Transportation

Basics in Supply Chain ManagementChapter 10: Transportation –Managing the Flow of the SupplyChain Leif-Magnus JensenLearning ObjectivesExplain the role transportation plays in the supply chain.Discuss the service and cost characteristics of the primary transportation modes.Discuss the key activities involved in transportation planning and execution.Learning Objectives,continuedExplain current transportation management strategies used to improve supply chain performance.Use service and cost metrics to analyze transportation performance. Describe how information technology supports transportation planning and execution.Main partsRole of transportationBasic modes of transportationTransportation strategy and selectionTransport pricingTransportation control5Role of Transportation in Supply Chain Management Transportation provides the critical links between organizations,permitting goods to flow between their facilities. Transportation service availability is critical to demand fulfillment in the supply chain.Transportation efficiency promotes the competitiveness of a supply chainChallenges to Carrying out this RoleSupply chain complexityCompeting goals among supply chain partnersChanging customer requirementsLimited information availabilitySynchronizing transportation with other supply chain activities Challenges to Carrying out this Role,continuedTransportation capacity constraints pose a challenge.Rising transportation rates present another major concern for organizations.The transportation industry is impacted by governmental requirements that affect cost structures and service capabilities.Regulation is growing in areas where the transportation industry has the potential to impact the quality of life, the safety of citizens, and the growth of commerce.The Basic Modes of TransportationThe basic modes available to the logistics manager are rail, motor, water, pipeline, and air.9The Basic Modes of Transportation: Railroads Capable of carrying a wide varietyof products, much more so thatother modes.Very small number of carriers; likelyonly one will be able to serve anyone customer location.Trend is to merge smallercompanies into larger ones withultimate goal of having perhapstwo transcontinental rail carriers.(US)10The Basic Modes of Transportation: Railroads This would permit seamlessdock-to-dock service by onecompany; a distinctimprovement over currentsystems.Rail is a long haul, large volumesystem (high fixed costs; ownrights-of-way).Accessibility can be a problem.Transit times are spotty, but aregenerally long.11The Basic Modes of Transportation: Railroads Reliability and safety are improvingand are generally good.Premium intermodal servicesStraight piggyback andcontainerized freightDouble stacksRoadRailer serviceUnit train serviceIntermodal Marketing Company (IMC)12On the Line:It’s the Service, StupidIt’s difficult to assess the railroad industry withoutgetting into the subject of service…Shippers complain; rail carriers say they are trying to improve.Actual improvements are coming, but slower than the demand for faster, more reliable, and cheaper service. One problem is that standards continue to increase.13The Basic Modes of Transportation: Motor Carriers The motor carrier industry is characterized by a large number of small firms. In 1999, there were 505,000 registered motorcarriers (US).Low cost of entry causes these large numbers.Used by almost all logistics systems and account for 82 percent of U.S. freight expenditures.Consists of for-hire and private carriers.14The Basic Modes of Transportation: MotorCarriersLarge number of small firms; in 1999, there were 12,500 regulated carriers, only 7% of which had revenues >$10 million, with 76% having revenues <$3 million.Characterized by low fixed costs and high variable costs.Do not own their rights-of-way.Limited operating authority regarding service areas, routes, rates and products carried.15The Basic Modes of Transportation: Motor CarriersHigh accessibilityTransit times faster than rail orwater.Reliability can be affectedgreatly by weather.Small vehicle size coincideswith lower inventorystrategies and quickreplenishment (QR).Relatively high cost comparedto rail and water; trade-off isfaster service.16The Basic Modes ofTransportation: Domestic Water CarriersAvailable along major rivers,shorelines and inlandwaterways. Extensive canalsystems in many countries.Many of the systems wereoriginally built for extractionindustries (coal, lumber etc).17 The Basic Modes of Transportation: Domestic WaterCarriersRelatively low cost mode; donot own the rights-of-way;easy entry and exit.Typically a long distancemover of low value, bulk-type mineral, agriculturaland forest productsLow rates but long transittimesLow accessibility but highcapability18The Basic Modes ofTransportation: International Water CarriersGeneral cargo shipsLarge high capacity cargoholdsEngaged on a contract basisMany have self-containedcranes for loading/unloadingBulk carriersSpecially designed to haulmineralsCan handle multiple cargoes19 The Basic Modes of Transportation: InternationalWater CarriersTankersSpecially designed for liquidcargoesLargest vessels afloat, someVLCCs at 500k+ tonsContainer shipsHigh speeds for ships;increasingly more commonand importantLarger vessels can handle upto 5,000 containers.20The Basic Modes of Transportation: International Water CarriersRO-RO (Roll on-Roll off)Basically a large ferry thatfacilitates the loading andunloading process by usingdrive on/off rampsMay also have the capacity tohaul containersOtherOBO multipurpose carriersBarges (not transoceanic)21Deep-sea freight in % of consumer prices•TV set2,0%•Cheese1,5”•Motorbike1,4 ”•Vacuum cleaner1,3 ”•Coffee1,2”•Can of beer1,0 ”•Bottle of whiskey0,5”Source: European Liner Affairs Assoc. 2003The Basic Modes of Transportation: Air Carriers Limited number of large carriers earn about 90% of the revenue.Any of the air carriers can carry air freight although some haul nothing but freight.Cost structure is highly variable; do not own rights-of-way.Transit times are fastest of the modes, but rates are highest.23The Basic Modes of Transportation: Air Carriers Average revenue per ton mile18 times higher than rail;twice that of motor carriers.Seek goods with a high value toweight ratio.Accessibility is low as iscapability.Reliability subject to weathermore than other modes.24The Basic Modes of Transportation: Pipelines Often refers to oil pipelines,consider also natural gasNot suitable for generaltransportationSome research has beenperformed to move mineralsin a liquid medium, butoutside of a few attempts totransport slurried-coal viapipeline, no real successeshave occurred.25The Basic Modes of Transportation: PipelinesAccessibility is very low.Cost structure is highly fixed with lowvariable costs.Own rights-of-way much like therailroads.Major advantage is low rates.26Comparison of Modal CapabilitiesSource: Brian J. Gibson, Ph.D.28SelectionWhat mode should you use?29Decision to Outsource TransportationFirms choose between “make” or “buy”Commercial carriers “buy”Private fleets “make”External experts move the freight and/or manage thetransportation process “buy”Third-party logistics (3PL) “buy”Modal SelectionAccessibilityAccessibility advantage: Motor carriageAccessibility disadvantage: Air, rail, and water Transit TimeTransit time advantage: Air and motor carriageTransit time disadvantage: Rail, water, and pipelineTransportation Planning and Strategy,continuedModal Selection, continuedReliabilityReliability advantage: Motor carriers and air carriersReliability disadvantage: Water carriers and rail carriers Product SafetySafety advantage: Air transportation and motor carriageSafety disadvantage: Rail and waterCostCost advantage: The cost of transportation service variesgreatly between and within the modesCost disadvantage: Motor carriage and air transportation Performance Ratings of ModesSource: Edward J. Bardi, Ph.D.Intermodal TransportationRefers to use of two or more modes of transportation cooperating on the movement of shipment by publishing a through rate.Logistics managers are looking for the best way to move shipments and these often attempt to take advantageof multiple modes of transportation, each of which hascertain useful characteristics.33 Widely Used Intermodal CombinationsSource: Brian J. Gibson, Ph.D.Types of Intermodal ServicesIntermodal TransportationBiggest disadvantage is that carriers are reluctant to participate.Cultural bias towards using only one mode and this makes change more difficult.Certain types have been fairly well developed, such as rail/water, motor/water, rail/motor, and motor/air.36Intermodal Transportation: Containerization Referred to as Container-on-Flat-Car(COFC); goods are placed in a largebox, where they are untouched untilthey arrive at the consignee’s unloadingdock.Reduces theft, damage, multiple handlingcosts and intermodal transfer time.Changes materials handling from laborintensive to capital intensive and mayreduce costs from 10 to 20%.37Intermodal Transportation: Containerization “Land bridge” concept may apply for internationalshipments where oceans are separated by a large land mass.For example, containers moving from Japan to Europe may dock at Long Beach, CA, transfer the containers to a railroad, and reload the containers onboard another ship in Norfolk, VA., continuing on to a European port.38Intermodal Transportation: PiggybackTrailer-on-Flat-Car (TOFC)Over the road trailers ride in special rail cars.Takes advantage of motor flexibility and rail’s long haul economicadvantage.Multiple service plans for shippers.Some railroads provide varying levels of service, differentially priced.39 Intermodal Transportation: Piggyback/Speedway%20Transport-2.htm40Selected Forms of Intermodal TransportationIntermodal Transportation: RoadRailersNewest concept referred to as a “RoadRailer”Essentially a trailer that has been reinforced to ride on a rail bogey and be coupled together directly without first being placed on a rail flat car Saves weight and locomotive power and thus fuel for the railroadSpecial lower ratesMotor competitive transit times42Road-railerSource: Wikipedia43 3. Transportation strategy and selection44Transport Management Planning Activities Source: Brian J. Gibson, Ph.D.Transportation Planning and StrategyCarrier SelectionSelecting the individual transportation service providers within the mode.Major difference between modal and carrier selection is the number of options and decision frequency.Type of service provided within a mode impacts carrierselection.Most carriers have the capabilities to provide a similarlevel of service.Core carrierlimited number of carriersleverage its purchasing dollarsTransportation Planning and StrategyRate NegotiationsCentralized freight rate negotiations.Developing contracts with carriers for a tailored set oftransportation services at a specific price.Leveraging volume with a small set of carriers.Pricing transportation48Chapter 1049Bases for Rates: Cost of ServiceIn economic terms, basing rates on cost of service is defined as supply side pricing.The cost of supplying the service establishes the minimum rate.Historically, deciding what carrier costs to include in setting the minimum rate is problematic.Chapter 10Management of Business Logistics 7th Ed 50Bases for Rates: Value of ServiceIn economic terms, basing rates on value of service is defined as demand side pricing.The value of supplying the service establishes the maximum rate.Historically, deciding what ‘the traffic will bear’ in setting the maximum rate is also problematic.Generally, higher-valued goods can more easily absorb higher rates and vice-versa.Management of BusinessLogistics, 7th Ed.What do the numbers look like?Approximation for truck transport, per 10 kilometers:Diesel cost 42 SEKTruck costs 29 SEKSalary cost 40 SEKTotal 111 SEKSource: Uppdrag Granskning(Swedish Television)4. Execution and control53Transportation Execution and ControlShipment PreparationCorporate transportation routing guideLast-minute, cost-saving decisionsconsolidate freightcoordinate shipment deliveriestake full advantage of container capacityan accurate freight count should be takenTransportation Execution and ControlFreight DocumentationBill of ladingoriginates the shipmentprovides all the information the carrier needsstipulates the contract terms, including carrier’s liabilityfor loss and damageFreight billcarrier’s invoice for carrier charges listing:Shipment, origin and destination,Consignee, items, weight, other charges.Transportation Execution and ControlMaintain In-Transit VisibilityManage key events as product moves across thesupply chain.Technology facilitates the ability to monitor product.Visibility tools must be linked to other capabilities andprocesses to have an impact on supply chain eventmanagement.Monitor Service QualityAnalyze the outcome of all their transportation strategy,planning, and decision-making.Key requirement for service quality monitoring isinformation.Transportation Execution and ControlTransportation MetricsKey performance indicators (KPIs)can be used to evaluatecurrent performance versus historical resultsinternal goalscarrier commitmentschallenge lies in narrowing down metrics available to monitorperformance to a manageable number of KPIsprimary categories of transportation KPIs include servicequality and efficiencyTransportation Execution and ControlTransportation Management Systems (TMS)Critical applications include the following:Routing and schedulingproper planning of delivery routes has a major impact oncustomer satisfaction, supply chain performance, andorganizational successLoad planningeffective preparation of safe, efficient deliveriesLoad tenderingStatus trackingAppointment schedulingTransportation Performance Scorecard Source: Brian J. Gibson, Ph.D.。