Management of
Transportation
Seventh Edition
Coyle, Novack, Gibson &
Bardi
© 2011 Cengage Learning
Chapter 11
Carrier Stra...
2
CBN Trucking
• Regional LTL facing strategic challenges
– Strengths: growing revenues, good customer
loyalty, adding new...
3
CBN Trucking, cont’d
• Recognize unique economic characteristics
of transportation
– Derived demand
– Services cannot be...
4
Carrier Operating Conditions
• Introduction
– Operating conditions create the competitive
environment
– Carrier competit...
5
Carrier Operating Conditions, cont’d
• Operating network
– Larger the geographic spread of the network, the
more difficu...
6
Carrier Operating Conditions, cont’d
• Operations
– Safety requires extensive operating rules/regulations
• Carrier and ...
7
Carrier Operating Conditions, cont’d
• Labor
– Labor intensity varies by mode
– Transport has high degree of unionizatio...
8
Carrier Operating Conditions, cont’d
• Performance measures
– Service-related measures
• Each measure impacts an aspect ...
9
Carrier Operating Conditions, cont’d
• Performance measures, cont’d
– Financial measures
• Profitability oriented measur...
10
Carrier Operating Conditions, cont’d
Financial Performance Measures, cont’d
• Liquidity measures, cont’d
– Working capi...
11
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessi...
12
Operating Strategies
• Rule of efficiency: Most efficient to move
in continuous, straight line when possible
– Minimize...
13
Operating Strategies, cont’d
• Maximize capacity utilization on each run
– Once run is scheduled, more costs are fixed ...
14
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessi...
15
Operating Strategies, cont’d
• Minimize empty mileage
– No revenue earned when empty, yet vehicle
operating costs chang...
16
Technology and Equipment
• As vehicle capacity increases
– Vehicle capital costs rise, but at a slower rate
than vehicl...
17
Technology and Equipment
• Route characteristics determine required
vehicle power, speed and maneuverability
– Lower ho...
18
Technology and Equipment, cont’d
• Fastest speed not necessarily most efficient
– Relates closely to fuel consumption
F...
19
Technology and Equipment, cont’d
• Minimize vehicle (tare) weight relative to
gross (tare plus freight) weight
– Gross ...
20
Technology and Equipment, cont’d
• Maximize vehicle cubic capacity
– Vehicle cubic capacity a function of vehicle
dimen...
21
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessi...
22
Technology and Equipment, cont’d
• Standardize equipment when possible
– Lowers operating and perhaps capital costs by
...
23
Hub-and-Spoke Route System
• Evolved in 1970s and 1980s
– Done to improve vehicle utilization on long
distance routes
–...
24
Figure 11-2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publ...
25
Marketing
• Service marketing differs from product
marketing
– Services are intangible
– More of a focus on the service...
26
Marketing, cont’d
• Market orientated carriers view themselves as
part of shippers logistics system
– Stress customer s...
27
Coordination
• Marketing and operations can have
conflicting objectives
– Well-managed carrier ensures that:
• Marketin...
28
Challenges Affecting Carrier Mgmt.
• Operations are geographically dispersed
– Op. employees may receive minimum superv...
29
Challenges Affecting Carrier Mgmt.
Cont’d
• Organizational structures
– Historically, strong vertical hierarchies by
fu...
30
The Terminal
• General nature
– Nodes in network where freight/passengers are
stopped for value-adding activities
• Con...
31
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessi...
32
The Terminal, cont’d
• Terminal ownership
– Privately owned terminals
• Capital costs are assets on carrier’s balance s...
33
The Terminal, cont’d
• Types of terminals
– Rail
• Hump or marshalling yards
• Transloading terminals
– Water: harbors ...
34
The Terminal, cont’d
• Types of terminals, cont’d
– Motor carrier (LTL)
• Pick-up and delivery terminals (PUD)
– Known ...
35
The Terminal, cont’d
• Types of terminals, cont’d
– Motor carrier (LTL), cont’d
• Break-bulk terminal
– Consolidation a...
36
The Terminal, cont’d
• Terminal management decisions
– Number of terminals
• Most relevant for LTL carriers
• Decision ...
37
The Terminal, cont’d
• Terminal management decisions, cont’d
– Locations of terminals
• Most relevant to LTL carriers
•...
38
The Terminal, cont’d
• Terminal management decisions, cont’d
– Equipment selection and development
• Positioning is a c...
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Transport Management & Theory Practices (10)

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Transport Management & Theory Practices (10)

  1. 1. Management of Transportation Seventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning Chapter 11 Carrier Strategies © 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. 2. 2 CBN Trucking • Regional LTL facing strategic challenges – Strengths: growing revenues, good customer loyalty, adding new customers – Weaknesses/challenges • Falling profit margins • Rising resource (supplier) costs • IT systems incapable of meeting customer requirements • Productivity steady but not improving • Market encroachment from substitute services • Traffic congestion impairing performance and market reach © 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. 3. 3 CBN Trucking, cont’d • Recognize unique economic characteristics of transportation – Derived demand – Services cannot be stored © 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. 4. 4 Carrier Operating Conditions • Introduction – Operating conditions create the competitive environment – Carrier competitive strategies/tactics • Constrained by operating conditions • May be able to manipulate same conditions for competitive advantage – Operating conditions include • Operating network • Operations • Labor • Performance measures © 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. 5. 5 Carrier Operating Conditions, cont’d • Operating network – Larger the geographic spread of the network, the more difficult the operation is to manage • Deployment of assets/equipment to distant locations • Long empty backhauls • May operations performed beyond scope of supervisors • Network is interrelated, one part may affect another 1000s of mile away • Greater exposure to weather conditions, hazards, traffic congestion, theft, and calamities, all often beyond mgmt. control © 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. 6. 6 Carrier Operating Conditions, cont’d • Operations – Safety requires extensive operating rules/regulations • Carrier and government issued • Gov’t issued regulations by mode – Ex: trucking, regulations cover » Equipment, equipment operation, driving time • Gov’t issued regulations by characteristic of commodity – Ex: transport of hazardous materials, transport of large loads • Regulations designed to protect – Traveling and shipping public – Public in general – Transport operators © 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. 7. 7 Carrier Operating Conditions, cont’d • Labor – Labor intensity varies by mode – Transport has high degree of unionization • Unions tend to be craft-based • Multiple craft unions increases management challenge, risk of shutdown from strikes – Government tends to have a higher degree of involvement in transport labor-mgmt. relations • Justified by economic and safety significance of transport © 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. 8. 8 Carrier Operating Conditions, cont’d • Performance measures – Service-related measures • Each measure impacts an aspect of shipper inventory costs • Examples – Transit time length: pickup to delivery » Cycle stocks – Transit time consistency/reliability » Safety stocks and stockout costs – Freight damage » Safety stock and stockout 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.
  9. 9. 9 Carrier Operating Conditions, cont’d • Performance measures, cont’d – Financial measures • Profitability oriented measures – Profit margin: Net income/Op. revenue – Operating ratio: Op. expense/Op. revenue – Return on assets: Net income/Total assets – Return on equity: Net income/Total equity • Liquidity measures: ability to meet current financial obligations – Current ratio: Cur. Assets/Cur. liabilities – Acid test ratio: Cur. Assets-Inv./Cur. liabilities © 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. 10. 10 Carrier Operating Conditions, cont’d Financial Performance Measures, cont’d • Liquidity measures, cont’d – Working capital: Cur. assets – cur. liabilities – Cash flow: Net inc. + Depreciation + Def. Taxes • Solvency measures: considers ability to pay principal and interest on long-term debt – Debt ratio: Total liabilities/Total assets – Debt-to-equity ratio: Total liabilities/Total equity » High ratio means creditors have greater claim on than owners due • Examples © 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. 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. Table 11- 1
  12. 12. 12 Operating Strategies • Rule of efficiency: Most efficient to move in continuous, straight line when possible – Minimize circuitry, sporadic movement – Ex. applications: unit trains • Minimize intermediate handlings – Ex: run-through trains, interlined trailers, use of containers © 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. 13. 13 Operating Strategies, cont’d • Maximize capacity utilization on each run – Once run is scheduled, more costs are fixed w/r volume or weight carried • Higher utilization lowers average costs – Various means for improving capacity utilization • Delaying vehicle dispatch • Pricing incentives • Consolidation, break-bulk • Rerouting partially filled vehicles • Investing in automated loading/unloading equipment © 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. 14. 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. Table 11-2
  15. 15. 15 Operating Strategies, cont’d • Minimize empty mileage – No revenue earned when empty, yet vehicle operating costs change little, loaded or empty – Much effort spent on finding return hauls • Match availability and use of labor and equipment with demand – Responsibility of scheduling planners and dispatchers © 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. 16. 16 Technology and Equipment • As vehicle capacity increases – Vehicle capital costs rise, but at a slower rate than vehicle capacity • Example of economies of scale (falling average costs as scale (capacity) increases – Vehicle operating costs rise, but at a slower rate than vehicle capacity • Example of economies of utilization (falling average costs as an existing capacity is more fully used)
  17. 17. 17 Technology and Equipment • Route characteristics determine required vehicle power, speed and maneuverability – Lower horsepower tractors used for local delivery • Match vehicle capacity to route demand and required service frequency Table 11-3 © 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. 18. 18 Technology and Equipment, cont’d • Fastest speed not necessarily most efficient – Relates closely to fuel consumption Figure 11-1 © 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.
  19. 19. 19 Technology and Equipment, cont’d • Minimize vehicle (tare) weight relative to gross (tare plus freight) weight – Gross vehicle weights constrained by • Propulsion systems • Infrastructure regulations – Steps taken to reduce tare weight • Materials used • Minimize exterior paint on vehicle © 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. 20. 20 Technology and Equipment, cont’d • Maximize vehicle cubic capacity – Vehicle cubic capacity a function of vehicle dimensions - height, length and width – Dimensions constrained by safety regulations and infrastructure (way) limitations – Vehicle dimensions have major financial implications for transporters of low density freight, such as household goods © 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. 21. 21 © 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. Table 11-4
  22. 22. 22 Technology and Equipment, cont’d • Standardize equipment when possible – Lowers operating and perhaps capital costs by simplifying • Planning, purchasing, crew training, • Vehicle maintenance, spare parts inventories • Market and commodity requirements may warrant specialized equipment – Requires careful assessment of tradeoffs with advantages of standardized equipment © 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. 23. 23 Hub-and-Spoke Route System • Evolved in 1970s and 1980s – Done to improve vehicle utilization on long distance routes – Assists in matching vehicle size to route volume – Can improve schedule frequency © 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. 24. 24 Figure 11-2 © 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.
  25. 25. 25 Marketing • Service marketing differs from product marketing – Services are intangible – More of a focus on the service provider – Services are labor intensive and thus subject to more variability – Simultaneous production and consumption of services – Services are perishable © 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.
  26. 26. 26 Marketing, cont’d • Market orientated carriers view themselves as part of shippers logistics system – Stress customer satisfaction, flexible operations – Willingness to tailor services – Taking on more value adding tasks • Development of third-party (3PL) operations – Carriers establish subsidiaries – Customers outsource more logistics-related tasks © 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.
  27. 27. 27 Coordination • Marketing and operations can have conflicting objectives – Well-managed carrier ensures that: • Marketing considers operational costs in its efforts • Operations keeps constant eye on service performance • Accountability for profitability runs throughout the organization © 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.
  28. 28. 28 Challenges Affecting Carrier Mgmt. • Operations are geographically dispersed – Op. employees may receive minimum supervision – Accountability gets lost on long shipments – May require tight controls, decentralized management structures, close communications – Trends in leading carriers • More sophisticated training for customer-facing employees • Employee empowerment • Performance measurement • Adoption of wireless and satellite communication © 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.
  29. 29. 29 Challenges Affecting Carrier Mgmt. Cont’d • Organizational structures – Historically, strong vertical hierarchies by functional area or skill • Disadvantages of: – Inflexible, resistant to change – Hindrance to cross-functional communications at middle and lower management levels – Can develop goals inconsistent with corporate goals • Difficult to determine costs – Affected by many factors that vary from situation to situation © 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.
  30. 30. 30 The Terminal • General nature – Nodes in network where freight/passengers are stopped for value-adding activities • Consolidation or concentration • Dispersion or break-bulk • Shipment services – Storage, billing (ticketing), routing • Vehicle services • Shipment process services – Weighing, customs, claims processing, interchange © 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.
  31. 31. 31 © 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. Figure 11-3
  32. 32. 32 The Terminal, cont’d • Terminal ownership – Privately owned terminals • Capital costs are assets on carrier’s balance sheet • Once constructed, then capital costs are fixed • Railroads, trucking, pipelines, air freight – Publicly provided terminals • Carriers charged fees for use • Air and most post facilities © 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.
  33. 33. 33 The Terminal, cont’d • Types of terminals – Rail • Hump or marshalling yards • Transloading terminals – Water: harbors and ports – Air: some variation in functions of freight and passenger terminals – Pipeline: storage facilities and pumping stations – Motor carrier (truckload) © 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.
  34. 34. 34 The Terminal, cont’d • Types of terminals, cont’d – Motor carrier (LTL) • Pick-up and delivery terminals (PUD) – Known as satellite or end-of-line terminal – Interacts most directly with customers – Served by peddle runs – Functions include » consolidation and dispersion, cross-docking » Tracing, rating, billing, sales, claims – Improved IT is enabling centralization of some traditional PUD functions © 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.
  35. 35. 35 The Terminal, cont’d • Types of terminals, cont’d – Motor carrier (LTL), cont’d • Break-bulk terminal – Consolidation and dispersion – Little direct customer contact – Over the road driver domiciles • Relay terminal – Service facilities for drivers and equipment – Provide layovers for drivers on long runs between break- bulks – Do not handle freight © 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.
  36. 36. 36 The Terminal, cont’d • Terminal management decisions – Number of terminals • Most relevant for LTL carriers • Decision depends upon – Degree of desired market penetration – Degree of required customer service – “Fit” in network » PUD terminals married to break-bulks, thus, break- bulk capacity influences number of PUD terminals – Total cost • Trend has been to reduce number of terminals – Speeds transit times, reduces capital requirements, reduces handling of freight © 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.
  37. 37. 37 The Terminal, cont’d • Terminal management decisions, cont’d – Locations of terminals • Most relevant to LTL carriers • Factors in decision – Driver hours of service regulations – For PUD’s, degree of backhauling to break-bulk – Market penetration and potential © 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.
  38. 38. 38 The Terminal, cont’d • Terminal management decisions, cont’d – Equipment selection and development • Positioning is a critical operating decision • Most modes have varying equipment types that most constantly be positioned in appropriate markets, terminals and routes – When power units can be separated from freight carrying unit, then positioning becomes more complex – Some equipment is dedicated to particular customers, further complicating positioning © 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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