1. Chapter 10 Transportation—Managing the Flow of the Supply Chain
Learning Objectives
After reading this chapter, you should be able to do the following:
Explain the role transportation plays in the supply chain.
Discuss the service and cost characteristics of the primary transportation modes.
Discuss the key activities involved in transportation planning and execution.

2. Learning Objectives (cont.)
After reading this chapter, you should be able to do the following:
Explain current transportation management strategies used to improve supply chain performance.
Use service and cost metrics to analyze transportation performance.
Describe how information technology supports transportation planning and execution.

3. 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.

4. 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

5. 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

6. 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.

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

8. 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%

10. 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

11. Modes of Transportation

12. 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

13. 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

14. 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

15. 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

16. 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

17. Modes of Transportation

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

21. 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”

23. 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

24. 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

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

27. 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

28. 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

29. 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

30. Freight Documentation
bill of lading
originates the shipment
provides all the information the carrier needs
stipulates the contract terms, including carrier’s liability for loss and damage
acts as a receipt for the goods the shipper tenders to the carrier
in some cases, shows certificate of title to the goods

32. Freight bill carrier’s invoice for carrier charges lists: shipment
origin and destination
consignee
items
total weight
total charges

34. Freight claims form
Filed with the carrier to recoup monetary losses resulting if carrier fails to protect the shipment.
Carriers are not liable for freight claims if the damage is attributable to:
Natural disaster or some other “act of God”
Military attack or similar “act of public enemy”
Government seizure of freight or “act of public authority”
Failure to adequately package the freight or other negligent “act of the shipper”
Extreme fragility, perishability, or similarly problematic “inherent nature of the goods”

35. 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

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

38. 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

39. 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

40. Summary
Without question, transportation is a very dynamic activity and a critical supply chain process. Not only is it the largest logistics cost component in most supply chains, but it also directly impacts fulfillment speed and service quality. By providing the physical links between key participants across domestic and global supply chains, transportation facilitates the creation of time and place utilities. Organizations with highly efficient and effective transportation processes can differentiate their product in the marketplace through lower landed costs and greater inventory availability.
Managing the transportation process for maximum supply chain impact requires considerable knowledge of transportation options, planning, decision making, analytical skills, and information sharing capabilities.
Transportation is a key supply chain process and must be included in supply chain strategy development, network design, and total cost management.
Numerous obstacles—global expansion of supply chains, rising costs, limited capacity, and government regulation—must be overcome to synchronize transportation with other supply chain processes.
Fulfillment of supply chain demand can be accomplished through five modal options or the intermodal use of truck, rail, air, water, and pipeline transportation.

41. Summary (cont.)
Multiple planning activities occur prior to carrier and mode selection: who will be responsible for managing the transportation function within the organization, what terms of sale and payment will be used, and how goods will be transported must all be determined with a strategic supply chain focus.
Mode selection is based on the relative strengths of each modal/intermodal option in terms of accessibility, transit time, reliability, safety and security, transportation cost, and the nature of the product being transported.
Carrier selection focuses on the type of service required (direct or indirect), geographic coverage, service levels, and carrier willingness to negotiate reasonable rates.
Most commercial freight moves under contractual rates that are negotiated directly between freight buyers and transportation companies for specific volumes of tailored services at mutually agreed-upon prices.

42. Summary (cont.)
Shipment routing guides help organizations ensure internal compliance with service contracts and maintain centralized control over freight tendering decisions.
Freight documentation provides the details of each shipment, sharing critical information that promotes uninterrupted flows of goods through the supply chain. Domestic transportation documents include the bill of lading, freight bill, and freight claims, while international freight requires additional paperwork such as a commercial invoice, shipper’s letter of instructions, certificate of origin, and insurance certificates.
Organizations must continue to manage freight after it has been tendered to carriers by maintaining in-transit visibility of shipments and monitoring carrier performance.
Numerous metrics are available to evaluate transportation service quality in terms of carrier timeliness, freight protection, accuracy, and perfect deliveries. Service efficiency measures focus on spending proficiency, asset utilization, and labor productivity.

43. Summary (cont.)
Transportation management systems are widely used information technologies that support the effective planning, execution, and analysis of transportation processes. Emerging tools such as event management and RFID have the potential to improve supply chain visibility and dynamic response to potential challenges.