Transport Management & Theory Practices (1)

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Transport Management & Theory Practices (1)

  1. 1. Management of Transportation Seventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning Chapter 1 Transportation’s Role in SCM © 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. 1
  2. 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 © 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
  3. 3. Introduction Economics 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. 4. Introduction Demand 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. 5. Introduction Transport 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) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 5
  6. 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. 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. 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 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 8
  9. 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 © 2011Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 9
  10. 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 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 10
  11. 11. Freight Transportation Derived Demand • 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 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 11
  12. 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. 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 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 13
  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. 14
  15. 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. 16. Value of (Transport) Service Service 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 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 16
  17. 17. Value of (Transport) Service Location 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. 18. Supply Chain Concept Development 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. 19. Supply Chain Concept Development 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. 20. Supply Chain Concept Development 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. 21. Supply Chain Concept Development 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. 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. 23. Supply Chain Concept Development 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. 24. Supply Chain Concept Development 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
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