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

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.

5. © 2011 Cengage Learning. All Rights Reserved
© 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. 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.

7. © 2011 Cengage Learning. All Rights Reserved
© 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. 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.

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.

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 (CO2) 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.