Transportation in the Supply Chain

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Logistics
Logistics is:

“…that part of supply chain management that plans, implements, and controls the
efficient, effective flow and storage of goods, services, and related information from
point of origin to point of consumption in order to meet customer requirements.”

Council of Supply Chain Management Professionals

Logistics
Logistics is necessary to:
• Move goods from suppliers to buyers
• Move finished goods to the customer

Products have little value to the customer until they are moved to the
customer’s point of consumption
• Time utility- products are delivered at the right time.
• Place utility- products are delivered to the desired location.
The Objective of Transportation

 Maximize value to firm through negotiation to provide profit

contribution
 Make sure service is provided effectively
 Satisfy customer needs
Factors Affecting Transportation
Decisions
Carrier (party that moves or transports the product)
 Vehicle-related cost
 Fixed operating cost
 Trip-related cost
(DHL, TCS, FedEx, Lasani Logistics)

Shipper (party that requires the movement of the product between two points in
the supply chain)
 Transportation cost
 Inventory cost
 Facility cost

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Legal Forms of Transportation
Transportation service companies are classified legally as either common,
contract, exempt, or private carriers.

• Common carriers- offer transportation services to all shippers at published

rates between designated locations without discrimination.
• Contract carriers- not bound to serve the general public. Contract carriers
serve specific customers under contractual agreements.
• Exempt carriers - exempt from regulation of services & rates & if they
transport certain exempt products like, livestock, coal, or newspapers.
• Private carrier - not subject to economic regulation & typically transports
goods for the company owning the carrier.
Transportation Modes
• Trucks
• Rail
• Air
• Water
• Pipeline

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Transportation Modes

Motor Carriers (trucks)- most flexible mode of transportation

& carries > 80% of U.S. freight. Competes w/rail & air for short-
to-medium hauls.
• Less-than-truckload (LTL) & truck-load (TL) carriers move
small shipments & fees are higher
• General freight carriers carry the majority of goods
shipped & include common carriers.
• Specialized carriers transport liquid petroleum, household
goods, building materials, & other specialized items.
Transportation Modes

Rail Carriers- compete when the distance is long & the

shipments are heavy or bulky.
• Rail slow & inflexible, but have begun purchasing motor
carriers & can thus offer point-to-point pickup & delivery
service known as trailer-on-flatcar (TOFC) service.

• Rail companies use each other’s rail cars. Keeping track of

rail cars & getting them where needed can be problematic.
•
• Railroad infrastructure & aging equipment are also
problems for the railroads.
Transportation Modes

Air Carriers - Expensive relative to other modes but

fast. Air carriers transport about 5 % of U.S. freight.
• Airlines cannot carry extremely heavy or bulky cargo.
• For light, high value goods over long distances quickly. Most small
cities & towns do not have airports.
• Half of the goods transported by air are carried by freight–only
airlines, FedEx.
 Transportation Modes
Water Carriers- Inexpensive, slow & inflexible. Includes inland
waterway, coastal & inter coastal, & deep-sea.
• Inland waterway transportation is used for heavy, bulky, low-
value materials (e.g., coal, grain).
• Competes w/rail & pipeline.
• Water carriers are paired w/trucks for door-to-door delivery.
• Supertankers are +1,500 ft long & 200 ft wide.
Pipeline Carriers - are limited in variety they can carry.
• Little maintenance once pipeline is running.
• Materials hauled in a liquid or gaseous state
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

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Trade-offs in Transportation Design
• Transportation and inventory cost trade-off
• Choice of transportation mode
• Inventory aggregation

• Transportation cost and responsiveness trade-off

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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

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Inventory Aggregation: Inventory vs.
Transportation Cost
 As a result of physical aggregation
Inventory costs decrease
Inbound transportation cost decreases
Outbound transportation cost increases

 Inventoryaggregation decreases supply chain costs if the product

has a high value to weight ratio, high demand uncertainty, or
customer orders are large
 Inventoryaggregation may increase supply chain costs if the product
has a low value to weight ratio, low demand uncertainty, or customer
orders are small

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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

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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

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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

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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

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Making Transportation Decisions in
Practice
 Align transportation strategy with competitive strategy
 Consider both in-house and outsourced transportation
 Use technology to improve transportation performance
 Design flexibility into the transportation network

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Global Logistics
Global Logistics Intermediaries
• Customs Brokers- move through customs & handle
documentation.
• International Freight Forwarders- move goods to foreign
destination
• Trading Companies- Put buyers & sellers together &
handle export/import arrangements.
Reverse Logistics
• Backwards flow of goods from customers in SC when
goods are returned by a customer in the supply chain
• Retail returns range 6% to 40% of sales
• Often is an unwanted SC activity
• Poor reverse logistics can hurt firm
• Green reverse logistics programs - designed to return
unneeded products for recycling. These programs reduce
environmental impact on landfills & deal with dangerous
contaminants.