Last Time Course logistics Course goals What is Transportation Logistics and why is it important? Different approaches to Transportation Logistics

Supply Chain of an Individual Firm Distribution Vendors Plants ports warehouse warehouse Destination Customers Factory Transportation (e.g. local delivery truck) Transportation (e.g. long haul truck) Transportation (rail, marine, road) Transportation (e.g. LTL truck) Information flow (security, internal management, and control) Conflict between consumer oriented and inventory management Operators, owners, managers Spatial distribution

Supply chains In a pull chain finished products are manufactured when requested. In a push chain production and distribution are based on forecasts. This has integrated inventory management into business planning

Transportation Goals Reduce cost (5-10% of sales) Meet reliability goals Meet service quality goals Simplify operations

Integration of Logistics into Business Operations Operational, or daily decisions are made by comparing transportation and inventory costs Strategic, or long term decisions are made by comparing logistics costs (transportation and inventory) to manufacturing and production costs Lengthening of supply chains as transportation cost decreased and new opportunities to reduce manufacturing cost were found

Logistics Costs Deregulation since 1970s Initial gains from deregulation (restructuring of networks) dropping off $1000 reduction to each household annually

How does REI get goods to market? Asian Factories West Coast Port Distribution Center Destination Store Container on marine vessel Short or Long-haul truck Drayage truck Due to infrastructure government infrastructure investments and decreases in Transportation cost, transportation cost is typically much less significant than the Reductions in manufacturing. Inventory management has been the area of attention.

In-transit inventory or pipeline inventory: inventory that is in the process of movement from point of receipt or production and between points of storage and distribution. Inventory-at-rest: inventory that is NOT in the process of movement from point of receipt or production and between points of storage and distribution, rather it is stationary, typically at a production facility, warehouse, distribution center, or consumption facility.

How does REI get goods to market? Asian Factories West Coast Port Distribution Center Destination Store Container on marine vessel Short or Long-haul truck Drayage truck In transit inventory

Cycle Inventory: the average amount of inventory used to satisfy demand between receipt of supplier shipments. The size of the cycle inventory is a result of the production or purchase of material in large lots. Companies produce or purchase in large lots to exploit economies of scale in the production, transportation, or purchasing process. With the increase in lot size, however, also comes an increase in carrying costs. The basic trade-off supply managers face is the cost of holding larger lots of inventory (when cycle inventory is high) versus the cost of ordering product frequently (when cycle inventory is low). Some of this inventory may be in-transit, while some may be inventory-at-rest. Safety inventory: inventory held in case demand exceeds expectation; it is held to counter uncertainty. If they have too much safety inventory, goods go unsold and may have to be discounted. If the company has ordered too little safety inventory, however, the company will lose sales and the margin those sales would have brought. Therefore, choosing safety inventory involves making a trade-off between the costs of having too much inventory and the costs of losing sales due to not having enough inventory. Generally this inventory is inventory-at-rest, so that it is immediately available.

Infrastructure Consequences Global Flows North American Flows Regional Flows Local Flows

Global Trade Regions

US Trading Partners Millions of dollars Trade   Balance Rank Exports Imports TOTAL -67,111.8 (X) 99,355.5 166,467.3 China -20,312.8 1 5,854.9 3 26,167.7 2 Japan -6,592.0 5,161.3 4 11,753.3 Canada -5,865.3 20,409.0 26,274.4 Mexico -5,141.2 11,878.3 17,019.6 Venezuela -3,419.5 5 767.7 25 4,187.2 8 Nigeria -3,413.0 6 235.3 47 3,648.2 10 Saudi Arabia -3,390.6 7 828.5 24 4,219.1 Federal Republic of Germany -2,903.9 4,061.7 6,965.6 Italy -1,714.8 9 1,212.1 18 2,926.9 13 Malaysia -1,700.8 1,060.4 21 2,761.2 14 Algeria -1,687.6 11 75.5 74 1,763.1 20 Angola -1,413.5 12 93.8 68 1,507.3 23 Ireland -1,381.3 739.5 28 2,120.8 17 India -1,228.3 1,078.4 2,306.7 15 Korea, South -1,184.8 2,740.2 3,924.9 France -1,180.4 16 2,145.2 3,325.7 Russia -1,148.4 557.6 31 1,706.0 Iraq -1,124.7 243.5 46 1,368.2 Thailand -1,094.7 19 738.6 29 1,833.3

Growth in international trade Caused greater reliance on intermodal connections, ports, and air terminals

Growth not from neighbors

Services: Travel Passenger Fares Other Transportation Royalties and License Fees Other Private Services Direct Defense Expenditures U.S. Government Misc. Services

The West Coast? Trade Statistics (see additional pdf)

US Port Throughput (TEU) Terminal throughput has gone up and is expected to continue to increase How has this increase in throughput been accommodated so far?

Major Gateways Importance of east-west corridors

West Coast Terminal Area has increased

Primarily at California ports

Throughput density (TEUs/acre) variation across west coast ports

Similarly with berth length

Berth length (TEUs/ft) utilization at west coast ports This is due

Increasing vessel size Ports with largest average vessel size and at least 500 vessel calls per year in 2002 Average TEU/vessel 2002 Average TEU/vessel 2005 Tacoma 3948 3590 LA/Long Beach 3559 4103 Seattle 3538 4345 Oakland 3480 4060 Charleston 3206 3323 Savannah 3205 3536 Virginia Ports 3099 3224 New York 3084 3326 To date throughput increases at West Coast Ports have been accommodated by increased terminal area Future increases may have to be accommodated by other means Increased ship size decreases crane productivity (everything else being equal) Larger ship sizes require larger terminal area (less efficient utilization due to peaking)

Shifting warehousing patterns