Supply Chain Management

1. Supply Chain
Management
Transportation Management

2. 2
Why has logistics become increasingly
important?
 Cost reduction pressures are severe
 Logistics has a high impact on customer service
 A strong need exists for demand and supply
planning consistency
 A focus on core competencies has placed
logistics in the outsourcing “spotlight”
 Development of IT technology supports
integrated logistics management
Logistics Overview

3. 3
Value-added Transportation
Concept
Supplier Manufacturer Customer
Inbound Outbound
Product/Info Flows
Info/Return Goods Flows

4. 4
Role of Transportation
Time and Place Utility:
Movement across space or distance.
 Place utility - Where it is needed
 Time utility - created or added by the
warehousing & storage of product until it is
needed.
 Also a factor in time utility; it determines
how fast and how consistently a product
move from one point to another.

5. 5
Transportation Role in Value
Attainment Process
• Critical element of structure,
capacity, and movement decisions
• Both between supply chain
members and intra-organizational

6. 6
Transportation-Related Service
Elements
 Speed: time-in-transit
 Availability: accessible to customers when they
want it
 Dependability: pick-up and delivery time variability
 Flexibility: adjustment to shipper’s needs

7. 7
 Role of Transportation in Logistics &
Supply Chain Management
Transportation Functions, Principles,
Participants
Transportation Regulation
Transportation Industry Structure
Transportation Services
 Industry Deregulation

8. 8
Economies of Scale
Transportation
Cost per Book
Number of Books in Shipment
$.10/book
$100/book
1 1000
The more items (weight)
is transported,
the less the
transportation costs per
item (unit of weight)

9. 9
Economies of
Distance
Tapering Principle
Transportation
Cost per Mile
Shipment Distance
1 mile 1000 miles
$50/mile
$.05/mile
$.10/mile
500 miles
The larger the distance,
the less the
transportation costs per
unit of distance (e.g.,
per mile)
Transportation rates are distance
related, not distance proportional

10. 10
Transportation Participants

11. 11
Economic
Types of Transportation Regulation
• Investments in transportation infrastructure
(e.g., highways, airports, ports)
• Control of routes, pricing, schedules

12. 12
Economic
Types of Transportation Regulation
• Investments in transportation infrastructure
(e.g., highways, airports, ports)
• Control of routes, pricing, schedules
Social/Safety
• Protect the public, the environment
• Make sure equipment operates safely, cleanly
• Safe transportation of hazardous materials (HAZMAT)
• Regulating hours worked

13. 13
Pipeline Water
Rail
Air
Highway
Five Basic Transportation Modes

14. 14
Basic Modes of Transportation
Fixed Variable Traffic
costs costs composition
Rail high low bulk food, mining, oil
heavy mfg
Motor low medium consumer goods,
medium/light mfg
Water medium low bulk food, mining,
chemicals
Air low high high-value goods,
rush shipments
Pipe high low petroleum, chemicals,
mineral slurry

15. 15
Containerization
Significant growth during Vietnam War
 Improves efficiency, protects material,
reduces handling & pilferage
 Sizes: 20 ft (TEU) or 40 ft (FEU)
 Shorter to permit multiple units on railcars
TEU: 20’ equivalent unit FEU: 40’ Equivalent Unit

16. 16
 Transportation Functions, Principles,
Participants
 Transportation Regulation Transportation
Industry Structure
 Transportation Services
Non Operating Intermediaries
Traditional Transportation Carriers
Package Services
Intermodal Transportation

17. 17
Third Party Providers
 The offering of nearly any form of
transportation to a shipper or receiver
as part of a total package of logistics
services
 Shipper or user avoids capital outlays
and investment
 Focus on core competency--let experts
do logistics

18. 18

19. 19
Freight Forwarders
 Formerly common carriers
– non-asset owning
 Earn difference between what they charge
(LTL, LCL) and what they pay (CL, TL)
 Issue bill of lading

20. 20

21. 21
Freight Brokers
 Intermediaries who bring shippers and carriers
together for a fee
 Find customers for carriers or carriers for
shippers
 Reduce burden for carriers & shippers
 Find best means/rate for shippers
 Help maximize capacity for carrier
 Information Systems expanding opportunities

22. 22
Owner-Operator
 Own or lease a truck and trailer and make
services available to for-hire carriers
 Contract out their services to other carriers
 Provide overflow capacity and flexibility
 Reduce financial risk to carriers

23. 23
Express & Courier
 TCS, UPS, FEDEX, DHL
 Fast, door-to-door service
 Operate large network of terminals, pick up
and delivery vehicles, and line haul
 Typically under 200 lbs
 Compete with Postal Service
 Future good due to expansion and
innovative practices

24. 24
What is Intermodal
Transportation?
 The use of two or modes of transportation in
moving a shipment from origin to destination
 Mostly associated with “piggyback” or container
shipments
 Combines advantages (and disadvantages) of
each mode used
 Reduces risk of theft and loss
 Shortens customer order cycle time and
effectively reduces costs
 Promotes “seamless” product movement:
Eliminates unnecessary handling

25. 25
Intermodal
 Enables shippers to benefit from advantages
of multiple modes of transportation
 minimizes disadvantages of individual modes
Rail
Air Water
Truck

26. Transshipment
 Transshipment is the shipment of goods or
containers to an intermediate destination,
then to yet another destination.
 One possible reason for transshipment is to
change the means of transport during the
journey (e.g., Machinery from India is often
imported through transshipment via Dubai)
26

27. 27
Changing Transportation
Environment

28. 28
Changing Transportation Environment
 Deregulation
 Time-based competition
 Expanding geographic coverage
 Information technology
 Social and environmental concerns

29. 29
Selected Results of the Changing
Environment - Economic Impact
 Increased competition in individual markets - both
within modes and between modes
 More efficient carrier operations - less interlining,
more direct routing, efficient pricing
 Transportation costs declined in real terms and as
percent of GDP
 Transportation service quality improved

30. 30
Selected Results of the Changing
Environment - Industry Impact
 Consolidation in rail, air and LTL trucking
 Proliferation of TL carriers
 Strong growth in regional trucking - networks
 TL growing faster than LTL
 Air freight growth
 Intermodal growth: rail-truck, air-truck, rail-ship
 Growth of “one-stop shopping” - 3PL
 Private fleet conversion

31. 31
Selected Results of the Changing
Environment - Market Impact
 Demand for fast, dependable, responsive service
at lower cost
 Demand for a broader range of services to
integrate supply chain functions
 Core carrier concept - interdependence between
shipper-carrier
 Customized price/service packages/contracts
 Relational view of transportation as a “value-
added” service

32. 32
Transportation Management

33. 33
Transportation Management
 Network Freight Flows: Macro-
Decisions
 Micro-Decisions
 Information Systems Support

34. 34
Transportation Decision Making in an Integrated Supply Chain
Supplier Manufacturer Customer
Inbound Outbound
DecisionFlow
Understand total network flows
Understand individual lane flows
Understand current
carrier usage patterns
Make mode/carrier
decisions
Routing/Scheduling,
Load Planning, etc.
Strategic
Operational
Macro
Micro
DecisionScope

35. 35
Network Freight Flows: A Fully
Integrated Approach
 Managing Inbound-Outbound flows in an
optimal manner requires firm to have a good
handle on the entire logistics process
 Traditionally view transportation in a vacuum--
need to look at it in the context of the total
logistics system
 Greatest improvement opportunities lie in
integrating transportation with other logistics
functional areas such as purchasing, inventory
control, forecasting and production scheduling

36. 36
Approach to Analysis
1. Analyze lane densities/frequencies:
what opportunities emerge for:
 inbound/outbound consolidation
 vehicle consolidation
 temporal consolidation
 network consolidation - cross dock
potential (hub and spoke systems)

37. 37
Approach to Analysis (cont.)
2. Once opportunities for consolidation are visible, make
mode/carrier selection based on service/cost mix
 Given similar service, are rates better on 1
mode/carrier than another?
 Does any mode/carrier have relative strengths in a
particular lane?
 Any backhaul opportunities?
3. If so, look to consolidate loads on mode/carrier with best
cost structure - assign private fleet to most costly routes
In the freight industry, freight carried by a trucker to return to his home with a
loaded truck, rather than an empty one (as opposed to headhaul, the outgoing
freight).

38. 38
Consolidation Opportunities
• Inbound-Outbound flow consolidation: look
for opportunities to combine inbound/
outbound freight
• Vehicle consolidation: use one vehicle/multi
stops for LTL volumes vs. one shipment to
each
• Temporal consolidation: hold orders until
large volume shipment possible

39. 39
Suggested Analyses
 Network flows
 Lane densities, frequencies, consistency
 Freight distribution by mode, carrier
 Consolidation opportunities

40. 40
Summary
Identify:
 Opportunities to achieve balanced flows - obtain
lower rates for providing loads both ways
 Significant volumes for rate negotiation
 Vehicle/temporal consolidation opportunities
 Advantages of reducing number of carriers

41. 41
Key Principles of Transportation
Management

42. 42
I. Improving Efficiency
 Rule of efficiency: Straight line, minimize stopping--
avoid damage and cost (delay)
 Minimize handling: Avoid “handshakes” and attempt to
make process “seamless”
 Full capacity: Reduce cost per unit
 Break bulk & consolidation on long haul
 Avoid empty backhauls
 Effective Scheduling: “Optimize” labor and equipment
(5%-10%)
 Transportation rates are distance related, not distance
proportional

43. 43
II. Efficient Use of Technology &
Equipment
 High utilization of expensive
assets
 Larger the vehicle, the lower the
cost per unit
 Speed does not equal
economical operations
 Minimize vehicle gross weight
 Standardized vehicles and
equipment
 Balance specialization with
adaptability
 Examine trade-offs between IT
and traditional logistics functions

44. 44
III. Coordinate Operations
 Coordinate operations with requirements to
ensure trade-offs and appropriate level of
service
 Cost accountability as part of performance
measurement
 Reliability is sometimes better than speed
 Look for opportunities to innovate, but
recognize proven principles

45. 45
Customer Service Measures
 Order cycle lead time
 Stock availability/fill rates/stock-outs/back
orders/partial shipments
 Record integrity
 Frequency of delivery
 Delivery reliability
 Order tracing capability
 Volume flexibility

46. 46
Customer Service Measures
 Invoice accuracy
 Order status information
 Technical support responsiveness
 Unscheduled service responsiveness
 Speed of product feature changes
 Product and service quality

47. 47
Total Cost Concept
 The total cost concept recognizes that an optimum cost
in one area or function may not lead to an optimum total
system cost
 Total cost analysis requires the management of supply
chain trade-offs
 Logistical activity areas that drive total logistics costs:
 Customer service level costs
 Inventory carrying costs
 Lot quantity costs
 Order processing and information costs
 Warehousing costs
 Transportation costs

48. 48
Summary-1
 The transportation mode available to the
logistics manager consists of the basic mode,
intermodal and indirect and special carrier
 The carrier selection is two fold, selection of the
mode and selection of the specific carrier
 Factors determining carrier selection include
transportation rate, transit time, reliability,
capability, accessibility and security

49. 49
Summary-2
 Railroads offer low cost for long hauls of large volumes,
but they have accessibility limitation and long transit
time.
 Motor carriers are very accessible and move product in
small quantities with low consistent transit times.
However their costs are higher than the other modes
except air
 Water transportation is relatively low cost and is
desirable for moving large volume over long distances.
The prime disadvantage is long transit time and service
disruption caused by weather
 Air carriers have very low transit times but very high
rates.
 Pipelines offer very low rates for the movement of liquids
but are not a viable option for manufactured goods.

50. 50
Summary-3
 Intermodal transportation is the combination of two or
more basic modes to provide through movement. The
dominant form is rail-truck or piggyback
 Containerization is the shipping of freight in a box or
container that is subsequently transferred from one
carrier to another. It reduces freight handling and
damage while improving transit time.
 The transportation system includes a number of indirect
and special carriers such as small package carriers,
consolidators, freight forwarder, shipper associations,
brokers and intermodal marketing companies.

51. 51
Reference:
 The Management of Business Logistics by
J. J. Coyle, E. J. Bardi and C. J. Langley
Jr.