Supply chain transportation

1. A SEMINAR ON
TRANSPORTATION IN
SUPPLY CHAIN
MANAGEMENT

2. 14-2
Outline
The role of transportation in the supply chain
Factors affecting transportation decisions
Modes of transportation and their performance
characteristics
Design options for a transportation network
Trade-offs in transportation design
Tailored transportation
Routing and scheduling in transportation
Making transportation decisions in practice

3. 14-3
Factors Affecting
Transportation Decisions
Carrier (party that moves or transports the product)
– Vehicle-related cost
– Fixed operating cost
– Trip-related cost
Shipper (party that requires the movement of the product
between two points in the supply chain)
– Transportation cost
– Inventory cost
– Facility cost

4. 14-4
Transportation Modes
Trucks
– TL
– LTL
Rail
Air
Package Carriers
Water
Pipeline

5. 14-5
Truckload (TL)
Average revenue per ton mile (1996) = 9.13 cents
Average haul = 274 miles
Average Capacity = 42,000 - 50,000 lb.
Low fixed and variable costs
Major Issues
– Utilization
– Consistent service
– Backhauls

6. 14-6
Less Than Truckload (LTL)
Average revenue per ton-mile (1996) = 25.08 cents
Average haul = 646 miles
Higher fixed costs (terminals) and low variable costs
Major issues:
– Location of consolidation facilities
– Utilization
– Vehicle routing
– Customer service

7. 14-7
Rail
Average revenue / ton-mile (1996) = 2.5 cents
Average haul = 720 miles
Average load = 80 tons
Key issues:
– Scheduling to minimize delays / improve service
– Off-track delays (at pickup and delivery end)
– Yard operations
– Variability of delivery times

8. 14-8
Air
Key issues:
– Location/number of hubs
– Location of fleet bases/crew bases
– Schedule optimization
– Fleet assignment
– Crew scheduling
– Yield management

9. 14-9
Package Carriers
Companies like FedEx, UPS, USPS, that carry small packages
ranging from letters to shipments of about 150 pounds
Expensive
Rapid and reliable delivery
Small and time-sensitive shipments
Preferred mode for e-businesses (e.g., Amazon, Dell, McMaster-
Carr)
Consolidation of shipments (especially important for package
carriers that use air as a primary method of transport)

10. 14-10
Water
Limited to certain geographic areas
Ocean, inland waterway system, coastal waters
Very large loads at very low cost
Slowest
Dominant in global trade (autos, grain, apparel, etc.)

11. 14-11
Pipeline
High fixed cost
Primarily for crude petroleum, refined petroleum
products, natural gas
Best for large and predictable demand
Would be used for getting crude oil to a port or
refinery, but not for getting refined gasoline to a
gasoline station (why?)

12. 14-12
Intermodal
Use of more than one mode of transportation to move a
shipment to its destination
Most common example: rail/truck
Also water/rail/truck or water/truck
Grown considerably with increased use of containers
Increased global trade has also increased use of intermodal
transportation
More convenient for shippers (one entity provides the
complete service)
Key issue involves the exchange of information to facilitate
transfer between different transport modes

13. 14-13
Design Options for a
Transportation Network
What are the transportation options? Which one to select?
On what basis?
Direct shipping network
Direct shipping with milk runs
All shipments via central DC
Shipping via DC using milk runs
Tailored network

14. 14-14
Trade-offs in Transportation Design
Transportation and inventory cost trade-off
– Choice of transportation mode
– Inventory aggregation
Transportation cost and responsiveness trade-off

15. 14-15
Choice of Transportation Mode
A manager must account for inventory costs when
selecting a mode of transportation
A mode with higher transportation costs can be justified if
it results in significantly lower inventories

16. 14-16
Inventory Aggregation: Inventory vs.
Transportation Cost
As a result of physical aggregation
– Inventory costs decrease
– Inbound transportation cost decreases
– Outbound transportation cost increases
Inventory aggregation decreases supply chain costs if the
product has a high value to weight ratio, high demand
uncertainty, or customer orders are large
Inventory aggregation may increase supply chain costs if
the product has a low value to weight ratio, low demand
uncertainty, or customer orders are small

17. 14-17
Trade-offs Between Transportation Cost
and Customer Responsiveness
Temporal aggregation is the process of combining orders
across time
Temporal aggregation reduces transportation cost because
it results in larger shipments and reduces variation in
shipment sizes
However, temporal aggregation reduces customer
responsiveness

18. 14-18
Tailored Transportation
The use of different transportation networks and modes
based on customer and product characteristics
Factors affecting tailoring:
– Customer distance and density
– Customer size
– Product demand and value

19. 14-19
Role of IT in Transportation
The complexity of transportation decisions demands to use
of IT systems
IT software can assist in:
– Identification of optimal routes by minimizing costs subject to
delivery constraints
– Optimal fleet utilization
– GPS applications

20. 14-20
Risk Management in Transportation
Three main risks to be considered in transportation are:
– Risk that the shipment is delayed
– Risk of disruptions
– Risk of hazardous material
Risk mitigation strategies:
– Decrease the probability of disruptions
– Alternative routings
– In case of hazardous materials the use of modified containers, low-
risk transportation models, modification of physical and chemical
properties can prove to be effective

21. 14-21
Making Transportation
Decisions in Practice
Align transportation strategy with competitive strategy
Consider both in-house and outsourced transportation
Design a transportation network that can handle
e-commerce
Use technology to improve transportation performance
Design flexibility into the transportation network

22. 14-22
Summary of Learning Objectives
What is the role of transportation in a supply chain?
What are the strengths and weaknesses of different
transport modes?
What are the different network design options and what
are their strengths and weaknesses?
What are the trade-offs in transportation network design?

23. CASE STUDY
14-23
The impact of supply chain reconfiguration on transports.The impact of supply chain reconfiguration on transports.
-- The Danish mechanical, electronic and medical industriesThe Danish mechanical, electronic and medical industries

24. Theoretical Approach
It was found
 Many examples of companies reconfiguring their supply chains
 Quite limited empirical evidence on the consequences of
reconfiguration process on transport
due to
Theoretical/empirical difficulties in determining cause-effect
relationships between variables
 Explanatory variables sensitive to individual logistical systems

25. Research objectives and methodology
- Objectives
To illustrate the implications of reconfiguration supply chains
on transport by using quantitative and qualitative data from
Denmark
Focus on the future transport demands. Amount of
transports and the total transport work

26. Supply chains under analysis
Three Danish supply chains:
 Grain and feedstuff
 Fresh-foods
 Highly manufactured industrial goods

27. - Highly manufactured goods
 No clear signs towards a reduction in the supplier base.
Only carrier base has been dimished
 Number of production facilities and warehouses do not
show signs of modifications
 Among those companies reporting and expecting changes: a
trend towards a growth in the number of suppliers,
production and warehouse facilities outside Europe
 Direct distribution
 New customers requirements

28. - Qualitative data
An in-depth study
Goal: To achieve a better understanding of supply chain
reconfiguration and firm’s transport patterns
The firm was just at the beginning of SC redesign, facilitating
the analysis of the impact “old” and “new” logistics trends
can have on the demand of transports

29. - Supplier base
Supplier baseSupplier base
 The number of suppliers has been quite stable
 The firm has launched a project to reduce the amount of suppliers
Production:Production:
 Expansion of production capacity outside of Europe during the
last five years.
 No further changes are expected in the near future

30. Warehouses:Warehouses:
Bypass central warehouse of the corporation
Warehouses in Denmark and other EU countries have
been closing down. Only few national warehouses are
maintained due to the physical distance
Outside Europe no plans for closing down warehouses
-Logistics structures

31. Customers
Denmark
Other
countries
Europe
Production
facilities
Suppliers/ clients
Production facilities
in Denmark
Own warehouses
Distributors, wholesalers,
agents
Transport firms
hubs
Denmark
Other
countriesEurope
Changes in
Distribution
patterns
Customers
Denmark
Other
countries
Europe
Production
facilities
Future development: Direct
distribution to customers in Europe
Suppliers/ clients
Production facilities
in Denmark
Own warehouses
Distributors, wholesalers,
agents
Transport firms
hubs
Denmark
Other
countriesEurope

32. Amount of goods
produced
Market and
logistic
strategies of
the firm
Quantity of tons transported
Destination of the products
Traveled distance
Amount of lorries/trips
traveling between the nodes
Total nodes in the chain
Frequency of transport/trips
- Freight transport activity

33. Status-quo scenarioIn the status quo scenario the amount of trucks/trips is
anticipated to grow linear
0
5000
10000
15000
20000
25000
1 2 3 4 5 6
Year
Amountoftrucks/trips
Amount of tonnes
3,640
9,057
6,700 trucks
Firms’s logistics
strategies scenario
In the scenario with firm’s logistics strategies
the number of transports is anticipated to grow
exponentiallyMain reason:
New distribution strategies
Two scenarios were developed:
No. 1. Status quo. No reconfiguration
No. 2. Firm’s new logistics strategies

34. -100%
0%
100%
200%
300%
2001 2006 2006
Denmark
Other European countries
Rest of the world
Status-quo
scenario
Firm’s logistics
strategies
Ton-km–Developmentinpercent
Elimination of warehouses in Denmark and Europe
implies erradication of a node in the chain.
Reduction in the national transport work.

35. Conclusions
Production, location, distribution and marketing decisions have a
tremendous impact on the transport content of the supply chains.
There is no clear-cut cause-effect relationship between supply
chain reconfiguration, and demand for transport. The demand for
transport is influenced not only by company specific logistic and
marketing strategies, but also by characteristics of the products
and supply chains involved – e.g. fresh food vs. highly
manufactured goods.
Transport demands also depend on how transport is organized,
and how capable the global carriers are of consolidating and
utilizing the capacities of their transport equipment

36. Conclusions
Logistics and supply chain managers decisions can help to
 Slow down or boost the rate of tonne-km, the amount of
vehicles/trips used
And
 The impact of transport on the environment

37. THANK You!!