1. Transportation Management
“Education in Pursuit of Supply Chain Leadership”
dp&c
Chapter 13
Chapter 13
Transportation Management

2. Learning Objectives (cont.)
Defining the transportation management function
Describing the financial magnitude of transportation
Reviewing the principles of transportation
Detailing transportation services and participants
Discussing the relationship of transportation to other business functions
Detailing transportation performance characteristics
Reviewing the legal forms of transportation
Detailing the characteristics of the five modes of transportation: truck, rail air, water, and pipeline

3. Learning Objectives
Reviewing the elements of intermodal transportation
Detailing the role of transportation management
Discussing the transportation management process
Reviewing the main issues before todays transportation function: infrastructure, risk management, and transportation management technologies
Exploring the use of transportation logistics service providers (LSPs)

4. Transportation Management
Chapter 13
Transportation Management
Defining Transportation Management

5. Defining Transportation Management
The function of planning, scheduling, and controlling activities related to mode, vendor, and movement of inventories into and out of an organization

6. Magnitude of Transportation
CSCMP Annual State of Logistics (2014)

7. Principles of Transportation
Economy of Scale
As the volume and weight of the load increases, the unit cost of transportation decreases
The transportation cost per unit of weight decreases as the distance from shipping point to delivery point increases
Economy of Distance
Cost of Velocity
As the speed of the movement of the load increases, the cost of the transportation increases

8. Match Vehicle to Nature of Transit Environment
Detailed Principles of Transportation
Continuous Flow
Provide for the uninterrupted flow of goods through the supply chain
Optimize Unit of Cargo
Ensure cargo fully optimizes transportation vehicle capacities
Maximum Vehicle Unit
Match vehicle size to load weight and volume
Match Vehicle to Nature of Transit Environment
Match vehicle transport characteristics and capacities with the nature of the transit environment

9. Detailed Principles of Transportation (cont.)
Use standard transport vehicles and materials handling equipment whenever possible
Standardization
Materials handling equipment should minimize cargo damage and reduce load shift during transport
Unit-load Compatibility
Minimizing vehicle deadweight (the vehicle itself, containers, and materials handling equipment)
Minimization of Deadweight
Maximize Capital, Equipment, & Personnel
Maximize the percentage of time transportation and materials handling equipment and personnel are in use

10. Transportation Services – Load Transport
Freight Services
Movement of goods through the channel network
Terminal Services
Pickup and delivery of goods from and to channel warehouses
Loading and Unloading
Loading and unloading of product deliveries
Services such as electronic shipment tracking, delivery confirmation, management of transportation charges, and so on
Value-Added Services
Documentation
Management of domestic and international documents
Transportation Rates
Establishment of transportation rates for contracting third-party transport carriers

11. Diversion and Reconsignment
Transportation Services – Product Storage
Transport Mode
Shipment loads are temporarily stored in their transportation method
In-transit Storage
Use of long transportation times as storage until product is received
Diversion and Reconsignment
Changing the shipment’s destination while in transit or after it has reached its original destination

12. Transportation Participants
Government
Consignor
(Shipper)
Carriers and Agents
Transportation
Consignee (Receiver)
Internet Services
Public
Source: Donald J. Bowersox, David J. Closs, and M. Bixby Cooper, Supply Chain Logistics Management. 3rdedition.New York, McGraw-Hill Irwin, 2010.

13. Channel Network Locations
Relationship of Transportation to Other Business Functions
Strategic Planning
Traffic Management
Warehouse Management
Transportation
Purchasing
Customer Service
Product Pricing
Channel Network Locations
Inventory Planning

14. Transportation Performance Characteristics

15. Transportation Management
Chapter 13
Transportation Management
Types of Transportation

16. Types of Transportation Carriers
Common
Provides transport services to the general public according to a published rate
Regulated
Similar to a common carrier, but without the requirement to serve all customers
Contract
Provide transport services for a negotiated price to selected customers by contractual agreement
Provides transport services that are not regulated with respect to routes, areas served, and rates
Exempt
Private
Transport that is wholly owned or leased by a firm and is incidental to its main business

17. Shipper’s Associations
Transportation Service Agents
Provides the general public with transportation services and provides for the assembly and consolidation of shipments at origin and performs or provides for break bulk and distribution of shipments at the delivery destination
Freight Forwarders
Parcel Post
Provides for the rapid shipment of small (weight and volume) goods and are designed for general public use
Shipper’s Associations
Composed of nonprofit shippers' cooperatives whose primary function is freight consolidation
Composed of transportation brokers who provide ramp-to-ramp transit from railroads and motor vehicles at origin and destination using truckers as needed under a single bill of lading
Shippers’ Agents

18. Transportation Service Agents (cont.)
A third-party agent who is neither a shipper nor a carrier but rather an intermediary that arranges a match between the shipper’s transportation need and a specific carrier from a pool of carriers they represent
Brokers

19. Transportation Management
Chapter 13
Transportation Management
Modes of Transportation

20. Modes of Transportation
Transport Modes
Motor
Railroad
Air
Water
Pipeline
Intermodal

21. Transportation Mode Summary

22. Intermodal Transportation
TOFC – truck trailer on a rail flatcar
Often called the piggyback system, TOFC is a method by which a truck trailer load is transferred in transit from the truck carrier to another transit mode without unloading and reloading product
COFC – container on a rail flatcar
The transfer of containers from one mode of transport to another is a key component of intermodal transportation. A container system is characterized by the storage of products in a box or similar form of container

23. Transportation Management
Chapter 13
Transportation Management
Transportation Management Functions

24. Transportation Management Functions

25. Vehicle profitability
Transportation Operations Principles
Distance
Distance products travel from point of origin to the point of delivery
Weight
The cost of transport decreases per unit as load weight increases
Density
The cost of transport decreases per unit as load weight and volume increase
The better the volume cube optimizes equipment the cheaper the cost
Stowability
Handling
The easier the loading and unloading the cheaper the cost
Liability
Special modes of transport for special shipments increase the cost
Vehicle profitability
Minimizing the cost of vehicle return

26. Transportation Management Process
Logistics Plan
Establish Costs, Prices, and Rates
Modal and Carrier Selection
Routing and Scheduling
Costs OK?
Mode/Carrier OK?
Delivery OK?
Documentation, Audit & Claims
Post-Shipment OK?
Shipment Plan

27. Transportation Costs Fixed Variable Joint Common
Cost for components of transportation, such as vehicles, terminals, and rights-of-way that are not subject to shipment volume.
Fixed
Cost to operate transportation, such as fuel, labor, and maintenance. This cost is significantly impacted by shipment volume.
Variable
Joint
Costs shared by the shipper and carrier to provide a certain transportation service.
Carrier costs incurred on behalf of all or selected shippers, such as terminals and management expenses.
Common

28. Transportation Costs - Example
Total costs
Fixed costs
Cost
Variable costs
0 US$
Distance, point of origin to destination
Example:
Fixed costs/year = US$8,500,000.00
Variable cost per motor transport trailer = US$350.00
Number of trailers used = 110,000
Answer:
US$8,500,000 + (US$350 x 110,000 trailers) = US$47,000,000
US$47,000,000 / 110,000 = US$427.27
Fixed costs/year = US$8,500,000.00
Variable cost per motor transport trailer = US$350.00
Number of trailers used = 110,000

29. Billing and collecting
Transportation Cost Components
Line haul
The basic cost (distance) to move a trailer, container, railcar, or other vehicle regardless of whether it is full or not
Pickup and delivery
The basic cost (time spent) to load or unload a trailer, container, railcar, or other vehicle regardless of whether it is full or not
Terminal handling
The number of times a shipment must be loaded, handled, and unloaded
Billing and collecting
After each shipment documentation must be completed and invoices generated
Reference: Arnold, J.R. Tony, Stephen N. Chapman, and Lloyd M. Clive. Introduction to Materials Management, 7th ed. Upper Saddle River, NJ: Prentice Hall – Pearson, p. 291.

30. Exercise 13.1 Detailed Transportation Cost
a. Warehouse Data

31. Exercise 13.1 Detailed Transportation Cost
b. Line haul costs
[(Distance miles × line-haul cost) + (terminal stops × terminal handling costs) + pickup and delivery costs + Fuel costs] × billing and collections = (2,000 × US$3.50) + (1 × US$250) + US$125 + US$900 = US$8,275 × 0.5% = US$8,316.38
c. Cost per hundred weight (cwt.)
Total line-haul cost /(Load weight / 100) = US$8, / (30,000 / 100) = US$27.72

32. Transportation Rates and Pricing
A rate is an established charge found in a rate tariff book indicating the payment to a carrier for performing a given transportation service. Rates are established by using the cost as a base to which are applied various factors to attain the final rate.
Transportation Pricing
Charges are based on cost plus a value or level determined by prevailing market forces. Pricing centers on two approaches: the cost incurred by the carrier to provide the service and the value of service provided to the consignor.

33. Types of Transportation Rates
A single transport rate for all shipments regardless of the origin-destination
Uniform
Rates based on a published rate structure and the proportion of service cost to ship
Proportional
Rates based on the principle that as the distance grows rates will increase but at a decreasing rate
Tapering
Blanket
Rates that cover a wide area at the origin, destination, or both

34. Terms of Sale – United States
Key Issues
When does ownership and title pass from seller to buyer?
Who is responsible for carrier payment?
Who handles freight claims, seller or buyer?
Critical for coordination of freight movement
Terms

35. Transportation Mode Selection
Accessibility
Ability to reach origin and destination facilities
Match the capacity of the transportation mode to the size and nature of the product being moved
Capacity
Transit Time
Elapse time to move shipment from origin to the destination
Reliability
Consistency of the transit time provided by the transportation mode
Safety
Arrival of goods at the destination without damage or theft
Cost
The rate for moving freight from origin to destination plus fees for additional services

36. Comparison of Modal Capabilities

37. Exercise 13.2 Choosing a Transportation Mode
a. Base data
b. Calculation

38. Transportation Carrier Selection5
Selection Criteria 4
Continuous Carrier Review 3
Comparing Carrier Alternatives 2
Carrier Reduction 1

39. Factors Affecting Modal Choices

40. Exercise 13.3 Transportation Contract Estimating
a. Base data
b. Carrier data

41. Exercise 13.3 Transportation Contract Estimating (cont.)
c. Calculation
 Transportation cost = 120,000 × (US$6.50 / 10 lbs. weight) = US$78,000
Cycle inventory = 2,000 (base load) / 2 = 1,000 motors
Safety inventory = (6/2 lead time days) × (120,000/365) = 986
In-transit inventory = 120,000 × (6 days /365 days) = 1,973 motors
Inventory cost = (1, ) × US$30 (carrying cost) = US$118,770
Total cost of contract = US$78,000 + US$118,770 = US$196,770
The traffic planner must now perform the same calculation for the other carriers.

42. Exercise 13.3 Transportation Contract Estimating (cont.)
d. Carrier Cost Analysis

43. Vehicle Routing and Scheduling
Scheduling and Routing
Load Planning
Sequencing shipment selection and vehicle loading
Vehicle Routing and Scheduling
Determining the geographic path a vehicle will travel to the delivery destination
Consolidation
Grouping different shipments to exploit full truckload economies of scale
Performing shipment expediting, tracing, advance ship notice (ASN) and hours of service control
Shipment Control

44. Transport Documentation
Documentation and Post-Shipment Processes
Transport Documentation
Preparing the necessary documentation to accompany the shipment
Payment and Audit
Performing carrier invoice payment and freight bill audit
Claims Management
Processing damage and loss and overcharge/undercharge shipment claims

45. Transportation Performance Measurement
Ton-Mile Cost Calculation
The cost to move one ton of goods one mile.
Sample Transportation Budget

46. Transportation Performance KPIs
Quality of service. The ratio of how well shipments are meeting customer expectations
Cost of service. The ratio of actual to budgeted costs for shipments
Flexibility of service. The ratio of ABC’s ability to meet requests for different modal options and capacities to fit shipment characteristics
On-time loading. The ratio of times ABC’s vehicles arrived at the scheduled appointment time to pick up loads
On-time delivery. The ratio of shipments delivered by ABC in a timely fashion

47. Transportation Performance KPIs (cont.)
Delivery consistency. Compares the average origin to destination transit time of shipments to the transit time promises made by carriers
Loss and damage claims. The ratio of claims-free deliveries to the total number of deliveries
Freight bill accuracy. The ratio of accurate freight bills submitted by ABC to the total number of freight bills tendered by ABC

48. Transportation Performance Scorecard
Adapted from Coyle, John, et al. Supply Chain Management, 8th ed. Southwestern, 2009, p. 436.

49. Transportation Management
Chapter 13
Transportation Management
Issues Confronting Transportation

50. Transportation Infrastructure Issues
Physical Transportation Systems
Continued deterioration of roads, bridges, and freight movement networks
Impending Driver Shortages
Spiraling crisis in the number of available qualified truck drivers. Impact of government regulations and other safety issues
Environmental Sustainability
Continued tightening in the use of carbon-based fuels and impact of “green” in social discourse and government action

51. Benefits of Transportation Environmentalism
Corporate citizenship. Actively reducing emissions enables companies to be good corporate citizens by playing an active role to accelerate the transition to low-carbon fuel can improve the company's reputation and support long-term risk management
Reduced costs from lower lifecycle fuel prices. Cost savings by using natural gas and electric vehicles.
Shaping of public policy and marketplace choices. As transport companies make the transition to lower cost fuels, they increasingly will have a voice in actively shaping the technologies, institutions, and perspectives that twill define tomorrow's fuel economy
Readiness to respond to rapid changes in markets and technologies. Companies can pilot technologies that position them to roll out advanced low-cost fuels and vehicles as opportunities arise

52. Transportation Risks
Shipment loss. The possible loss of a shipment through theft, piracy, hijacking, and misplacement constitutes a common risk confronting every shipment
Shipment damage. Shipment damage originates in the actions or inactions on the part of load handlers and equipment operators. Causes of damage are poor freight handling, improper transport equipment loading, and in-transit equipment accidents
Shipment contamination. The shipment of perishables, consumables, and date-sensitive products risks contamination while in route from origin to destination
Delivery delay. Reasons for shipment delay are traffic congestion on rail lines, port facilities, and roadways; climate changes or conditions that impact in-transit flow; and mechanical breakdown of delivery vehicles

53. Transportation Risks (cont.)
Channel disruption. Disruptions are attributed to labor disputes, governmental regulations, catastrophic weather disasters, channel equipment capacity shortages, lack of skilled personnel, and carrier financial problems.
Security breach. Risks arise not only from potentially destructive forces seeking to exploit system flaws and security vulnerabilities, but also from governmental requirements for more extensive freight inspections, documentation, and costly countermeasures

54. Time-phased implementation
Transportation Risk Management Activities
Identification
Managers must identify all possible threats and disruptions to the firm’s domestic and international transportation
Measurement
Threats are quantified to assess the frequency of a threat and to determine the probability of it occurring
Actionable risks
Selection of risks the organization can change through avoidance, acceptance, transference, and mitigation
Realistic solutions
Determination if the organization possesses the financial, people, and skill resources to realistically find solutions to the identified risks
Time-phased implementation
Implementation plan for each risk to be resolved, complete with roles, responsibilities, due dates, and project accountability

55. Transportation Management Technologies
Transportation Management System
Software that facilitates the management of transportation services, planning, and performance
System that organizes and directs the traffic of all vehicles in the parking yards located at various industrial buildings, like warehouses, distribution centers and manufacturing plants.
Yard Management System
Routing and Scheduling
Software for scheduling, routing, dispatching transportation and monitoring route and driver performance
System that is engaged when an event, either planned or unplanned, occurs requiring planner intervention
Supply Chain Even Management
Driver-Focused Technologies
Technologies such as GPS, electronic logging devices, and telematics to track driver costs, efficiency, and performance

56. TMS Functions Manifesting Network Design Postshipment Analysis
Shipment Planning
Visibility Tools
Routing
Tracking and Settlement
Load Matching
Delivery Scheduling
Freight Rating
Manifesting

57. Transportation Management
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Transportation Management
Transportation Management LSPs

58. Networking Technologies
Third Party Logistics (3PL) – Functions
Financial settlement, global trade, logistics consulting, logistics management, reverse logistics
Logistics
Warehousing
Alignment of warehousing with transportation requirements
Freight movement, intermediary services, freight management, track and trace, leasing of transportation equipment and drivers
Transportation
Special Services
Dedicated contract carriage, merge in transit, direct delivery, import/export/customs
Networking Technologies
Leased services and equipment for EDI, Web-enablement, and warehouse (WMS) and transportation (TMS) systems management

59. Intermediary Services
Third Party Logistics (3PL) – Transportation
Freight Movement
Freight Management
For-hire carriage
Contract carriage
Expedited service
Time-definite service
Intermodal service
Carrier selection, routing, and scheduling
Contract compliance
Performance analysis
Freight bill auditing and payment
Transportation management systems
Intermediary Services
Special Services
Surface forwarding
Air forwarding
Freight brokerage
Intermodal marketing
Shippers associations
Dedicated contract carriage
Drayage
Pool distribution
Merge in transit
Household goods movement
Source: Coyle, John, et al., Transportation., 7th ed. South Western: 2011, p,. 403

60. LSP Strategies
LSP flexibility. Logistics planners must be careful to draft a contract that provides for flexibility to respond to service changes due to new technologies, channel remapping, new products, new competitors, and other issues
Defined cost of services. Rarely are all permutations of costs and scope of services fully defined contractually. An effective method to cope with these issues is to plan for high, medium, and low costs in the contract.
Managing the human side of outsourcing. The introduction of a LSP requires the effective education and concurrence of the people in the organization.
Realistic expectations. Both parties must work closely together to establish realistic expectations and then structure a program to guide continuous improvement through time

61. LSP Strategies (cont.)
Technology misunderstandings. Often customers and LSPs exaggerate their technical capabilities, as well as downplay what technology expertise is required of each other. Solving this problem requires a realistic statement of competencies to initiate technology improvements that enhance the partnership and drive new benefits
Partnership commitment. It is essential to secure the firm commitment of company management to the LSP arrangement. The executive team must be apprised of its role as leaders and supporters in the ongoing management of the relationship, both from a change management and an expanding collaborative partnership perspective
Retain core competencies. Companies must be vigilant to ensure that critical competencies and processes are not contracted away

62. Chapter 13 End of Session dp&c Chapter 13
“Education in Pursuit of Supply Chain Leadership”
dp&c
Chapter 13
Chapter 13
End of Session