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Introduction Transportation involves the physical movement of
goods between origin and destination points.
The transportation system links geographically separated partners and facilities in a company’s supply.
Transportation facilitates the creation of time and place utility in the supply chain.
Transportation also has a major economic impact on the financial performance of businesses.
Role of Transportation in Supply Chain Management
Transportation provides the critical links between these 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 chain
Challenges to Carrying out This Role
supply chain complexity
competing goals among supply chain partners
changing customer requirements
limited information availability
synchronizing transportation with other supply chain activities
Challenges to Carrying out This Role
Transportation 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.
Modes of Transportation primary modes of transportation
truck rail air water pipeline intermodal transportation
Modes of Transportation moves approximately 19.5 billion tons valued at nearly $13
trillion Modal breakdown:
Trucking 80.0 % $635 billion
Rail 06.7%
Air 04.7%
Water 04.6%
Pipeline 01.2%
Modes of Transportation Motor Carriers
widely used mode of transportation in the domestic supply chain 573,469 private, for hire, and other U.S. interstate motor carriers economic structure of the motor carrier industry contributes to the
vast number of carriers in the industry comprised of for-hire and private fleet operations
Truckload carriers. Less-than-truckload (LTL) Small package carriers
Low fixed cost, high variable
Modes of TransportationRailroads 7 Class I railroads revenues in excess of $290 million
Activity levels have been achieved despite a lack of direct accessibility to all parts of the supply chain
Railroads are “natural monopolies”
Two carrier types: Linehaul Shortline carriers
High fixed, low variable
Modes of TransportationWater Major facilitator of international trade 81% international freight movement 19% coastal, inland, and Great Lakes traffic High variable and low fixed cost Two primary carrier types
Liner Charter
Options include Container ships Bulk carriers Tankers General cargo ships Roll-on, roll-off (RO–RO) vessels
Modes of TransportationAir Carriers 491 air cargo carriers
Combination carriers Air cargo carriers Integrated carriers Nonintegrated carriers
Domestic market is dominated by 14 major carriers
High variable and low fixed cost
Modes of TransportationPipeline Unique mode of transportation as the equipment is fixed
in place and the product moves through it in high volume 174 operators of hazardous liquid pipelines that primarily
carry crude oil and petroleum products Three primary types
Gathering lines Trunk lines Refined product pipelines
High fixed versus low variable
Modes of Transportation
Intermodal Transportation Use of two or more different modes in movement Greater accessibility Overall cost efficiency Facilitates global trade Development of standardized containers that are
compatible with multiple modes. Product-handling characteristics
Containerized freight Transload freight
Functional Control of Transportation Which department will be responsible for transportation?
Logistics
Procurement
Marketing
Decision to Outsource Transportation Firms choose between “make” or “buy”
Commercial carriers “buy”
Private fleets “make”
External experts move the freight and/or manage the transportation process “buy”
Third-party logistics (3PL) “buy”
Modal SelectionAccessibility
Accessibility advantage: Motor carriage Accessibility disadvantage: Air, rail, and water
Transit Time Transit time advantage: Air and motor carriage Transit time disadvantage: Rail, water, and pipeline
Reliability Reliability advantage: Motor carriers and air carriers Reliability disadvantage: Water carriers and rail carriers
Modal SelectionProduct Safety
Safety advantage: Air transportation and motor carriage
Safety disadvantage: Rail and waterCost
Cost advantage: The cost of transportation service varies greatly between and within the modes
Cost disadvantage: Motor carriage and air transportation
Modal Selection
The nature of a product—size, durability, and value
Durability
Product value
Shipment characteristics—size, route, and required speed
Carrier Selection selecting the individual transportation service providers within the
mode
major difference between modal and carrier selection is the number of options
difference is the frequency of the decision
type of service provided within a mode impacts carrier selection
most carriers have the capabilities to provide a similar level of service
Core carrier limited number of carriers leverage its purchasing dollars
Rate Negotiations
centralized freight rate negotiations
developing contracts with carriers for a tailored set of transportation services at a specific price
leveraging volume with a small set of carriers
Shipment Preparation corporate transportation routing guide
last-minute, cost-saving decisions
consolidate freight
coordinate shipment deliveries
take full advantage of container capacity
an accurate freight count should be taken
Maintain In-Transit Visibility
manage key events as product moves across the supply chain
technology facilitates the ability to monitor product
visibility tools must be linked to other capabilities and processes to have an impact on supply chain event management
Monitor Service Quality
analyze the outcome of all their transportation strategy, planning, and decision-making
key requirement for service quality monitoring is information
Transportation Metricskey performance indicators (KPIs)
can be used to evaluate current performance versus historical results internal goals carrier commitments
challenge lies in narrowing down metrics available to monitor performance to a manageable number of KPIs
primary categories of transportation KPIs include service quality and efficiency
Transportation Management Systems (TMS) Critical applications include the following:
Routing and scheduling proper planning of delivery routes has a major impact on customer
satisfaction, supply chain performance, and organizational success Load planning
effective preparation of safe, efficient deliveries Load tendering Status tracking Appointment scheduling
The Role of Distribution in SCM: 1. Balancing supply and demand. Whether seasonal production must
service year-round demand (e.g., corn) or year-round production is needed to meet seasonal demand (e.g., holiday wrapping paper), distribution facilities can stockpile inventory to buffer supply and demand.
2. Protecting against uncertainty. Distribution facilities can hold inventory for protection against forecast errors, supply disruptions, and demand spikes.
3. Allowing quantity purchase discounts. Suppliers often provide incentives to purchase product in larger quantities. Distribution facilities can handle the quantities, reducing the purchase cost per unit.
4. Supporting production requirements. If a manufacturing operation can reduce costs via long production runs or if outputs need to age or ripen (e.g., wine, cheese, fruit), the output can be warehoused prior to distribution.
5. Promoting transportation economies. Fully utilizing container capacity and moving product in larger quantities is less expensive per unit than shipping “air” and moving small quantities at a time. Distribution facilities can be used to receive and hold the larger deliveries of inventory for future requirements.
Distribution Facility FunctionalityFour primary functions are: accumulation sortation allocation assortment
Tradeoffs Cost of distribution centers and inventory vs. cost of
transportation Cost of additional facilities vs. level of customer service Space vs. equipment Equipment vs. people People vs. space
Capability Requirements Product characteristics must drive the design of the distribution process such as
product value, durability, temperature sensitivity, obsolescence, volume, and other factors
Two options for product flow: direct shipment of goods
from the manufacturer to retailer from the retailer to consumer
movement of goods through distribution facilities to customers Must analyze the inventory, transportation, and service trade offs before
choosing between direct shipping and the use of distribution facilities Advantages of each Disadvantages of each
Network Design Issues Inventory positioning focuses on the issue of where inventory is
located within the supply chain single location
Advantages Disadvantages
hold product in multiple customer-facing positions Advantages Disadvantages
Second and third network design issues focus on the number and locations of distribution facilities within the supply chain.
Number of facilities needed for a supply chain involves the evaluation of cost tradeoffs with other functional areas:
Transportation costs
Cost of lost sales
Warehousing costs
Inventory costs
Facility ownership question Own or contract?
Private DCs are internal facilities owned by the organization Public warehousing is the traditional external distribution option Contract warehousing is a customized version of public
warehousing in which an external company provides a combination of distribution
Choosing between private and 3PL distribution options requires significant planning and analysis
Facility Considerations:
first facility consideration is to determine the size of each operation within the network
an area may be needed for processing rework and returns
office space is needed for administrative and clerical activities
space must be planned for miscellaneous requirements
Support Functions:
Inventory control
Safety, maintenance, and sanitation
Security
Performance analysis
Information technology
Distribution Metrics Distribution KPIs are objective measures of fulfillment
performance that are critical to the success of the organization
Important issues: cost efficiency
inventory accuracy
order fill rates
capacity utilization
Customer Facing Measures Order accuracy and order completeness
Customers want to receive the exact products and quantities that they ordered, not substitute items, incorrectly shipped items, or wrong quantities
Timeliness is a critical component of customer service Perfect order index (POI)
Perfect order index (POI) delivered to the right place at the right time in defect-free condition with the correct documentation, pricing, and invoicing
Internal Measures Distribution cost efficiency
Aggregate cost efficiency total distribution spending versus goal or budget
Asset utilization
Resource productivity distribution costs averaging nearly 10 percent of a sales
dollar
Resource efficiency
Distribution Technology Warehouse Management Systems
software control system that improves product movement and storage operations
value-added capabilities
generate performance reports
support paperless processes
enable integration of materials handling equipment
picking systems
sorting systems
leverage wireless communication
Distribution Technology Warehouse Management Systems
Other value-added capabilities:
Labor management
Task interleaving
Systems integration
Activity-based costing/billing
Multifunction distribution
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