitivity of demand to price change </li></ul><ul><li>Relative measure between price change and quantity change </li></ul><ul><ul><li>% change in quantity  % change in price </li></ul></ul><ul><li>Terminology </li></ul><ul><ul><li>Price elastic: demand is sensitive to price change </li></ul></ul><ul><ul><li>Price inelastic: demand is insensitive to price change </li></ul></ul>
  • 33. Demand (price) elasticity, cont’d <ul><li>If % change in quantity < % change in price, then demand is price inelastic (insensitive to price change) </li></ul><ul><ul><li>Price increase leads to revenue increase </li></ul></ul><ul><ul><li>Price reduction leads to revenue reduction </li></ul></ul><ul><li>If % change in quantity > % change in price, then demand is price elastic </li></ul><ul><ul><li>Price increase leads to revenue reduction </li></ul></ul><ul><ul><li>Price reduction leads to revenue increase </li></ul></ul>
  • 34. Demand (price) elasticity, cont’d <ul><li>Aggregate demand for freight transportation tends to be price inelastic </li></ul><ul><ul><li>Cost for transport generally small % of product’s landed cost </li></ul></ul><ul><li>Demand for particular mode or carrier tends to be price elastic </li></ul><ul><ul><li>Often, substitutes are available </li></ul></ul><ul><li>Service elasticity </li></ul>
  • 35. Freight Transportation Demand Characteristics <ul><li>Derived demand </li></ul><ul><ul><li>Def: Demand for transport service to move a product to a given location depends upon the existence of demand to consume (use) that product at that location </li></ul></ul><ul><ul><ul><li>Remember, demand is a relationship between price and quantity demanded </li></ul></ul></ul><ul><ul><li>Aggregate demand for freight transport cannot be easily affected by carrier actions </li></ul></ul>
  • 36.  
  • 37. Value of (Transport) Service, cont’d <ul><li>Transport cost is a component of a product’s landed cost </li></ul><ul><ul><li>Transport costs influence a producer’s landed cost advantage/disadvantage in distant markets, thus determining the value of the transport service to the producer </li></ul></ul><ul><ul><li>Similar to place utility concept </li></ul></ul><ul><li>Landed cost also determines extent or range of a producer’s market area (Lardner’s Law) and thus value of transport service </li></ul>
  • 38. Freight Rate Equalization <ul><li>To increase market area freight rates are equalized (averaged) with mor distant points being subsidized and nearer points penalized </li></ul><ul><li>Can be national in scope or regional </li></ul><ul><li>Freight rates are part of product pricing strategy </li></ul>
  • 39.  
  • 40. Value of (Transport) Service, cont’d <ul><li>Service components of freight demand </li></ul><ul><ul><li>Transit time </li></ul></ul><ul><ul><ul><li>Volume and cost of holding inventory </li></ul></ul></ul><ul><ul><ul><li>Potential stockout costs </li></ul></ul></ul><ul><ul><li>Reliability or consistency of transit time </li></ul></ul><ul><ul><ul><li>Safety stock and/or stockout costs </li></ul></ul></ul><ul><ul><li>Accessibility: impacts transport cost and time </li></ul></ul><ul><ul><li>Capability: “special” service requirements </li></ul></ul><ul><ul><li>Security: safety stocks and stockout costs </li></ul></ul>
  • 41. Passenger Transportation <ul><li>Expenditures for passenger movement </li></ul><ul><ul><li>10% of GDP </li></ul></ul><ul><li>Intercity (long-distance) passenger travel </li></ul><ul><ul><li>Demand influenced by trip purpose </li></ul></ul><ul><ul><ul><li>Business travel - schedule-sensitive </li></ul></ul></ul><ul><ul><ul><li>Vacation travel - price-sensitive </li></ul></ul></ul><ul><ul><ul><li>Personal travel </li></ul></ul></ul><ul><li>Urban transit (intracity passenger travel) </li></ul>
  • 42. Passenger Demand Characteristics <ul><li>Destination </li></ul><ul><li>Schedules and speed </li></ul><ul><li>Cost </li></ul><ul><li>Equipment </li></ul><ul><li>Entertainment and Attention </li></ul><ul><li>Terminals </li></ul><ul><li>Complaints and Experiences </li></ul>

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