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Chapter1

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