This document discusses shipper strategies for managing transportation. It describes how transportation management involves procuring transportation services strategically and operationally to minimize costs while meeting customer service goals. The document outlines general strategies shippers use including proactive problem solving, improving information quality, limiting carriers, negotiating contracts, and reviewing private carriage. It also discusses specific strategies for small and bulk shipments as well as reverse logistics.

1. Management of
Transportation
Seventh Edition
Coyle, Novack, Gibson &
Bardi
© 2011 Cengage Learning
Chapter 13
Shipper 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
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
© 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. 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
© 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
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
© 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
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
© 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
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
© 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
Table 13-1
© 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.

10. 10
Figure 13-
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.

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
© 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. 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
© 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
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
© 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
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
© 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. 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
© 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
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
© 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. 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
© 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
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
© 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
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
© 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
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
© 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
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
© 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. 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
© 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
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
© 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
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
© 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
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
© 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
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
© 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
Table 13-4
© 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.