1. Lecture 4 Transportation—Managing the Flow of the Supply Chain

2. 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.

3. 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

4. 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

5. 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.

6. Modes of Transportation
primary modes of transportation
truck
rail
air
water
pipeline
intermodal transportation

7. 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%

8. 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

9. Modes of Transportation Railroads
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

10. Modes of Transportation
Water
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

11. Modes of Transportation
Air 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

12. Modes of Transportation Pipeline
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

13. Intermodal Transportation
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

14. Functional Control of Transportation
Which department will be responsible for transportation?
Logistics
Procurement
Marketing

15. 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”

16. Modal Selection Accessibility Transit Time Reliability
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

17. Modal Selection Product Safety Cost
Safety advantage: Air transportation and motor carriage
Safety disadvantage: Rail and water
Cost
Cost advantage: The cost of transportation service varies greatly between and within the modes
Cost disadvantage: Motor carriage and air transportation

18. Modal Selection The nature of a product—size, durability, and value
Product value
Shipment characteristics—size, route, and required speed

19. 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

20. 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

21. 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

22. 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

23. Monitor Service Quality
analyze the outcome of all their transportation strategy, planning, and decision-making
key requirement for service quality monitoring is information

24. Transportation Metrics key 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

25. 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

26. 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.

27. Distribution Facility Functionality
Four primary functions are:
accumulation
sortation
allocation
assortment

28. 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

29. 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

30. 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
Second and third network design issues focus on the number and locations of distribution facilities within the supply chain.

31. 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

32. 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

33. 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

34. Support Functions: Inventory control
Safety, maintenance, and sanitation
Security
Performance analysis
Information technology

35. 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

36. 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)
delivered to the right place
at the right time
in defect-free condition
with the correct documentation, pricing, and invoicing

37. 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

38. 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

39. Distribution Technology
Warehouse Management Systems
Other value-added capabilities:
Labor management
Task interleaving
Systems integration
Activity-based costing/billing
Multifunction distribution

40. Automatic Identification Tools
WMS utilizes Auto-ID data capture technologies:
barcode scanners
mobile computers
wireless local area networks (LAN)
RFID