1. Supply Chain Management Principles
LB 6: Transportation Operations Overview

2. LB Objectives
Understand how different areas of product transportation affect the overall success of companies
Recognize supply chain technology tools used in transportation systems
Identify the challenges in establishing efficient and effective transportation processes within industries
Determine which modes of transportation are more cost-effective in given situations and why
Demonstrate metrics used to measure transportation service quality and efficiency
LO1

3. Transportation Operations Overview
Transporting goods often require multiple modes of transportation and can vary based on:
Cost
Values
Dimensions
Weights
Time-definite delivery requirements, and
Other special considerations
LO2

4. Availability of Service
Availability of transportation systems is essential to fulfilling customer demand in the supply chain
Availability impacts company’s ability to compete in certain markets
The modes of transportation are:
Truck
Train
Ship
Plane
Pipeline
LO1

5. Efficiency of Service
Demand for transportation is derived from customer demand
Low-cost transportation has no value if products do not arrive on time to the correct location or if they are damaged
Managing transportation processes can be complex and includes obstacles. Effective transportation systems impact an organization’s ability to thrive in the market place. Keys to transportation are:
The right products
The right customers
The right quantities
The right conditions
The right places
The right times
The right costs
LO1

6. Challenges
Complexity of Chains – Competitive markets and increases in customer requirements. Creates less cost-efficient supply chain
Growth of offshore manufacturing – Reliance on global supply chains requires expensive transportation processes
Customer demands for more tailored service – Use of 3PL’s…Advantages include: enhanced customer service capabilities, greater flexibility affecting variable costs, improved operational efficiency & reduced capital expenditures
LO2

7. Challenges
Capacity constraints from other types of infrastructure – Transportation capacity constraints can create roadblocks
Rising transportation rates – Carriers may raise prices as cost of fuel, labor, & equipment increase
Government regulations – DoT’s 13 bureaus regulate the five transportation modes. These bureaus include:
Federal Motor Carrier Service Administration
Federal Highway Administration
Federal Aviation Administration
Federal Railroad Administration
Maritime Administration
Federal Transit Authority
National Highway Traffic Safety Administration
Pipeline and Hazardous Material Safety Administration
LO2

8. Modes of Transportation
There are five major modes of freight transportation
Motor Carriers or Road Transport or Common Carriers – Most widely used domestic mode of transportation because most freight is routed regionally
Characteristics of Road Transport:
Mode of choice for high-value, time-sensitive goods
Highly competitive industry due to low barriers to entry. You only need a truck and a driver
Two main categories are for-hire and private fleet
Challenges include: Rising costs, driver shortages, and competition
LO3

9. Modes of Transportation
Railroads are used for high-volume and when the distance exceeds 900 miles
The characteristics of railroad transportation are:
Highest cost per ton mile (one ton of freight carried one mile) mode of transportation
Used for long-distance movement of low-value raw materials and manufactured goods
Cost of entry is high for buying locomotives, rail cars, and building & maintaining railroad tracks
Rail equipment is organized in loads and transported by manifest rains, unit trains, or intermodal trains
Challenges: large investment, virtually unchangeable tracks
LO1

10. Modes of Transportation
Air Transport – Often viewed as too expensive and used only in emergencies. However, the importance of maintaining lower inventory levels has created the need for airfreight as a faster option with JIT
The characteristics of airfreight are:
Ecommerce has increased the need for airfreight
International air transportation is projected to grow
Choice for shipping small quantities of high-value & low weight semi-finished goods
Challenges are: Cost issues for profitable growth, competition and security
LO5

11. Modes of Transportation
Water Transportation is the major mode for international trade and dominates other modes in international freight revenue
Characteristics of Water Transportation are:
Slow, high volume freight, efficient fuel, & low cost
Wide variety of goods from low value commodities to imported automobiles
Two types dominate for hire-carriers: Liner services and charter services
Use of specialized ships: container ships, bulk carriers and tankers
Challenges: Capacity, trade imbalances, rising costs, piracy, & careful planning for perishable cargo
LO5

12. Modes of Transportation
Pipeline Transport – the hidden giant of transportation. Used for inter-city ton-mileage of freight.
Characteristics are:
Equipment is in place thus providing a warehousing function while protecting product from contamination
Most economical mode of transportation with lowest cost per ton-mile
U.S. has the largest network of pipelines
Comprised of for-hire and private carriers
Challenges include:
Issues of safety and security
LO5

13. Modes of Transportation
Intermodal is the use of two or more modes to transport and deliver the same cargo
Significant growth in the last twenty years using railways, ships, and trucks without handling cargo
Benefits of intermodal transportation include:
Greater accessibility by linking individual modes of transportation
Cost efficient without sacrificing quality of service
Ease of global trade
Growth is attributed to: Better information systems for tracking, development of intermodal terminals, & creation of standardized containers
Challenges: Congestion in transfer points, capacity, and labor issues
LO5

14. Transportation Proceses
Shipment Preparation -
Transportation decisions must take the following into consideration:
Shipment size
Route
Delivery method
Freight documentation
Additionally, products must be packed and packaged properly to prevent shipping and transportation damage and ensure safe delivery
When products are shipped, in-transit problems must be resolved, and quality of service must be monitored
LO5

15. Transportation Processes
Shipment preparations -
To maximize efficiency & effectiveness, companies maintain corporate transportation routing guides which contain instructions on:
Packing & Packaging
Carton and shipment labeling
Insurance and billing requirements
Advanced shipping notification
These strategies promote centralized control over the number of carriers used and ensure contractual agreements with carriers are being fulfilled
LO5

16. Freight Documentation
Shipment documents state what it contains, where it is, where it is going, & to whom it is being sent
The most common types of documentation are:
The bill of lading
The freight invoice
The freight claim
Shippers instruction letters help ensure freight is handled and shipped according to their requirements
LO5

17. Freight Documentation
The Bill of Lading – This is an official document or contract that can be used in a court of law.
It is proof of an agreement between companies responsible for shipping goods and companies transporting those goods
It contains an explanation of the goods, the quantity being transported, and their destination
They are generated by the shipper or 3PL company
It functions as the receipt upon delivery, must accompany the goods, and must include authorized signatures from shippers, carriers, & receivers
LO5

18. Freight Documentation
Freight bills or freight invoices – These are distinct from bills of lading because they do not serve as evidence in any potential dispute
Freight bills differ from bills of lading because they include additional specific information, including transaction-related information and charges that describe the information on the bill of lading
LO5

19. Freight Documentation
Freight Claim – aka shipping claims, cargo claims, transportation claims, or loss & damage claims.
Freight claims are considered to be legal claims by shippers or consignees against carriers for financial compensation for loss or damage of shipments
The three types of freight claims include:
Shortage or loss
Damage
Delay
Damage can be apparent or concealed. They are concealed when the damage is discovered after the shipment has been signed and received with no visible damage noticed on the cartons or products
LO5

20. Safety & Security
While deregulation by government has provided more freedom to operate competitively, regulation has increased in other areas related to quality of life
Legislation has been passed to improve safety in the transportation industry, reduce its impact on the environment and protect the country against terrorism.
The Department of Transportation introduced new regulations regarding hours of service rules, effective July, 2013
Drive 11 hours within a consecutive 14-hour period, off for 10 hours
Average maximum work week: 70 hours from the previous 82 hours
After 70 max. hours, allow drivers to resume driving if they rest for 34 consecutive hours including at least 2 nights from 1AM-5AM
Require 30-minute break during the first 8 hours of a shift
LO5

21. Safety & Security Other regulations include:
Environmental protection relating to noise pollution
Air pollution
Hazardous waste material
Known shippers
Vehicle emissions
Industry experts argue that vehicle emission regulations have led to:
Higher fuel prices
More expensive truck engines
Lower fuel efficiency
Hours of service operations have led to rate increases at driving organizations
LO5

22. Quality of Service
Control of freight in transit assist buyers in meeting customers’ needs. The following service quality areas are monitored for carrier performance:
Customer service demands
Service level of carriers
Shipment date, arrival date, & damage information
Use of standardized scorecards
KPI’s for carrier performance are used for benchmarks & internal review. They are compared against the competition
Transportation spending efficiency
Freight protection
Delivery service quality
Customer satisfaction
LO5

23. Transportation Management System (TMS)
TMS includes software tools that support the movement of goods throughout the supply chain
TMS tools assist buyers and managers make pre-shipment decisions
TMS works with an OMS, WMS, & other planning tools
TMS software applications include:
Routing and scheduling
Planning how to load containers or vessels
Tracking orders
Performance reporting and scorecarding
LO5

24. Transportation Planning & Strategy
Inbound Logistics – Transport, storage, and delivery of goods coming into a business (Company/Supplier relationship)
Outbound Logistics – Transport, storage, and delivery of goods leaving a business. Deals exclusively with end customers
Reverse Logistics – Transportation of goods returned from customer to manufacturer
LO5

25. Transportation Planning & Strategy
Companies choose between using their private fleets or external service providers
Private fleets can be:
Cost-effective
Provide flexibility in scheduling
External Service Providers include for-hire carriers and 3PL’s that can:
Eliminate the need for larger capital investments
Transfer risks like insurance liability
Labor safety
Government regulations
Other transportation services
LO5