Supply Chain Management - Transportation

Role of Transportation in Logistics & Supply Chain Management

 Transportation Functions, Principles, Participants Transportation Regulation Transportation Industry Structure Transportation Services

 Transportation Functions, Principles, Participants

Transportation Functions Transportation Principles Transportation Participants

Transportation Regulation Transportation Industry Structure Transportation Services

 Transportation Functions, Principles, Participants

Transportation Functions
Product Movement Product Storage

Transportation Principles Transportation Participants

Transportation Regulation Transportation Industry Structure Transportation Services

Product Movement

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Product Storage

New Destination NORFOLK

Diversion

Original Destination NEW YORK

Los Angeles

 Transportation Functions, Principles, Participants

Transportation Functions Transportation Principles
Economy of Scale Economy of Distance (Tapering Principle)

Transportation Participants

Transportation Regulation Transportation Industry Structure Transportation Services

Economies of Scale
The more items (weight) is transported, the less the transportation costs per item (unit of weight)

Rs. 100/book

Transportation Cost per Book

Rs. 10/book

1 Number of Books in Shipment

1000

Economies of Distance
Tapering Principle
The larger the distance, the less the transportation costs per unit of distance (e.g., per km)

Rs. 0.10/km
Transportation Cost per km Tapering Principle

Rs. 05/km

Rs. 50/km
1 km 500 km Shipment Distance
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1000 km

 Transportation Functions, Principles, Participants

Transportation Functions Transportation Principles Transportation Participants

Transportation Regulation Transportation Industry Structure Transportation Services

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Transportation Participants
I need something shipped at the lowest possible cost!

Transportation Participants
I need something shipped at the lowest possible cost!

I need something delivered at the lowest possible cost!

Transportation Participants
Carriers: We have the equipment!

Transportation Participants
Carriers we can find a shipper! Shippers we can find a carrier!

Transportation Participants
the transportation system is vital for the countrys economic health

Transportation Participants

purchase fuel, transportation equipment, supplies

Transportation Participants
track shipments

purchase fuel, transportation equipment, supplies

Transportation Participants
track shipments

purchase fuel, transportation equipment, supplies

match products needing to be shipped with available capacity

Transportation Participants
Creates demand for transportation by purchasing products

 Transportation Functions, Principles, Participants Transportation Regulation Transportation Transportation Industry Structure Transportation Services

 Transportation Functions, Principles, Participants Transportation Regulation

Types of Transportation Regulation History of Transportation Regulation

Transportation Industry Structure Transportation Services

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 Transportation Functions, Principles, Participants Transportation Regulation

Types of Transportation Regulation History of Transportation Regulation

Transportation Industry Structure Transportation Services

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Types of Transportation Regulation

Economic
Investments in transportation infrastructure (e.g., highways, airports, ports) Control of routes, pricing, schedules

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Types of Transportation Regulation

Economic
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

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 Transportation Functions, Principles, Participants Transportation Regulation

Types of Transportation Regulation Transportation Regulation

Transportation Industry Structure Transportation Services

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 Transportation Functions, Principles, Participants Transportation Regulation Transportation Industry Structure Transportation Services

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Five Basic Transportation Modes

Pipeline

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Five Basic Transportation Modes

Pipeline Water

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Five Basic Transportation Modes

Pipeline Water

Air

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Five Basic Transportation Modes

Pipeline Water

Air

Rail
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Five Basic Transportation Modes

Pipeline Water

Air

Rail

Highway
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Domestic Shipments by Mode and Volume

Domestic Shipments by Mode and Revenue

Cost Structure For Each Transportation Mode

Rail

high fixed costs (land, tracks)

low variable costs (operating costs, e.g., labor, fuel) slow, but inexpensive way to transport heavy freight that doesnt require special handling, long distances

Cost Structure For Each Transportation Mode

Highway

low fixed costs (government builds, maintains highways)

medium-high variable costs (operating costs, e.g., labor, fuel) most accessible mode (more highways than railroads, waterways, pipelines); best for transporting medium to high value products short to moderate

Highway

LTL less than truckload

TL truckload Specialty

Cost Structure For Each Transportation Mode

Water

moderate fixed costs (ships and freight handling equipment)

low variable costs (operating costs, e.g., labor, fuel) very slow, but inexpensive way to transport large, heavy freight over long distances (e.g., oceans, rivers, inland waterways, lakes)

Cost Structure For Each Transportation Mode

Air

low fixed costs (aircraft and freight handling equipment)

highest variable costs (e.g., labor, fuel, maintenance) very fast; used for transporting high value and/or high perishability product over short to medium distances.

Cost Structure For Each Transportation Mode

Pipeline

highest fixed costs (right of way & construction costs of equipment)

lowest variable costs (no significant labor or fuel costs) slow, but dependable (e.g., no weather, traffic disruptions); no flexibility with regard to types of products that can be transported must be liquid (e.g., petroleum)

 Transportation Functions, Principles, Participants Transportation Regulation Transportation Transportation Industry Structure Transportation Services

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 Transportation Functions, Principles, Participants Transportation Regulation Transportation Industry Structure Transportation Services
Non Operating Intermediaries Traditional Transportation Carriers Package Services Intermodal Transportation
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 Transportation Functions, Principles, Participants Transportation Regulation Transportation Industry Structure Transportation Services
Non Operating Intermediaries
Freight Forwarders Transportation Brokers Shipper Associations/Cooperatives/Agents

Traditional Transportation Carriers Package Services Intermodal Transportation

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 Transportation Functions, Principles, Participants Transportation Regulation Transportation Industry Structure Transportation Services
Non Operating Intermediaries
Freight Forwarders Transportation Brokers Shipper Associations/Cooperatives/Agents

Traditional Transportation Carriers Package Services Intermodal Transportation

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 Transportation Functions, Principles, Participants Transportation Regulation Transportation Industry Structure Transportation Services
Non Operating Intermediaries
Freight Forwarders Transportation Brokers Shipper Associations/Cooperatives/Agents

Traditional Transportation Carriers Package Services Intermodal Transportation

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 Transportation Functions, Principles, Participants Transportation Regulation Transportation Industry Structure Transportation Services
Non Operating Intermediaries
Freight Forwarders Transportation Brokers Shipper Associations/Cooperatives/Agents

Traditional Transportation Carriers Package Services Intermodal Transportation

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 Transportation Functions, Principles, Participants Transportation Regulation Transportation Industry Structure Transportation Services
Non Operating Intermediaries Traditional Transportation Carriers Package Services Intermodal Transportation
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 Transportation Functions, Principles, Participants Transportation Regulation Transportation Industry Structure Transportation Services
Non Operating Intermediaries Traditional Transportation Carriers Package Services Intermodal Transportation
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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)
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 Transportation Functions, Principles, Participants Transportation Regulation Transportation Industry Structure Transportation Services
Non Operating Intermediaries Traditional Transportation Carriers Package Services Intermodal Transportation
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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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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
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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
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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 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
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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 Design a transportation network that can handle e-commerce Use technology to improve transportation performance Design flexibility into the transportation network

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