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# ASSIGNMENT-3

ASSIGNMENT ON TRANSPORTATION NAME: MEHWISH ALI ID NO# MBA SUBJECT: SCM (3-6 SAT) SUBMITTED TO: SIR MASOOD SUBZWARI DATE: 21ST -APRIL-2012

1. Seven economic drivers that influence transportation cost were described in transportation text. Select a specific product and discuss how each factor will influence determination of a freight rate.
ANSWER: Economic Drivers Transportation costs are driven by seven factors. While not direct components of transport tariffs, each factor influences rates. The factors are: (I) Distance, Distance is a major influence on transportation cost since it directly contributes to variable expense, such as labor, fuel, and maintenance.

## Distance is a major influence on cost

Directly contributes to variable expenses
Labor, fuel, and maintenance

Cost curve starts above zero because of fixed costs associated with pickup and delivery regardless of distance However, rate of cost decreases as distance increases
This is called the tapering principle

## Figure 9.1 Generalized Relationship between Distance and Transportation Cost

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(2) Volume, The second factor is load volume. Like many other logistics activities, transportation scale economies exist for most transportation movements. The management implication is that small loads should be consolidated into larger loads to maximize scale economies.

## Weight is the second major factor for most transportation costs

Cost per pound decreases as weight increases until the carrier vehicle is full
Relationship starts again for the next vehicle load

Small loads should be consolidated into larger loads to maximize scale economies
Generalized Relationship between Weight and Transportation Cost/Pound

(3) Density, A third factor is product density. Density is a combination of weight and volume. In general, traffic managers seek to improve product density so that trailer cubic capacity can be fully utilized.

## Density is the combination of weight and volume

Volume is important because vehicles are typically constrained more by cubic capacity than by weight loaded Cost per unit of weight declines as product density increases
Higher density products allowed fixed transport costs to be spread over more weight
Figure 9.3 Generalized Relationship between Density and Transportation Cost/Pound

(4) Stow-ability, Stow-ability refers to how product case dimensions fit into transportation equipment. Although density and stow ability are similar, it is possible to have items with similar densities that stow very differently. Stow-ability is also influenced by other aspects of size, since large numbers of items may be nested in shipments whereas they may be difficult to stow in small quantities.

## Stowability is how product dimensions fit into transportation equipment

Odd package shapes and sizes can waste cubic capacity Items with rectangular shapes are easier to stow Nesting refers to ability of product to be placed in itself or collapsed for better stowability

(5) Handling, Special handling equipment may be required to load and unload trucks, railcars, or ships. In addition to special handling equipment, the manner in which products are physically grouped together in boxes or on pallets for transport and storage will impact handling cost.

## Handling some products may require special equipment

Special equipment may be needed to load and unload trucks, railcars, or ships How products are grouped together in boxes or pallets will also impact handling cost

(6) Liability, Liability includes product characteristics that can result in damage and potential claims. Carriers must either have insurance to protect against possible claims or accept financial responsibility for damage.

## Liability includes product characteristics that can result in damage

Carriers must pay for liability insurance or accept financial responsibility Shippers can reduce their risk by
For example - pneumatic dunnage

## Reducing susceptibility to loss or damage

(7) Market Finally, market factors such as lane volume and balance influence transportation cost.

## Transport lane refers to movements between origin and destination points

Carriers must find a backhaul load or vehicle is returned empty

Market factors such as lane volume and balance influence transportation cost

Imbalances in volume between shipping points can result in higher transport costs

2. Compare and contrast the transport principles of economy of scale and economy of distance. How do they combine to create efficient transportation?
ANSWER: Economy of scale in transportation deals with reduced costs in relation to the size of shipment. Larger shipments tend to have lesser cost of transportation per pound since fixed costs associated with transportation are shared/distributed over the entire shipment. Ex: shipment, larger capacity transportation vehicle (rail, water, airplane) are less cost per unit of weight than smaller capacity transportation vehicle (bus, truck). Economy of distance deals with the reduced costs in relation to the distance of shipment. The larger the distance to be shipped, the lesser the cost of transportation per mile of the distance. Ex: at a small weight shipment 800 miles will cost less to perform than two shipment each moving 400 miles. Economy of transportation and economy of distance can be clubbed to form an efficient transportation strategy. A company shipping large sized shipments over a longer distance to destination will save more money in terms of transportation costs than a company shipping smaller shipments multiple times over shorter distances.

3. Identify basic modes of transportation, their costs, and their suitability for different types of products.
ANSWER: Transportation modes include: 1) Rail Historically, railroads have handled the largest number of ton-miles within the continental United States. Rail: characteristics of railway transportation: Economically transport capability for large shipment Railroads have largest percentage of intercity freight ton miles Train enjoys relatively low variable operating cost Train enjoys relatively large tonnage over long distance Railroad operation have fixed cost
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Electrification and technology development reduced variable cost per ton Train is faster and more expensive to operate VIII. It is nonstop from origin to destination 2) Motor Highway transportation has expanded rapidly since the end of World War 11. To a significant degree the rapid growth of the motor carrier industry has resulted from speed and ability to operate door-to-door. Motor: characteristics of motor in highway transportation: Motor have flexibility to transport. Motor carriers have the largest revenue. It is able to operate on a variety of roadways Ability to operate door to door Motor have relatively small fixed investment than other modes. Motor operations are characteristics by low fixed cost and high variable cost. Motor handle small shipment moving short distances. Easy to moving from wholesaler warehouses to retail store.

3) Water Water is the oldest mode of transport. The original sailing vessels were replaced by steam-powered boats in the early 1800s and by diesel in the 1920s. A distinction is generally made between deepwater and navigable inland water transport. Water: characteristics of waterway transportation: Water is oldest mode of transportation Capacity to transport extremely large shipment Ability to achieve economy of distance. Moderate fixed cost Low variable cost to transport large tonnage. 4) Pipeline Pipelines are a significant part of the U.S. transportation system.

Fixed costs high (increase almost directly with distance) Line-haul costs are lowest (even lower than water) Long haul in bulk Liquid fuels in large volumes
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## Restricted commodity use; regular flow and demand required

Pipeline: characteristics of pipeline transportation: Pipeline transportation use basically for petroleum ton miles movement. It transported natural types of product Pipeline is unique than others. Pipelines operate 24 hr and 7 days nonstop. 5) Air The newest but least utilized mode of transportation is airfreight. The significant advantage of airfreight lies in the speed with which a shipment can be transported. Air: characteristics of air transportation: The newest but utilize mode of transportation. Airfreight lies in the speed than others Very much costly. Use sensitive product transportation. High fixed cost and variable cost.

4. Describe the factors driving transportation costs including distance, volume, density, stow-ability, handling, liability, and market factors.
ANSWER: Transportation costs are driven by seven factors. While not direct components of transport tariffs, each factor influences rates. The factors are: (I) Distance, Distance is a major influence on transportation cost since it directly contributes to variable expense, such as labor, fuel, and maintenance (2) Volume, The second factor is load volume. Like many other logistics activities, transportation scale economies exist for most transportation movements. The management implication is that small loads should be consolidated into larger loads to maximize scale economies.

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(3) Density, A third factor is product density. Density is a combination of weight and volume. In general, traffic managers seek to improve product density so that trailer cubic capacity can be fully utilized. (4) Stow-ability, Stow-ability refers to how product case dimensions fit into transportation equipment. Although density and stow ability are similar, it is possible to have items with similar densities that stow very differently. Stow-ability is also influenced by other aspects of size, since large numbers of items may be nested in shipments whereas they may be difficult to stow in small quantities. (5) Handling, Special handling equipment may be required to load and unload trucks, railcars, or ships. In addition to special handling equipment, the manner in which products are physically grouped together in boxes or on pallets for transport and storage will impact handling cost. (6) Liability, Liability includes product characteristics that can result in damage and potential claims. Carriers must either have insurance to protect against possible claims or accept financial responsibility for damage. (7) Market Finally, market factors such as lane volume and balance influence transportation cost.

5. Summarize the key elements of transportation management including equipment scheduling, load planning, routing, and carrier administration.
ANSWER: TRANSPORT MANAGEMENT SYSTEM: Transportation management systems (TMS), plans, executes, and manages transport and movement functions Parties involved include: Shipper, Carrier, and Consignee (recipient)

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Functions of TMS: Carrier Selection Carrier Scheduling Dispatching Document preparation/ Freight payment Performance Measurement Shipment consolidation and routing shipment rating Shipment scheduling Shipment tracing and expediting vehicle loading EQUIPMENT SCHEDULING: Scheduling is a key component Yard management requires careful load planning, equipment utilization, and driver scheduling Arrangement of delivery and pickup Pre schedule dock positions or slots Scheduling is a huge part and important process in carrier and private transportation. Bottlenecks can occur from improper equipment scheduling which can result in transportation equipment waiting to be loaded and unloaded. Some companies strive to put into practice advanced scheduling appointments at the time of the order commitment. Effective scheduling is the key to meeting demand and time arrangements. LOAD PLANNING: Determine capacity of load What is the size of individual shipments? Delivery sequences Almost all large companies use TMS software to help in load planning If load planning is performed effectively it will positively impact overall logistical efficiency. If done effectively equipment must be available to maintain an orderly flow of product and material from warehouse or factory to shipment destination.
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ROUTING: Routing software ASN provided to customers Delivery specifications for customers Route optimization is utilized in most large companies. Routing must be performed in a efficient manner while meeting customer service requirements. CARRIER ADMINISTRATION: Administer the performance of for-hire and private transportation Implement core carrier strategy Determine to use integrated service providers (ISPs) Identify most economical mode Core carrier strategy is building a working relationship with a small number of transportation providers. Even if your company is huge and uses a private fleet to an extent every firm uses forhire carriers. ISPs are often used to administer and consolidate freight across a wide variety of shippers. Determine mode by parcel, LTL, TL, pool distribution, stops in transit, etc