ch01 transport supply chain economy.ppt

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ch01 transport supply chain economy.ppt

  1. 1. Transportation Sixth Edition Coyle, Bardi, & Novack © 2006 Thomson Chapter 1 Transportation, the Supply Chain, and the Economy
  2. 2. Chapter 1 Topics <ul><li>The 2000s: A Decade of Challenge </li></ul><ul><li>The Logistics Concept </li></ul><ul><li>The Supply Chain Concept </li></ul><ul><li>Total Cost Analysis </li></ul><ul><li>Business Logistics Activities </li></ul><ul><li>Transportation and the Economy </li></ul>
  3. 3. Chapter 1 Topics, cont’d <ul><li>Historical Significance </li></ul><ul><li>Economic Significance </li></ul><ul><li>Environmental Significance </li></ul><ul><li>Social Significance </li></ul><ul><li>Political Significance </li></ul><ul><li>Overview of Modern Transportation </li></ul><ul><li>Overview of Transportation Trends </li></ul>
  4. 4. Chapter 1 Topics, cont’d <ul><li>Demand for Transportation </li></ul><ul><li>Demand Measurement Units </li></ul><ul><li>Level of Aggregation </li></ul><ul><li>Demand Elasticity </li></ul><ul><li>Freight Transportation </li></ul><ul><li>Value of Service </li></ul><ul><li>Passenger Transportation </li></ul>
  5. 5. The 2000s: Decade of Challenge <ul><li>1990s put focus on business fundamentals </li></ul><ul><ul><li>Quality, value add of customer service </li></ul></ul><ul><li>First decade of 2000s </li></ul><ul><ul><li>Ever increasing customer expectations </li></ul></ul><ul><ul><li>Increasing strategic and operational roles for transport, logistics, and supply chain management in meeting higher expectations </li></ul></ul>
  6. 6. The 2000s: Decade of Challenge, cont’d <ul><li>Continuously emerging challenges: </li></ul><ul><ul><li>Increasing e-business activity via Internet </li></ul></ul><ul><ul><ul><li>Fulfillment characterized by </li></ul></ul></ul><ul><ul><ul><ul><li>smaller shipment sizes </li></ul></ul></ul></ul><ul><ul><ul><ul><li>more frequent deliveries </li></ul></ul></ul></ul><ul><ul><ul><ul><li>residential delivery requirements </li></ul></ul></ul></ul><ul><ul><ul><ul><li>push to reduce inventory levels </li></ul></ul></ul></ul><ul><ul><li>Increasing world trade and global business operations </li></ul></ul><ul><ul><ul><li>Lengthening and more transport intensive supply chains </li></ul></ul></ul>
  7. 7. The 2000s: Decade of Challenge, cont’d <ul><li>Continuously emerging challenges, cont’d </li></ul><ul><ul><li>Changing nature of business alliances </li></ul></ul><ul><ul><ul><li>Push for asset productivity and improved processes </li></ul></ul></ul><ul><ul><ul><li>Expanding scope of 3PL services </li></ul></ul></ul><ul><ul><ul><li>Alliances among competitors </li></ul></ul></ul><ul><ul><li>Ever changing, more capable technology </li></ul></ul><ul><ul><ul><li>Many operating efficiencies </li></ul></ul></ul><ul><ul><ul><li>Communications (Ex: GPS) </li></ul></ul></ul><ul><ul><ul><li>Data capturing (Ex: RFID) </li></ul></ul></ul>
  8. 8. The Logistics Concept <ul><li>Military origins </li></ul><ul><li>Early business applications </li></ul><ul><ul><li>Physical distribution integration </li></ul></ul><ul><ul><li>Materials management integration </li></ul></ul><ul><li>Definition </li></ul><ul><ul><li>Process orientation </li></ul></ul><ul><ul><li>Integrated management </li></ul></ul><ul><ul><li>Systems decision-making framework </li></ul></ul><ul><ul><li>Focus on customer requirements </li></ul></ul>
  9. 11. The Supply Chain Concept <ul><li>Integrated product, information, and cash flow management throughout channels </li></ul><ul><li>Multi-firm orientation </li></ul><ul><ul><li>Not synonymous with logistics </li></ul></ul><ul><li>Significant role for transportation </li></ul><ul><li>Logistics as enabler of enterprise model </li></ul>
  10. 13. Total-Cost Analysis <ul><li>Interdependencies </li></ul><ul><ul><li>Among logistics activities </li></ul></ul><ul><ul><li>Between functional areas within firm </li></ul></ul><ul><ul><li>Between firm and supply chain partners </li></ul></ul><ul><li>Cost trade-offs within systems </li></ul><ul><ul><li>Need for system-wide analysis </li></ul></ul><ul><li>Objective of total-cost reduction </li></ul><ul><li>Importance of service level choice </li></ul><ul><ul><li>Relation to revenue generation, strategy </li></ul></ul>
  11. 14. Business Logistics Activities <ul><li>Movement-storage interaction </li></ul><ul><li>Impact of transportation decisions on other corporate functions </li></ul><ul><li>Utility creation </li></ul><ul><li>Materials management </li></ul><ul><li>Physical distribution </li></ul>
  12. 16. Transportation and the Economy <ul><li>Transportation: a tool of civilized societies </li></ul><ul><ul><li>Essential element of daily life </li></ul></ul><ul><li>Conceptual views of transportation </li></ul><ul><ul><li>Enabler of utility creation </li></ul></ul><ul><ul><li>As a bundle of services at a certain cost </li></ul></ul><ul><ul><li>Factor of production </li></ul></ul><ul><ul><li>Market access </li></ul></ul><ul><ul><li>Spatial and temporal relationships </li></ul></ul>
  13. 17. Historical Significance <ul><li>Development of civilization </li></ul><ul><li>Creation of social structures </li></ul><ul><li>Communication </li></ul><ul><li>Facilitation of trade </li></ul><ul><li>Military conquest and national defense </li></ul>
  14. 18. Economic Significance Conceptual Foundations <ul><li>Value of goods </li></ul><ul><ul><li>Place utility, Lardner’s Law, producer-consumer gap </li></ul></ul><ul><ul><li>Time and quantity utilities </li></ul></ul><ul><li>Utility of goods: additional concepts </li></ul><ul><ul><li>Geographic specialization </li></ul></ul><ul><ul><li>Large-scale production </li></ul></ul><ul><ul><li>Increased competition </li></ul></ul><ul><ul><li>Land values </li></ul></ul>
  15. 21. Economic Significance, cont’d <ul><li>Transportation patterns </li></ul><ul><ul><li>Patterns of trade </li></ul></ul><ul><ul><li>Impact on population locations </li></ul></ul><ul><li>Gross Domestic Product (GDP) </li></ul><ul><ul><li>Measure of the size of the economy </li></ul></ul><ul><ul><ul><li>Transport: 15.7% of GDP in 2001 </li></ul></ul></ul><ul><ul><ul><li>Downward trend due to improving transport productivity </li></ul></ul></ul><ul><li>Modal split – passengers, freight </li></ul>
  16. 25. Environmental Significance <ul><li>The Environment </li></ul><ul><ul><li>Air quality </li></ul></ul><ul><ul><li>Acid rain </li></ul></ul><ul><ul><li>Global climate changes </li></ul></ul><ul><ul><li>Maritime and water quality </li></ul></ul><ul><ul><li>Noise </li></ul></ul><ul><li>Safety </li></ul><ul><li>Substance Abuse </li></ul>
  17. 26. Social Significance <ul><li>Employment </li></ul><ul><ul><li>Approx. 4.7 million(10%) workers employed in transport in U.S. (2000) </li></ul></ul><ul><ul><li>Employment growing </li></ul></ul><ul><li>Enhancement of health and welfare </li></ul><ul><ul><li>Social integration </li></ul></ul><ul><ul><li>Famine and other disaster relief efforts </li></ul></ul>
  18. 28. Political Significance <ul><li>Governmental responsibility </li></ul><ul><ul><li>Regulatory role examples </li></ul></ul><ul><ul><ul><li>Common carrier concept </li></ul></ul></ul><ul><ul><ul><li>Power of eminent domain </li></ul></ul></ul><ul><ul><li>Promotional role examples </li></ul></ul><ul><ul><ul><li>Facilitation of commerce </li></ul></ul></ul><ul><ul><ul><li>Preservation of national defense </li></ul></ul></ul>
  19. 29. Overview of Modern Transportation <ul><li>Prior material: broad impact of transport </li></ul><ul><ul><li>Economic (micro and macro) </li></ul></ul><ul><ul><li>environmental, social, political </li></ul></ul><ul><li>Three decision-making groups shape the transport system : </li></ul><ul><ul><li>Users: create the demand requirements </li></ul></ul><ul><ul><li>Providers: supply, operate, and manage services to meet demand </li></ul></ul><ul><ul><li>Government: develop policy, supply infrastructure, and regulate </li></ul></ul>
  20. 30. Overview of Transportation Trends <ul><li>Key trends in demand for transport services </li></ul><ul><li>Key trends in supply, operation, and management of transport services </li></ul><ul><li>Key trends in government policy and regulation </li></ul>
  21. 31. Demand for Transportation <ul><li>Demand measurement units </li></ul><ul><ul><li>Ton-miles (freight) </li></ul></ul><ul><ul><li>Passenger-miles (people) </li></ul></ul><ul><ul><li>Heterogeneous units: Two units may have </li></ul></ul><ul><ul><ul><li>Very different costs of production </li></ul></ul></ul><ul><ul><ul><li>Very different service requirements </li></ul></ul></ul><ul><li>Levels of aggregation </li></ul><ul><ul><li>Total </li></ul></ul><ul><ul><li>By mode </li></ul></ul><ul><ul><li>By carrier </li></ul></ul>
  22. 32. Demand (price) elasticity <ul><li>Sensitivity of demand to price change </li></ul><ul><li>Relative measure between price change and quantity change </li></ul><ul><ul><li>% change in quantity  % change in price </li></ul></ul><ul><li>Terminology </li></ul><ul><ul><li>Price elastic: demand is sensitive to price change </li></ul></ul><ul><ul><li>Price inelastic: demand is insensitive to price change </li></ul></ul>
  23. 33. Demand (price) elasticity, cont’d <ul><li>If % change in quantity < % change in price, then demand is price inelastic (insensitive to price change) </li></ul><ul><ul><li>Price increase leads to revenue increase </li></ul></ul><ul><ul><li>Price reduction leads to revenue reduction </li></ul></ul><ul><li>If % change in quantity > % change in price, then demand is price elastic </li></ul><ul><ul><li>Price increase leads to revenue reduction </li></ul></ul><ul><ul><li>Price reduction leads to revenue increase </li></ul></ul>
  24. 34. Demand (price) elasticity, cont’d <ul><li>Aggregate demand for freight transportation tends to be price inelastic </li></ul><ul><ul><li>Cost for transport generally small % of product’s landed cost </li></ul></ul><ul><li>Demand for particular mode or carrier tends to be price elastic </li></ul><ul><ul><li>Often, substitutes are available </li></ul></ul><ul><li>Service elasticity </li></ul>
  25. 35. Freight Transportation Demand Characteristics <ul><li>Derived demand </li></ul><ul><ul><li>Def: 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 </li></ul></ul><ul><ul><ul><li>Remember, demand is a relationship between price and quantity demanded </li></ul></ul></ul><ul><ul><li>Aggregate demand for freight transport cannot be easily affected by carrier actions </li></ul></ul>
  26. 37. Value of (Transport) Service, cont’d <ul><li>Transport cost is a component of a product’s landed cost </li></ul><ul><ul><li>Transport costs influence a producer’s landed cost advantage/disadvantage in distant markets, thus determining the value of the transport service to the producer </li></ul></ul><ul><ul><li>Similar to place utility concept </li></ul></ul><ul><li>Landed cost also determines extent or range of a producer’s market area (Lardner’s Law) and thus value of transport service </li></ul>
  27. 38. Freight Rate Equalization <ul><li>To increase market area freight rates are equalized (averaged) with mor distant points being subsidized and nearer points penalized </li></ul><ul><li>Can be national in scope or regional </li></ul><ul><li>Freight rates are part of product pricing strategy </li></ul>
  28. 40. Value of (Transport) Service, cont’d <ul><li>Service components of freight demand </li></ul><ul><ul><li>Transit time </li></ul></ul><ul><ul><ul><li>Volume and cost of holding inventory </li></ul></ul></ul><ul><ul><ul><li>Potential stockout costs </li></ul></ul></ul><ul><ul><li>Reliability or consistency of transit time </li></ul></ul><ul><ul><ul><li>Safety stock and/or stockout costs </li></ul></ul></ul><ul><ul><li>Accessibility: impacts transport cost and time </li></ul></ul><ul><ul><li>Capability: “special” service requirements </li></ul></ul><ul><ul><li>Security: safety stocks and stockout costs </li></ul></ul>
  29. 41. Passenger Transportation <ul><li>Expenditures for passenger movement </li></ul><ul><ul><li>10% of GDP </li></ul></ul><ul><li>Intercity (long-distance) passenger travel </li></ul><ul><ul><li>Demand influenced by trip purpose </li></ul></ul><ul><ul><ul><li>Business travel - schedule-sensitive </li></ul></ul></ul><ul><ul><ul><li>Vacation travel - price-sensitive </li></ul></ul></ul><ul><ul><ul><li>Personal travel </li></ul></ul></ul><ul><li>Urban transit (intracity passenger travel) </li></ul>
  30. 42. Passenger Demand Characteristics <ul><li>Destination </li></ul><ul><li>Schedules and speed </li></ul><ul><li>Cost </li></ul><ul><li>Equipment </li></ul><ul><li>Entertainment and Attention </li></ul><ul><li>Terminals </li></ul><ul><li>Complaints and Experiences </li></ul>

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