SCM Module 3

8/2/2019 SCM Module 3

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MODULE - 3

Transportation


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Transportation Transportation refers to the movement of

product from one location to another as it

makes its way from the beginning of a supplychain to the customer.


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Role of transportation in a supplychain

Transportation is an important supply chain driver

because products are rarely produced and consumed

in the same location.

Role of transportation is even more significant inglobal supply chains.

Example: Dell and Walmart

Supply chain also use responsive transportation tocentralize inventories and operate with fewer facilities.

Example: Amazon


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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 productbetween two points in the supply chain) Transportation cost Inventory cost Facility cost

Transportation network is a collection of nodes and links.


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Modes of transportation

Air

Package carriers

Truck

Rail

Water

Pipeline Intermodal


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Air

High fixed cost in infrastructure & Equipment. Labour & fuel costs are largely trip related

and independent of the amount of cargo

carried on a flight. Very fast and fairly expensive mode of

transportation. Small, high value items or time sensitive

items are best suited for air transport.


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Air

Key issues: Location/number of hubs

Assigning planes to routes

Setting up maintenance schedules for planes

Scheduling crews

Managing prices and availability


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Package Carriers

Companies like FedEx, UPS, USPS, DHL thatcarry small packages ranging from letters toshipments of about 150 pounds

Expensive

Rapid and reliable delivery Small and time-sensitive shipments Preferred mode for e-businesses (e.g., Amazon,

Dell, Walmart) Consolidation of shipments (especially important

for package carriers that use air as a primarymethod of transport)


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Truck

Trucking is more expensive than rail but

offers the advantage of door to door shipment

and shorter delivery time.

Transfer between pickup and delivery is notrequired.

Two major Segments :

Truck load Less than truck load


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Truck load

Low fixed cost

Many TL carriers

TL shipping is suited for transportation between

manufacturing facilities and warehouses or betweensuppliers and manufacturers

Major Issues Utilization

Consistent service

Backhauls


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Less Than Truckload (LTL)

LTL shipments take longer than TL

Higher fixed costs (terminals) and low

variable costs

Major issues: Location of consolidation facilities

Utilization

Vehicle routing Customer service


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Rail

High density products over long distances

Transportation time very long

Key issues: Scheduling to minimize delays / improve service Off-track delays (at pickup and delivery end)

Yard operations

Variability of delivery times


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Water

Limited to certain geographic areas

Ocean, inland waterway system, coastal waters

Very large loads at very low cost

Slowest

Dominant in global trade (autos, grain, apparel, etc.)

Difficult for short haul trips


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Pipeline

High fixed cost

Primarily for crude petroleum, refined

petroleum products, natural gas

Best for large and predictable demand

Would be used for getting crude oil to a

port or refinery, but not for getting refined

gasoline to a gasoline station (why?)


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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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Transportation Infrastructureand policies


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Design Options for a

Transportation Network 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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Direct Shipment Network The buyer structures his transportation network so

that all shipments come directly from each supplier to

each buyer location.

Routing of each shipment is specified, mode of

transportation and quantity has to be decided. Used when demand at buyer locations is large.

Advantages: Elimination of intermediate warehouses.

Simplicity of operation and coordination. Transportation time is short.


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Direct shipping with milk runs

Milk run is a route on which a truck either

delivers product from a single supplier to

multiple retailers or goes from multiple

suppliers to a single buyer location. Direct shipping eliminates warehouses

Milk runs lower transportation cost by

consolidation. Ex: Toyota- JIT


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All shipments via central DC


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Suppliers do not send shipments directly to

buyer locations. Buyer divides the locations

by geographic region and a DC is built foreach region.

DC is an extra layer between suppliers and

buyer locations. DC is used to store inventory and it also

serves as transfer location.

Reduces inbound and outboundtransportation cost.

Cross docking.


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Shipping via DC using milkruns


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Milk runs can be used from a DC if lot sizes

to be delivered to each buyer location aresmall.

Reduces outbound transportation cost-

consolidation.

Ex:Seven eleven


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Tailored Network

Combination of previous options.

Goal is to use the appropriate option in each

situation.

High demand products to high demand retail outlets may beshipped directly.

Low demand products to low demand retail outlets may be

consolidated to and fro from the DC.

Complex

Significant investment in information infrastructure.

Minimizes transportation and inventory costs


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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. TransportationCost As a result of physical aggregation

Inventory costs decrease Inbound transportation cost decreases Outbound transportation cost increases

Inventory aggregation decreases supply chain costsif the product has a high value to weight ratio, highdemand 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 aresmall


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Trade-offs BetweenTransportation Cost andCustomer 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

Documents

SCM Module 3