1. Management of
Transportation
Seventh Edition
Coyle, Novack, Gibson &
Bardi
© 2011 Cengage Learning
Chapter 13
Shipper Strategies
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or duplicated, or posted to a publicly accessible website, in whole or in part.

2. 2
Transportation Management
• Term applied to the shipper’s purchase and
control of transportation services
– Replaced traffic management
– Now has strategic and operational orientation
– Changing goals over time, evaluated based on
• Minimize transport costs
• Minimize total logistics costs
• Meet customer service goals in cost-efficient manner
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or duplicated, or posted to a publicly accessible website, in whole or in part.

3. Transportation Management
• Trans. mgmt. as a
procurement function
– Procurement -
obtaining goods and
services for the firm,
includes analysis and
activities
• Quality
• Pricing
• Specification
• Supply source
• Negotiations
• Inspection and
assurance of quality
• Timing
• Conducting value
analysis of alternative
methods and sources
• Capital analysis
• Make or buy decision
• Legal and regulatory
constrains
• General management
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or duplicated, or posted to a publicly accessible website, in whole or in part.
3

4. 4
Shipper Transportation Strategy
• Designed to support logistics, corporate, and supply
chain strategies
• General strategy (applies to all shipment types)
– Proactive management
• Problem solving orientation
• Seek ways to use transport for competitive advantage
– Improve information
• Availability (flow), quality, use for manager to plan & control
transportation activities
• Transportation costs, shipment volume, carrier performance are
typical data collected, essential for carrier negotiation, contracting,
etc© 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
Figure 13-
1
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or duplicated, or posted to a publicly accessible website, in whole or in part.

6. 6
Shipper Transport Strategy, cont’d
• General strategy, cont’d
– Limit number of carriers used
• Strengthens market power
• “Core” carriers; Risk: increases dependability on carriers used
– Carrier negotiation
• Market power determines the shipper’s ability to negotiate
acceptable rates and services
• Also determines by the characteristics of freight – low density,
hard to handle, easily damaged, low value, empty backhaul, etc
© 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
Shipper Transport Strategy, cont’d
• General strategy, cont’d
– Contracting
• Realize the lower rates and necessary service levels
• During the term of contract, the shipper is
guaranteed the contract rate and service, equipment
and liability
– Review private motor carrier transport
• Outsourced?
• Some shippers manage their private fleets as a profit
centers
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or duplicated, or posted to a publicly accessible website, in whole or in part.

8. 8
Shipper Transport Strategy, cont’d
• Small shipment strategy
– Thrust – to reduce high transport costs/lbs. associated
with small shipments
– Freight consolidation
• Match shipments going to same geographic area
• Facilitated by order entry system
– Utilize pooling services for different consignees
– Stopping-in-transit service allows shipper to load a
number of shipments on a vehicle and stop along the
way to unload the individual shipment
– Avoid private carriage
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or duplicated, or posted to a publicly accessible website, in whole or in part.

9. 9
Table 13-1
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or duplicated, or posted to a publicly accessible website, in whole or in part.

10. 10
Figure 13-
2
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or duplicated, or posted to a publicly accessible website, in whole or in part.

11. 11
Shipper Transport Strategy, cont’d
• Bulk shipment strategy
– Long-term contracting
• Recognition of mutual dependency
– Seek balanced (by direction) loads – eliminate
the empty backhaul costs
• Inbound transportation strategy
– Taken on added significance
• Manipulate terms of sale
– Use same general strategy thrusts
– Reverse logistics
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or duplicated, or posted to a publicly accessible website, in whole or in part.

12. 12
Shipper Transport Strategy, cont’d
• Reverse logistics
– The handling of return goods, as well as salvage and
scrap disposal (waste materials)
– Buyer may return items to the seller due to product
defects, overages, shipping errors
– Customers return products for warranty repair,
replacement, remanufacturing, or recycling,
– Reverse logistics are high relative to forward logistics
costs some as much as five to nine times more than
moving the same product from producer to consumer
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or duplicated, or posted to a publicly accessible website, in whole or in part.

13. 13
Line Aspects of Transport Mgmt.
• Daily activities of transport management
• Shipment planning
– Monitor flow requirements, schedule shipping
• Carrier selection
• Ordering service
– More frequent use of electronic means
• Expediting/tracing
– Critical control tool
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or duplicated, or posted to a publicly accessible website, in whole or in part.

14. 14
Line Aspects of Trans. Mgmt., cont’d
• Pre-auditing/rating
– Determining proper freight charges
• Auditing/paying the freight bill
• Detention/demurrage processes
• Claims
– Carrier liability
– Carmack Amendment exceptions to liability
– Claims filing process
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or duplicated, or posted to a publicly accessible website, in whole or in part.

15. 15
Line Aspects of Trans. Mgmt., cont’d
• Private car and motor carrier fleet mgmt.
• Transportation budget management
• Staff and administrative aspects
• Mode selection
• Monitoring service quality
– Developing and using carrier evaluation reports
• Service/supply assurance
• Negotiations
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or duplicated, or posted to a publicly accessible website, in whole or in part.

16. 16
Line Aspects of Trans. Mgmt., cont’d
• Regulatory matters
• Policy matters
• Planning annual transport requirements
• Budgeting
• Information systems
• Systems analysis
• Management and executive development
• Trans. dept. human resources management
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17. 17
Mode Selection Process
• Transport selection decision: 2-part
decision
– Mode selection
– Carrier selection
• Process begins with cost and service goals
– Definition of cost and service measures
• Selection criteria/measures
– Transportation costs
• Rates and charges assessed by mode
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18. 18
Mode Selection Process, cont’d
• Selection criteria/measures, cont’d
– Transit time and transit time reliability
• Affect inventory and stockout costs
– Accessibility
– Capability
– Security, damage, loss
• Affect inventory and stockout costs
• Strategic significance of mode selection
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19. 19
Carrier Selection Process
• Can consider same five selection criteria
– Usually, accessibility and capability are similar
among carriers in a given mode
– Often more specific measures utilized
– Relative importance
• Transit time reliability
• Transport rate
• Total transit time
• Willingness to negotiate
• Carrier financial stability
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20. 20
Relationship Management
• Core aspect of the boundary-spanning
environment of logistics and SC mgmt.
• For each non-in-house activity, firm must
develop proper relationship with suppliers
• Well executed relationship management
between shipper/carrier is critical given
position of transport
– Last link between shipper and customer
– Potential role in corporate strategy
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or duplicated, or posted to a publicly accessible website, in whole or in part.

21. 21
Types of Buyer/Seller Relationships
• Arm’s length relationships
– Most common: transaction-specific ;
relationships last for a single transaction
between two parties, and no commitments are
made for future transaction
– Defining factor in supplier selection: usually price
• Reduced opportunity for long-term cost reduction
– Viewed by many as inefficient
– Appropriate when service is viewed as commodity
or standard requirement
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22. 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.
Figure 13-
4

23. 23
Types of Buyer/Seller Relationships, cont’d
• Type I partnerships
– Partnership definition
• On-going, commitment over extended time, sharing
of info., risks and rewards
– Type I: Short-term contractual relationship
• Little investment required
• Limited scope of activities
• Common in transport
– Ex: 1 year contract, guaranteed delivery times, min.
dedicated fleet, guaranteed minimum volume
– Price is volume driven
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or duplicated, or posted to a publicly accessible website, in whole or in part.

24. 24
Types of Buyer/Seller Relationships, cont’d
• Type II partnerships
– Longer-term contractual relationship
– May require investments
– Broader scope of activities
– Transport examples
• Carrier certification programs, core carrier programs
– Guaranteed annual volumes
– Dedicated freight lanes
– Incentives for cost reduction
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or duplicated, or posted to a publicly accessible website, in whole or in part.

25. 25
Types of Buyer/Seller Relationships, cont’d
• Type III partnerships
– Not governed by usual contracts
• Documentation outlines general operations and
management philosophy
– No formal endpoint – evergreen contact
– Substantial joint ownership of assets and sharing
of activities
• High risk, investment, potential rewards for both
– In transport, carrier would perform many services
beyond basic transport in such relationships
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or duplicated, or posted to a publicly accessible website, in whole or in part.

26. 26
Types of Buyer/Seller Relationships, cont’d
• Joint ventures
– Purpose/outcome: creation of a new firm
– Investments required by both parties
– Long-term type of relationship
• Vertical integration
– Driven by “make or buy” decision
– Common transport ex: private fleets
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27. 27
Why Enter Relationships?
• Definition and background of 3rd
parties
• Availability of external suppliers
• Cost efficiencies
– Economies of scale and scope
– Moving assets off the balance sheet
• Access to third-party expertise
– Facilitates focusing on core competency
• Customer service
– Issue of control
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28. 28
Table 13-4
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
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