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OK.

In this talk, we're going to talk


about the fundamentals of freight transportation.
Specifically, we're going to introduce freight
transportation, and talk about the different levels
of transportation networks, from the physical ones where
you actually physically move the product, to operational ones
where you make decisions, to the strategic or service network
where the decisions tie into the inventory policies.
And then we're going to talk specifically
at the end about connections to inventory planning.
But before we talk about freight transportation,
let's talk about a question for passengers.
And specifically, I want to how do
you get from Boston to New York City.
This is a question I usually ask my students when
I start talking about freight transportation
to help you at MIT, because it's a question-- people sometimes
spend their weekends down at New York City.
MIT is right out up here outside of Boston and Cambridge,
and a lot of times people go down to New York City.
It's about 220 miles.
And so I ask them-- is to think about it for themselves,
as passengers-- how would you get to New York City?
And we talk, and they usually recommend some things,
and we usually end up with a list that
looks something like this.
Now the first couple are a little silly.
People can walk there-- sure you can
walk 200 miles to get to New York,
but that will kill most of a weekend.
You could bike there, same thing, be a long ride.
Or you could try and swim there.
So those ones usually just come out.
But then the next several are pretty interesting.
So taxicabs, car rentals, and privately owned vehicles.
Now these each come out.
And so a taxicab, I think as we all know, is where you go in,
someone else owns the vehicle, you
pay by the mile to get where you want to go.
Once you get there, you pay the driver and leave.
And it's the driver's responsibility to go wherever.
A rental car, you typically have to rent it and return it
in the same place, although you can
do what's known as a one-way rental, where I rent it
up here in Boston, knowing that I will return it in New York,
and then it's up to the car rental agency
to get the car back, or do whatever it wants with it.
The third option that comes out here
is privately owned vehicle.
This is where you own your own car.
And so you would drive to New York,
and we assume that you would probably
want to drive it back, and get it back to Boston.
So we talk about these three modes-- taxicab, rental car,
and privately owned vehicles-- and I
raise the question, what's different between them?
Because they're all cars that go on the road,
they have four tires, they're very
similar if you look at them-- they look similar.
And the differences are, as they discussed
this, is the contract, or the relationship you have.
Taxicab, it's a pure transactional relationship.
You drive it-- you get driven, rather--
and then you leave, you pay by the mile.
Privately owned vehicle, you care where it goes to
and how it gets home.
So there is trade-offs here.
And so taxicab is very transactional,
with just the variable cost.
As I move from taxi to rental to my own car,
I start caring about how it gets back,
I care about the utilization.
So the way you have the contract with the mode of transportation
matters, as well as the physical transportation itself.
And then they usually come in and they also recommend you
I can take a bus, I can go by plane, or I can take the train.
And these are all very valid, and they're
seemingly very different modes of transportation,
but I argue with them that they're actually very similar.
And so we talk about this for a while,
and the question is, why are they similar?
Well, each one of these leaves from a port.
There's a bus station, there's an airport,
and there's a train station.
The train doesn't leave from anywhere you want it to,
you've got to go to its station.
So they're fixed, as opposed to these taxicabs, rental cars,
and privately owned vehicles-- they can go from anywhere.
So they're more known as direct modes of transportation,
because they can move from one point to another point
directly.
While these other three modes-- bus, air, and train--
tend to be one, is they're fixed to stations or ports,
and also, they leave on schedules.
The train doesn't leave when you want it to leave,
it leaves when it leaves.
So they're scheduled transportation.
So you can think of these modes as a big grouping
of direct-- the cabs, and the cars-- and then scheduled.
And so they have very different characteristics
that we'll talk about more and more as we go on
and talk about freight transportation.
So you have all these different modes,
and they have different characteristics.
So the next question I ask is, how do you
decide between one mode or the other?
And people come up with different things.
And obviously, the first one is usually cost.
Everyone says, well, it matters what the cost is.
And that's very true, but it's not as simple as that.
Because there are different types of costs.
There's variable costs-- so per mile, like a taxi cab,
they're going to charge you a per mile fee.
There's also a fixed cost-- the cost per each shipment.
And that could be something that a rental car will do.
Typically, you rent it for a day,
and they don't care, within bounds,
how many miles you drive.
But then there's also capital cost.
For a car, your variable cost once you
own a car is just your gas money and tolls.
However, you need to have the capital
to have already acquired that vehicle.
So cost is the obvious one.
That one always comes out.
But then you usually get a whole laundry list
of other considerations that you might have,
or metrics to decide whether to do one mode versus another.
And so I list some here.
Transit time, with both the average transit time
and the variability.
The reliability of the transportation, the consistency
of the service, frequency of delivery-- is it every hour,
or once a day?
Capacity, how many people could does it fit?
How comfortable is it?
The safety, ease of access-- there's a lot of these.
And so what we see is there's really two types of metrics--
there's the cost, and that's an easy one,
and then there's this whole array of other things
that are known as level of service,
or LOS, level of service.
The interesting thing about level of services
is it differs between each person.
Someone might really like to pay--
they're willing to pay more for fast.
The trip to New York City, so the mean, they'll pay for that.
Other people might really care about comfort,
and all that I care about is comfort.
So each person has a different set of values here.
That's what makes it interesting.
And it's a trade-off of this array
of metrics with this cost of service.
So they have all these different modes, different ways
of making decisions, and then what we have to do
is make a selection.
And this is known as mode selection, or route selection.
And it's again, just a trade-off between cost
and that level of service.
And level of services is individual to each person,
each shipper, and so people will value different things.
But the way you make the trade-off is you
look at this path view of the network.
And this summarizes all the different dimensions
and parts of the movement into one easy-to-digest piece
of information.
So for here, for air, going from Boston to New York City
is about, end-to-end, full trip, three hours.
And this changes a lot, but last time I looked,
it was about $160 per person.
If I wanted to do a one-way rental,
it's a little bit longer, five and a half hours,
and about $240 to rent a car one way.
And that can fit up to five people.
And then you might want to take the local bus,
you'd have to go to South Station, do some things.
It takes a little bit longer, because it puts you out
in a different place.
It'll put you out depending on the bus line at different parts
of New York City, and you might have to cab somewhere else.
But it's relatively inexpensive, $35 per person.
So what I want to do here is make a decision,
and it's based off of what my characteristics are.
Do I care about speed?
Do I want to have a lot of people?
I really don't care how long it takes.
So you have all these different trade-offs.
And we'll see a lot of this, because this
is how we make mode choice, especially
with freight transportation.
Another way you can look at this that's
very valuable to make decisions is
what's known as a time-space diagram.
So the time is the horizontal axis.
So here I just have every half an hour increment from 6:00
in the morning to-- what is that-- 3:00 in the afternoon.
And the vertical axis is space, or location.
So here's MIT, South Station-- that's a railway station here
in Boston-- Logan Airport in Boston,
LaGuardia is the airport in New York City.
Chinatown, actually, is the southern part of Manhattan,
it's where some of the buses go.
Penn Station is in Central, and then New York City
is midtown, is where I'd want to go.
So I can map on here as different modes
move through time and space.
So if I take my car-- this is in the red--
I can leave it any time I want.
That's why I could leave at 6:00, 6:30, 7:00, 7:30,
and any time in between there, I just
didn't want to put too many dots.
And we see how long it takes to where
I get to my final destination.
But I could look at some other modes,
and this is taking a bus.
But I can't just leave from South Station,
I've got to get to South Station.
And so what we're seeing here is that I've
got this wait time-- see this dashed line down here,
I'm circling it-- that means I'm staying in place,
and I'm not moving in space, I'm moving in time.
So I'm just hanging out.
Why am I hanging out?
Because I'm waiting to catch the bus,
the T, the MBTA here in Boston, to get to South Station, where
then I'm going to wait a little longer for when
the scheduled bus leaves, takes me to New York,
I'm going to have to probably wait for a cab as well,
and then finally get to my destination.
So what this time-space diagram shows
you is how you're moving in space, and in time.
So another option here is by flying.
Now flying is the fastest, but actually, it
depends how much buffer you have.
So if I leave here at 6:00-- assuming
I get to the airport on time-- and about half an hour
to get the airport, I'm going to wait half an hour,
even that's cutting it a little close.
But if I leave at 6:30 and I get in just before this plane goes,
I don't make it.
So I have to wait, and I'm going to have
to wait until the next scheduled flight is,
which is about an hour later.
So by having these scheduled runs, these air,
I run the risk of missing one, and I
have to wait for the next scheduled run.
And then you have the same thing on the other end.
I've got to get from the airport to a cab stand,
and then, finally, to my final destination.
So what this time-space diagram does,
it allows you to look at end-to-end movements,
and you get to see those components
where I'm moving in space and time,
or where I'm only moving in time.
And when I'm only moving in time, that's dwell and wait.
And as we all know, if anyone who's taken a bus,
or flown in a plane, or taken a train,
there's always wait time.
You don't get to the train station
as the train's supposed to leave.
You build in buffer.
Just like with inventory-- we build in buffer stock--
you build in buffer time.
And some people build in two hours,
they get there two hours early.
Some people are willing to take more risk,
and they'll leave five minutes before.
So whatever that is, you can consider this wait time
before scheduled transportation as kind
of the same thing as a safety stock in time.
So far we've been talking about passenger transportation
instead of freight transportation,
but there's a lot of similarities between the two.
One is for both freight and passenger,
there's scheduled and direct modes.
We have things that act like buses--
and they move in scheduled routes-- and direct moves that
go point-to-point.
You'll always have a trade-off between level of service, which
can be defined many different ways, and the total cost.
They're fundamental activities that are common between these,
and we'll talk more about in the next lesson.
And then the contract type implies its operational use.
Think of a rental car versus a car
that you own yourself, a POV, or personally owned vehicle.
And then there are multiple networks,
and we'll talk much more about this
in the coming videos, about where the physical network is
where you actually move, versus where you make decisions.
But there are some key differences as well.
Quality of time.
You care that you're waiting and sitting in something.
That's why they usually put TVs when
you're waiting in an airport, because it takes
your mind off waiting in a queue.
Boxes don't care.
A box won't watch TV.
Freight doesn't care about quality of time.
Directional versus round trips.
As a general rule, people come home.
When they make a trip-- whether it's
a work commute, or a larger trip, a business
trip or personal trip-- they tend to come home.
A freight doesn't.
It's very directional, it's one-directional.
You have the freight coming back,
and that creates a problem that we'll
talk about later, in that container,
or that other vehicle, needs to come home.
Another big difference is that inventory influences decisions
in freight, and we'll talk much more about that later.
And then finally, the Average Length Of Haul, or ALOH--
you'll see this acronym a lot.
Freight transportation is usually
much longer than people.
People won't commute five hours a day, it's very rare.
But freight will move across the world.
OK, so this is all about passenger transportation,
but it has a lot of direct similarities between what
we're going to study in freight.
So now what we're going to do is switch, and start
talking about freight transportation.

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