Global Logistics Management Shihyu Chou National Taiwan Normal University 1 Unless noted, the course materials are licensed under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Taiwan (CC BY-NC-SA 3.0) Attribution-NonCommercial-ShareAlike 3.0 Taiwan

2 Unit 6 Transport in Supply Chains

 Logistics involves the following activities: sourcing and purchasing inputs, managing inventory, maintaining warehouses, and arranging transportation and delivery.  There are three key flows within supply chains: –Flows of materials –Flows of information –Flows of involving resources such as people, equipment, logistics partners and financial flows.  Note: Logistics involves getting, in the right way, the right product, in the right quantity and right quality, in the right place at the right time, for the right customer at the right cost (8Rs)

4 Learning objectives  Learn the cost structures and operating characteristics of the various transportation modes, and the relationships between freight rates and consignment weight, dimensions and distance to be travelled  Explain primary terms used in transportation  Identify the issues in planning transport infrastructure  Discuss the roles of modern distribution centers  Discuss the application of the transportation mathematical model

OUTLINE  Characteristics of various transport modes  Planning transport infrastructure  Transport operations, distribution centers and the role of factory gate pricing  The transportation model

Characteristics of the various transport modes

 Selecting which transport mode(s) to use depends on the volume, weight and value of the freight, the distance to be traveled, the availability of different services, freight rates to be charged and so on.  The relationship between the freight rate charged and the weight of the freight and the distance to be traveled is not necessarily linear. (See Figures on the next page)  For bulky shipments, LSPs typically apply volumetric charging based on the dimensions of the consignment to compensate for lost capacity.

8 Freight rate Travelling distance Relationship between freight rate and travelling distance nonlinear National Taiwan Normal University Shihyu Chou (reference: Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p133))

9 Freight rate Consignment weight Relationship between freight rate and consignment weight nonlinear National Taiwan Normal University Shihyu Chou (reference: Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p133))

Five Major Transport Mode 1.Air 2.Road 3.Water 4.Rail 5.Pipeline 10

 Air –Fixed cost is lower but variable cost, including fuel, maintenance, security requirements, etc., is high. The main advantage is speed; it is limited in uplift capacity. –Other modes of transport are required to take freight to and from airports. –Air cannot directly link individual consignors and consignees 11

 Road –Fixed cost is low as the physical transport infrastructure, such as motorways, is in place through public funding; –Variable cost is medium in terms of rising fuel costs, maintenance and increasing use of road and congestion charges. –As a transport mode, road is good on speed, availability, dependability, and frequency, but not so good on capability due to limited capacity on weight and volume. –It links consignors and consignees directly. 12

 Water –Fixed cost is medium, including vessels, handling equipment and terminals. –Variable cost is low due to the economies of scale, this is the main advantage, together with its capability to uplift large volumes of freight. –It does not offer direct consignor to consignee connectivity, and vessels are sometimes limited in terms of what ports they can use. –It is also rather a slow mode. 13

 Rail –Fixed cost is high because of expensive equipment requirements, such as locomotives, wagons, tracks and freight terminals. –Variable cost is relatively low. –Rail is good on speed, dependability, and especially capability to move larger quantities of freight.  Pipeline –Fixed cost is high due to rights-of-way, construction and installation; variable cost is relatively low. –On operational characteristics, the dependability is excellent. 14

15 Transport Modes % tonnes Goods transport by mode in the EU27: 2010 (weight) Source: European Commission Transport Statistical Pocketbook National Taiwan Normal University Shihyu Chou

16 Transport Modes % € Goods transport by mode in the EU27: 2010 (value) Source: European Commission Transport Statistical Pocketbook National Taiwan Normal University Shihyu Chou

 Maritime transport is the major mode of transport for international trade. About six billion tons of freight moves by maritime transport each year and it contains 45% liquid bulks, 23% dry bulks and 32% general cargo.  Road transport is the major mode of transport for island movement because of its flexibility, directness and speed attributes. It is, however, the most environmentally damaging mode.

18 Intermodal transport  Typically, freight moves within a loading unit (ITU, intermodal transport unit), this unit may move upon several transport modes.  ITU freight remains within the unit at all times  Types of ITUs: –Standard sized containers (20 and 40 feet long) –‘Igloo’ containers used in air freight

Planning transport infrastructure

20 Planning transport infrastructure  A complicated and long-term task for government policy makers  In general, transport is a derived demand –people or freight does not travel for the sake of making a journey, it travels for some other reason

 When planning the transport infrastructure, we should avoid over-investment and under- investment. Policy makers should the following objectives when planning the transport infrastructure: –Expandable capacity, integration, enhanced quality, high accessibility, and environmental friendliness (sustainability) 21

Transport operations, distribution centers and the role of factory gate pricing

 A distribution center is a type of warehouse which was introduced in the retail sector in 1970s. Usually, there will be many product items delivered by various suppliers in full truck loads.  Distribution centers typically run by retailers or some professional providers. Every distribution center services several retailer stores in the regional area. (RDC)  In 1990s, consolidation centers (CCs) were added and served to consolidate deliveries from multiple suppliers into full loads that then could be delivered to the DCs.

24 Factory gate pricing  Retailers take over the delivery of goods into their DCs. (Ex-works pricing)  This gives a single point of control for the inbound logistics network.  FGP can reduce costs and lead times for retailers while at the same time improving flexibility and reliability.  FGP relies on the use of information and communication technology very much.

supplier DC CC store Inbound logistics in the retail sector: FGP practice 25 National Taiwan Normal University Shihyu Chou (reference: Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p138))

The transportation model

27 The transportation model  This is a mathematical model that tries to minimize total transport cost for the number of units of a single commodity transported from given suppliers to some destinations  Notations: –s i : number of products available at origin i –d j : number of products required at destination j –c ij : unit transport cost between i and j –x ij : number of units transported from i to j

28 The transportation model National Taiwan Normal University Shihyu Chou (reference: Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p142))

Example  The ABC company has to ship its automobile products from three factories located in Miaoli, Taichung and Tainan to two distribution centers in Taipei and Kaohsiung. The three factories can supply 300, 200 and 150 automobiles. And, the demand at the two distribution centers are 400 and 250 automobiles for the next month. 29

The unit transport cost from origins to destinations is shown in the cost table below: 30 Taipei (1)Kaohsiung (2) Miaoli (1)2535 Taichung (2)1520 Tainan (3)4030 National Taiwan Normal University Shihyu Chou

31 The model

The solution Taipei (1)Kaohsiung (2)Factory capacity Miaoli (1)300 Taichung (2) Tainan (3)150 DC demand National Taiwan Normal University Shihyu Chou

PageWork LicensingAuthor/Source 3 Logistics involves the following activities: …arranging transportation and delivery. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p59) 3 There are three key flows within supply chains: Flows of materials …, logistics partners and financial flows. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p59) 3 Logistics involves getting, in the right way, …for the right customer at the right cost (8Rs) Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p9) Copyright Declaration 33

PageWork LicensingAuthor/Source 4 Learn the cost structures and operating … dimensions and distance to be travelled Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p132) 7 Selecting which transport mode(s) to use depends on the volume,…be charged and so on. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p132) 7 The relationship between the freight rate …distance to be traveled is not necessarily linear. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p132) 7 For bulky shipments, LSPs typically apply volumetric charging based on …compensate for lost capacity. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p132) 8 National Taiwan Normal University Shihyu Chou (reference: Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p133)) Copyright Declaration 34

PageWork LicensingAuthor/Source 9 National Taiwan Normal University Shihyu Chou (reference: Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p133)) 11 Other modes of transport are required to take freight to and from airports. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) 11 Air cannot directly link individual consignors and consignees Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) 12 Fixed cost is low as the physical transport infrastructure, such as motorways, is in place through public funding; Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) 12 Variable cost is medium in terms of rising fuel costs, maintenance and increasing use of road and congestion charges. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) Copyright Declaration 35

PageWork LicensingAuthor/Source 12 As a transport mode, road is good on speed, … limited capacity on weight and volume. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p133) 13 Fixed cost is medium, including vessels, handling equipment and terminals. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) 13 Variable cost is low due to the economies of …uplift large volumes of freight. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) 13 It does not offer direct consignor to consignee connectivity, and vessels are sometimes limited in terms of what ports they can use. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) 13 It is also rather a slow mode. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) Copyright Declaration 36

PageWork LicensingAuthor/Source 14 Fixed cost is high because of expensive equipment requirements, such as locomotives, wagons, tracks and freight terminals. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p133) 14 Variable cost is relatively low. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) 14 Rail is good on speed, dependability, and especially capability to move larger quantities of freight. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) 14 Fixed cost is high due to rights-of-way, construction and installation; variable cost is relatively low. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) 14 On operational characteristics, the dependability is excellent. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p134) Copyright Declaration 37

PageWork LicensingAuthor/Source 15 National Taiwan Normal University Shihyu Chou 16 National Taiwan Normal University Shihyu Chou 17 Maritime transport is the major mode of transport for … liquid bulks, 23% dry bulks and 32% general cargo. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p135) 17 Road transport is the major mode of transport for island …the most environmentally damaging mode. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p135) 18 freight moves within a loading unit (ITU, intermodal transport unit), this unit may move upon several transport modes. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p135) Copyright Declaration 38

PageWork LicensingAuthor/Source 18 freight remains within the unit at all times Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p135) 18 Types of ITUs: Standard sized containers (20 and 40 feet long) ‘Igloo’ containers used in air freight Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p135) 20 people or freight does not travel for the sake of making a journey, it travels for some other reason Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p136) 23 Every distribution center services several retailer stores in the regional area. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p138) 23 In 1990s, consolidation centers (CCs) were added and served to…that then could be delivered to the DCs. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p138) Copyright Declaration 39

PageWork LicensingAuthor/Source 24 a single point of control for the inbound logistics network. Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p138) 25 National Taiwan Normal University Shihyu Chou (reference: Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p138)) 27 minimize total transport cost for the number of units of a single … transported from given suppliers to some destinations Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p141) 28 National Taiwan Normal University Shihyu Chou (reference: Mangan, J., Lalwani, C., and Butcher, T.,(2008), Global Logistics and Supply Chain Management, John Wiley & Sons, Ltd.(p142)) Copyright Declaration 40

PageWork LicensingAuthor/Source 30 National Taiwan Normal University Shihyu Chou 32 National Taiwan Normal University Shihyu Chou 41 Copyright Declaration