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Transportation Seventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning Chapter 14 Issues and Challenges of Global Supply Chains 1 © 2011.

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Presentation on theme: "Transportation Seventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning Chapter 14 Issues and Challenges of Global Supply Chains 1 © 2011."— Presentation transcript:

1 Transportation Seventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning Chapter 14 Issues and Challenges of Global Supply Chains 1 © 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 © 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 Introduction Transport is an enabler of economic, political, and social development In recent decades, consistently low fuel prices and powers of intense competition push transport rates lower and improve service levels Times may be changing. Pressures from: –Fuel price volatility –Capacity constraints –Environmental-related impacts

3 Congestion and Transport Infrastructure Congestion in transport network increases supply chain costs –Uncertainty created by congestion delays requires retailers to carry additional inventory –Delays require carriers to purchase and operate additional transport equipment and utilize additional labor –Delays on the network also impose additional costs at transport terminals © 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 Highway Congestion and Infrastructure High percentage of National Highway System operates under congested conditions –Top 10 bottlenecks create 1.5 million annual truck hours of delay at $30/hr. Cost does not include inventory-related shipper costs Forecasts indicate congestion will worsen –Funding under existing tax structure not sufficient to even maintain existing service levels © 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. 4

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6 Railroad Congestion and Infrastructure Surging demand for trailer-on-flatcar (TOFC) and container-on-flatcar (COFC) services –Creating congestion on portions of mainline rail network –Projections indicate congestion will spread to 30% of network by 2035 if capacity not increased Principal means for adding capacity –double tracking portions of mainlines –Investment expense is a constraint © 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. 6

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8 Waterway Congestion and Infrastructure Aging inland waterways infrastructure cause bottlenecks –31% of vessel passages experience delays Coastal ports, particularly on West Coast, under congestion pressures due to: –Growth of international trade traffic –Deeper channel draft and dockside requirements due to larger containership capacities © 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. 8

9 Waterway Congestion and Infrastructure Port congestion relief strategies –Investments to deepen channels –Investment in technology and equipment by carriers and port operators. Intended to: Speed ship loading and unloading operations Relieve landside congestion in terminals and improve access to port areas –Longer port operating hours –Challenge to balance with environmental concerns © 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. 9

10 Sustainability: The Green Supply Chain Can “carbon footprint” and firm costs be reduced simultaneously? –More firms discover the answer is yes What is “carbon footprint?” –Generally associated with the amount of carbon dioxide (CO 2 ) emissions –Some argue for more comprehensive definition encompassing full life cycle greenhouse gas emissions © 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. 10

11 Sustainability: The Green Supply Chain Forces motivating business interest –Corporate responsibility to society –Desire to increase or maintain brand reputation –Competitive pressures –Internal and external stakeholder pressures or expectations –Desire to lower fuel costs –Current and potential regulatory pressures © 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. 11

12 Sustainability: The Green Supply Chain Logistics-related impacts on the green supply chain –Fuel consumption/efficiency –Packaging and waste disposal –Systems interrelationships Transport consolidation vs. inventory cost tradeoff –Transport maxims: “don’t ship air” and “don’t ship water” –Consolidation reduces network miles, fuel consumption –Consolidation means larger shipment sizes and may impact supply chain responsiveness © 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. 12

13 Sustainability: The Green Supply Chain –Systems interrelationships (cont.) Packaging for market appeal vs. transport cost –Market appeal often drives tendency toward larger packages –Larger packages contain more air and take up more space in transport vehicle – result is more transport used to move given amount of product Adding water to product to “enhance” product and market appeal vs. transport cost –Adding water to liquid products gives appearance to consumer of getting more for the money –Adding water increases transport, warehousing, packaging and retail costs –Example: Walmart initiative with liquid detergents © 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. 13

14 Sustainability: The Green Supply Chain Carrier efforts to reduce fuel consumption –Purchase more fuel efficient equipment –Use of “clean” fuels and hybrid vehicles –Working with shippers to: Reduce overall network miles Increase load consolidation opportunities –Participation in the EPA’s “Smart Way Transport Partnership” Many opportunities for greener supply chain exist –Subway restaurants provide one example © 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. 14

15 Fuel Cost and Consumption Wild swings in fuel prices since 2005 creates significant supply chain cost uncertainty –Fuel price volatility impacts some modes more than others due to differences in fuel intensity Motor carriers –Very fuel intensive, approaching annual labor costs as the largest expense category –Annual fuel cost rose 70% from –Fuel surcharges used to pass along higher fuel prices when possible © 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. 15

16 Fuel Cost and Consumption Air carriers –Fuel intensive, the most sensitive mode to fuel cost changes –Fuel is now the largest operating expense item Traditionally, fuel was 12%-15% of operating costs In 2007, fuel rose to 30% of operating costs, contributing greatly to some airline bankruptcies –Surcharges used to recover higher fuel costs However, intense competition deters surcharges © 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

17 Fuel Cost and Consumption Water carriers –Water carriage is relatively fuel efficient –Nonetheless, fuel price increases do impact operating costs, particularly for ocean carriers Marine bunker fuel prices rose 100% from 2005 to mid-2008 For some, fuel reached 50%-60% of operating costs –Fuel surcharges have been imposed but again, competition puts downward pressure on prices and deters significant surcharges © 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. 17

18 Fuel Cost and Consumption Rail carriers –Rail is a relatively fuel efficient mode –Rail has not been impacted to the same degree as other modes by the rise in fuel prices –Rail benefits from fuel price increases as some traffic shifts to intermodal service for long hauls Pipeline carriers –Pipelines are a relatively fuel efficient mode –Costs not significantly impacted by higher fuel costs © 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. 18

19 Fuel Cost and Consumption Carrier responses –Fuel surcharges have been the principal response Surcharges have become more sophisticated, involving formulas that closely match fuel price fluctuations However, no standard industry practice on surcharge formulas or policy –Service capacity and network rationalization Reduce linehaul cruise speed Focus efforts on shorter traffic lanes Cutting or reducing service on unprofitable routes © 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

20 Fuel Cost and Consumption –Improve operating efficiency of carriers Fleet replacement –More fuel efficient, lighter weight vehicles –Alternative fuel vehicles –Use IT to improve operations through greater visibility of assets Track and trace equipment in real time –Improves security, enables fleet size reduction, increases responsiveness to exception reports Enables more timely and accurate information sharing between carriers and shippers © 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. 20

21 Collaboration and Visibility: Art and Science The “science” dimension –Refers to the models and software apps. used to improve supply chain design and execution. Examples: Network optimization models Warehouse Management Systems (WMS) Transportation Management Systems (TMS) Scheduling models, inventory control models –Also refers to application of technology such as RFID tags and GPS systems © 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. 21

22 Collaboration and Visibility: Art and Science The “art” dimension –Refers to the relationship building within and between organizations that is necessary for collaborative supply chain management –Collaboration fosters leveraging opportunities –Operations level collaboration initiatives include: Coordinating shipping and loading/unloading times at DCs Longer hours of operation at drop yards and DCs Faster payments for carriers Sharing capacity needs forecasts with carriers © 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. 22

23 Collaboration and Visibility: Art and Science –Strategic level collaboration initiatives Many are focused on sharing information –In vendor managed inventory programs, customer data covering on-hand inventory, SKUs on order, sales and stockouts by SKU, inventory turns forecasts, and promotional forecasts are shared with the vendor –The same info is shared with the logistics service provider –The info enable the vendor and logistics provider to dramatically »Reduce DC out-of-stocks and number of expedited orders »Increase inventory turns »Smooth the flow of products through the supply chain »Improve scheduling of pickups/deliveries, reduce empty miles © 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. 23

24 Collaboration and Visibility: Art and Science Visibility – what does it mean? –No universal definition Initially referred to ability to “see” assets, such as –Amount of inventory on-hand –Number and location of equipment –Visibility application capabilities have expanded Status of orders, inventory turns, status of shipments across the supply chain, alerts on service disruptions Information has become more useful for decision making © 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. 24

25 Collaboration and Visibility: Art and Science –Dole, Inc. track and trace program is example of enhanced visibility capability Application is fully automated –Uses RFID, GPS and cell phone technologies –Coverage starts in harvest fields and runs through cooling center warehouses, carrier terminals and sorting plants –Products are tagged as they leave the fields –Time and quantities are tracked, temperature will be added Enables better understanding of how product moves through the supply chain Provides alerts if time and temperature move out of control May lead to supply chain design/operation improvement © 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. 25


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