Transport Management & Theory Practices (13)

Management of Transportation

Seventh Edition Coyle, Novack, Gibson & Bardi

© 2011 Cengage Learning

Chapter 13Shipper Strategies

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2

Transportation Management

• Term applied to the shipper’s purchase and control of transportation services– Replaced traffic management– Now has strategic and operational orientation– Changing goals over time, evaluated based on

• Minimize transport costs

• Minimize total logistics costs

• Meet customer service goals in cost-efficient manner


Transportation Management

• Trans. mgmt. as a procurement function– Procurement -

obtaining goods and services for the firm, includes analysis and activities

• Quality

• Pricing

• Specification

• Supply source

• Negotiations

• Inspection and assurance of quality

• Timing

• Conducting value analysis of alternative methods and sources

• Capital analysis

• Make or buy decision

• Legal and regulatory constrains

• General management© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

3

4

Shipper Transportation Strategy

• Designed to support logistics, corporate, and supply chain strategies

• General strategy (applies to all shipment types)– Proactive management

• Problem solving orientation

• Seek ways to use transport for competitive advantage

– Improve information • Availability (flow), quality, use for manager to plan & control

transportation activities

• Transportation costs, shipment volume, carrier performance are typical data collected, essential for carrier negotiation, contracting, etc


5

Figure 13-1


6

Shipper Transport Strategy, cont’d

• General strategy, cont’d– Limit number of carriers used

• Strengthens market power

• “Core” carriers; Risk: increases dependability on carriers used

– Carrier negotiation• Market power determines the shipper’s ability to negotiate

acceptable rates and services

• Also determines by the characteristics of freight – low density, hard to handle, easily damaged, low value, empty backhaul, etc


7


• General strategy, cont’d– Contracting

• Realize the lower rates and necessary service levels

• During the term of contract, the shipper is guaranteed the contract rate and service, equipment and liability

– Review private motor carrier transport • Outsourced?

• Some shippers manage their private fleets as a profit centers


8

Shipper Transport Strategy, cont’d• Small shipment strategy

– Thrust – to reduce high transport costs/lbs. associated with small shipments

– Freight consolidation• Match shipments going to same geographic area

• Facilitated by order entry system

– Utilize pooling services for different consignees

– Stopping-in-transit service allows shipper to load a number of shipments on a vehicle and stop along the way to unload the individual shipment

– Avoid private carriage


9

Table 13-1


10

Figure 13-2


11

Shipper Transport Strategy, cont’d• Bulk shipment strategy

– Long-term contracting• Recognition of mutual dependency

– Seek balanced (by direction) loads – eliminate the empty backhaul costs

• Inbound transportation strategy– Taken on added significance

• Manipulate terms of sale

– Use same general strategy thrusts– Reverse logistics


12


• Reverse logistics – The handling of return goods, as well as salvage and

scrap disposal (waste materials)

– Buyer may return items to the seller due to product defects, overages, shipping errors

– Customers return products for warranty repair, replacement, remanufacturing, or recycling,

– Reverse logistics are high relative to forward logistics costs some as much as five to nine times more than moving the same product from producer to consumer


13

Line Aspects of Transport Mgmt.

• Daily activities of transport management

• Shipment planning– Monitor flow requirements, schedule shipping

• Carrier selection

• Ordering service– More frequent use of electronic means

• Expediting/tracing– Critical control tool


14

Line Aspects of Trans. Mgmt., cont’d

• Pre-auditing/rating– Determining proper freight charges

• Auditing/paying the freight bill

• Detention/demurrage processes

• Claims– Carrier liability– Carmack Amendment exceptions to liability– Claims filing process


15


• Private car and motor carrier fleet mgmt.

• Transportation budget management

• Staff and administrative aspects

• Mode selection

• Monitoring service quality– Developing and using carrier evaluation reports

• Service/supply assurance

• Negotiations© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

16


• Regulatory matters• Policy matters• Planning annual transport requirements• Budgeting• Information systems• Systems analysis• Management and executive development• Trans. dept. human resources management


17

Mode Selection Process

• Transport selection decision: 2-part decision– Mode selection– Carrier selection

• Process begins with cost and service goals– Definition of cost and service measures

• Selection criteria/measures– Transportation costs

• Rates and charges assessed by mode


18

Mode Selection Process, cont’d

• Selection criteria/measures, cont’d– Transit time and transit time reliability

• Affect inventory and stockout costs

– Accessibility– Capability– Security, damage, loss

• Affect inventory and stockout costs

• Strategic significance of mode selection© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

19

Carrier Selection Process

• Can consider same five selection criteria– Usually, accessibility and capability are similar

among carriers in a given mode– Often more specific measures utilized– Relative importance

• Transit time reliability• Transport rate• Total transit time• Willingness to negotiate• Carrier financial stability


20

Relationship Management

• Core aspect of the boundary-spanning environment of logistics and SC mgmt.

• For each non-in-house activity, firm must develop proper relationship with suppliers

• Well executed relationship management between shipper/carrier is critical given position of transport – Last link between shipper and customer– Potential role in corporate strategy


21

Types of Buyer/Seller Relationships

• Arm’s length relationships – Most common: transaction-specific ;

relationships last for a single transaction between two parties, and no commitments are made for future transaction

– Defining factor in supplier selection: usually price• Reduced opportunity for long-term cost reduction

– Viewed by many as inefficient– Appropriate when service is viewed as commodity

or standard requirement


22© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 13-4

23

Types of Buyer/Seller Relationships, cont’d

• Type I partnerships– Partnership definition

• On-going, commitment over extended time, sharing of info., risks and rewards

– Type I: Short-term contractual relationship• Little investment required• Limited scope of activities• Common in transport

– Ex: 1 year contract, guaranteed delivery times, min. dedicated fleet, guaranteed minimum volume

– Price is volume driven


24


• Type II partnerships– Longer-term contractual relationship– May require investments– Broader scope of activities– Transport examples

• Carrier certification programs, core carrier programs– Guaranteed annual volumes

– Dedicated freight lanes

– Incentives for cost reduction


25


• Type III partnerships– Not governed by usual contracts

• Documentation outlines general operations and management philosophy

– No formal endpoint – evergreen contact– Substantial joint ownership of assets and sharing

of activities• High risk, investment, potential rewards for both

– In transport, carrier would perform many services beyond basic transport in such relationships


26


• Joint ventures– Purpose/outcome: creation of a new firm– Investments required by both parties– Long-term type of relationship

• Vertical integration– Driven by “make or buy” decision– Common transport ex: private fleets


27

Why Enter Relationships?

• Definition and background of 3rd parties • Availability of external suppliers• Cost efficiencies

– Economies of scale and scope– Moving assets off the balance sheet

• Access to third-party expertise– Facilitates focusing on core competency

• Customer service– Issue of control


28

Table 13-4


Business

Transport Management & Theory Practices (13)