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Transportation management



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Supply Chain Management

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Transportation management

  1. 1. Supply Chain Management Transportation Management
  2. 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. 3 Value-added Transportation Concept Supplier Manufacturer Customer Inbound Outbound Product/Info Flows Info/Return Goods Flows
  4. 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. 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. 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. 7  Role of Transportation in Logistics & Supply Chain Management Transportation Functions, Principles, Participants Transportation Regulation Transportation Industry Structure Transportation Services  Industry Deregulation
  8. 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. 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. 10 Transportation Participants
  11. 11. 11 Economic Types of Transportation Regulation • Investments in transportation infrastructure (e.g., highways, airports, ports) • Control of routes, pricing, schedules
  12. 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. 13 Pipeline Water Rail Air Highway Five Basic Transportation Modes
  14. 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. 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. 16  Transportation Functions, Principles, Participants  Transportation Regulation Transportation Industry Structure  Transportation Services Non Operating Intermediaries Traditional Transportation Carriers Package Services Intermodal Transportation
  17. 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. 18
  19. 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. 20
  21. 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. 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. 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. 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. 25 Intermodal  Enables shippers to benefit from advantages of multiple modes of transportation  minimizes disadvantages of individual modes Rail Air Water Truck
  26. 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. 27 Changing Transportation Environment
  28. 28. 28 Changing Transportation Environment  Deregulation  Time-based competition  Expanding geographic coverage  Information technology  Social and environmental concerns
  29. 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. 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. 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. 32 Transportation Management
  33. 33. 33 Transportation Management  Network Freight Flows: Macro- Decisions  Micro-Decisions  Information Systems Support
  34. 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. 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. 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. 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. 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. 39 Suggested Analyses  Network flows  Lane densities, frequencies, consistency  Freight distribution by mode, carrier  Consolidation opportunities
  40. 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. 41 Key Principles of Transportation Management
  42. 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. 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. 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. 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. 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. 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. 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. 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. 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. 51 Reference:  The Management of Business Logistics by J. J. Coyle, E. J. Bardi and C. J. Langley Jr.