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  • 1. TransportationSeventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning
    Chapter 1
    Transportation: Critical Link in the Supply Chain
    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.
  • 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.
    2
    Introduction
    Chapter focus: The role transport plays in:
    Fostering improved supply chain integration
    Integration is not achievable without effective transport
    Helping organizations to be more efficient and effective
    Chapter organization
    Conceptual dimensions of transport
    Fundamentals of supply chain management
    Role of transport in the supply chain
  • 3. IntroductionEconomics of Transportation
    Transportation
    Pervasive element of daily life
    Impacts citizens’
    Economic well being
    Safety
    Social interaction
    Quality of physical environment
    Quality of daily life
    Chapter focuses on the economic impact
    © 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.
    3
  • 4. IntroductionDemand for Transportation
    Regions or areas tend to specialize in certain economic activities
    This specialization creates physical gap between markets and areas of production for a given good
    This gap creates a demand for transport
    Fundamental economic role of transport is to bridge this supply-demand gap
    © 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.
    4
  • 5. © 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.
    5
    IntroductionTransport Measurement Units
    Typical measurement units
    Ton-miles (freight) and passenger-miles (people)
    Caution: Both units are heterogeneous. Two units may have
    Very different costs of production
    Very different service requirements
    Levels of measurement unit aggregation
    Total transport output (freight or passenger)
    Transport output by mode (mode share)
    Transport output by carrier (market share)
  • 6. © 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.
    6
  • 7. © 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.
    7
  • 8. © 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.
    8
    Introduction Price Elasticity of Demand
    Sensitivity of demand to price change
    Relative measure between price change and quantity change. Measured as:
    % change in quantity ¸ % change in price
    Terminology
    Price elastic: demand is sensitive to price change
    Price inelastic: demand is insensitive to price change
  • 9. © 2011Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
    9
    Introduction Price Elasticity of Demand
    If % change in quantity < % change in price, then demand is price inelastic (insensitive to price change)
    Price increase leads to revenue increase
    Price reduction leads to revenue reduction
    If % change in quantity > % change in price, then demand is price elastic
    Price increase leads to revenue reduction
    Price reduction leads to revenue increase
  • 10. © 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.
    10
    Introduction Price Elasticity of Demand
    Aggregate demand for freight transportation tends to be price inelastic
    Cost for transport generally small % of product’s landed cost
    Demand for particular mode or carrier tends to be price elastic
    Often, substitutes are available
    Service elasticity
  • 11. © 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.
    11
    Freight TransportationDerivedDemand
    Definition of derived demand
    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
    Remember, demand is a relationship between price and quantity demanded
    Aggregate demand for freight transport cannot be easily affected by individual carrier actions
  • 12. © 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.
    12
  • 13. © 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.
    13
    Value of (Transport) Service
    Transport cost is a component of landed cost
    Landed cost includes:
    Cost of production
    Transport cost from production point to market
    Transport costs influence a producer’s landed cost advantage/disadvantage vs. competitors, thus determining the market value of the transport service
    Similar to place utility concept (see Ch. 2)
    Landed cost also determines extent or range of a producer’s market area (Lardner’s Law) and thus the value of transport service
  • 14. © 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.
    14
  • 15. © 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.
    15
  • 16. © 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.
    16
    Value of (Transport) ServiceService Components of Freight Demand
    Critical service characteristics and related supply chain cost impacts
    Transit time
    Volume and cost of holding inventory
    Potential stockout and/or safety stock costs
    Reliability or consistency of transit time
    Safety stock and/or stockout costs
    Accessibility: impacts transport cost and time
    Capability: “special” service requirements
    Security: safety stocks and/or stockout costs
  • 17. Value of (Transport) ServiceLocation of Economic Activity
    Historically, transportation influences location of cities, particularly ports
    For firms, transport influences the location of manufacturing plants and distribution facilities
    Influences very pronounced for firms producing or marketing globally
    Influences are dynamic
    As economic activity locations shift, the pattern of transport demand also shifts and vice versa
    © 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.
    17
  • 18. Supply Chain ConceptDevelopment of the Concept
    Concept evolves in three phases
    1960s: physical distribution concept
    1980s: business logistics or integrated logistics
    1990s: supply chain management concept
    A systems approach to analysis and decision-making is common to all three phases
    © 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.
    18
  • 19. Supply Chain ConceptDevelopment of the Concept
    Physical distribution concept
    Focuses on physical distribution system costs and tradeoffs
    Objective was to find lowest total physical distribution system cost
    Example: transportation mode or carrier selection
    Involves tradeoffs between transport, inventory, materials handling, and packaging 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.
    19
  • 20. Supply Chain ConceptDevelopment of the Concept
    Business logistics concept
    Adds analysis of inbound or sourcing side to the outbound physical distribution side
    Development facilitated by
    Economic deregulation of transport in U.S.
    Rising degree of international or global sourcing
    Both create additional opportunities for cost savings through integrated management and coordination
    Notion that logistics contributes to customer service and revenue generation begins to emerge
    © 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.
    20
  • 21. Supply Chain ConceptDevelopment of the Concept
    Supply chain management concept
    Key underlying principles
    Systems analysis and management
    3 key flows: product, information, and cash
    Integrated management of extended enterprise
    Focus on ultimate consumer of end product
    Transport: most direct influence on product flow
    Product flow is two way
    Growing importance of reverse logistics systems
    © 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.
    21
  • 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.
    22
  • 23. Supply Chain ConceptDevelopment of the Concept
    Information flow
    Sales trigger replenishment orders flowing upstream
    Traditionally, replenishment orders used by upstream supply chain members to forecast downstream demand
    Long intervals between orders create demand uncertainty
    Safety stocks used to buffer against uncertainty
    Magnitude of uncertainty and safety stocks amplify upstream in a phenomenon known as the bullwhip effect
    SC compression via improved two-way information flow reduces uncertainty and cost impact of bullwhip effect
    Transport carriers contribute to uncertainty reduction (reliable and fast deliveries) and improved two-way info flow (advanced shipment notices, bar codes, radio frequency tags)
    © 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.
    23
  • 24. Supply Chain ConceptDevelopment of the Concept
    Financial or cash flow
    Payments flowing upstream for goods ordered
    If order and replenishment cycles shorten (orders and product flow faster) then cash flows faster
    Faster cash flow reduces working capital requirements for financing operations and processes and contributes to improved profitability
    “free” cash flow cycle
    High transport service levels contribute to improved customer service and faster cash flow
    © 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.
    24