1. Managing the Flow of the Supply Chain
TRANSPORTATION:
Managing the Flow of the Supply Chain

2. Learning Objectives
Learn the role transportation plays in the supply chain.
Study the service and cost characteristics of the primary transportation modes.
Identify the key activities involved in transportation planning and execution.

3. Understand how IT supports transportation planning and execution.
Learning Objectives, continued
Study current transportation management strategies used to improve supply chain performance.
Apply service and cost metrics to analysis of transportation performance.
Understand how IT supports transportation planning and execution.

4. 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 has a major economic impact on the financial performance of businesses.

5. 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

6. Challenges to Carrying out the Transportation Role in SCM
Growing practice of outsourcing
Increasing complexity of supply chain
Competing goals among supply chain partners
Changing customer requirements (of defect and error free delivery)
Unstable transportation rates in the market place (due to fuel, labor and other expenses)
Synchronizing transportation with other supply chain activities

7. Transportation capacity constraints pose a challenge.
Challenges to Carrying out this Role, continued
Transportation capacity constraints pose a challenge.
Rising transportation rates present another major concern for organizations.
The transportation industry is impacted by federal governmental requirements (de-regulation) that affect cost structure and service capabilities.
(Local) 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.

8. Modes of Transportation
Motor (Truck) Carriers
Rail
Water
Air
Pipeline
Multiple modes

9. Table 10.1 U.S. Domestic Freight Shipments 2007
Source: Bureau of Transportation Statistics, Pocket Guide to Transportation (2011) 32

10. Modes of Transportation
Motor Carriers
Widely used mode of transportation in the domestic supply chain
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 (a total of 500K carriers)
Truckload carriers.
Less-than-truckload (LTL)
Small package carriers
Low fixed cost, high variable for handling varying commodities and shipment sizes

11. Figure 10.1 Motor Carrier Options
Source: American Trucking Trends 2003 p 60

12. Railroads 563 railroads, but only seven Class I railroads.
Modes of Transportation, continued
Railroads
563 railroads, but only seven Class I railroads.
Class I railroad carriers generated $46B of revenues and handled 26M carloads and 9.9 intermodal trailers and containers.
BNSF railway, CSX transportation, Norfolk Southern Railway, and Union Pacific Railroad are the four Class I dominant carriers.
Railroads are for long-distance movement of low value raw materials and products.
They are “natural monopolies”.
Two carrier types:
Linehaul: between major markets and customers.
Shortline: the local and regional links between customers and the national rail network of the Class I railroads.
High fixed, low variable

13. Air Carriers Water Carriers
Modes of Transportation, continued
Air Carriers
Historically viewed as expensive and used only for emergency
There has been a sustained growth lately for small, expensive and perishable items.
$594B globally and $33B in the US in 2010 in air freight.
22 out of 88 are considered a major carrier (>$1B) by FAA, including FedEx, UPS, Delta, and United.
Water Carriers
Carried a total of $115B worth of cargo and 4.7% of total tonnage.
652 carriers in the US domestic and half of them on the Mississippi river.
They compete heavily with railways.
High variable and low fixed cost

14. Pipelines, continued Intermodal
Modes of Transportation, continued
Pipelines, continued
Considered as the “hidden giants” handling 5.2% of US freight tonnage. Very economical form of transp.
Three primary types
Gathering lines: very small pipelines (2-8 in.)
Trunk lines: 8-24 inches in diameter
Refined product pipelines up to 42 inches
95K miles in total in the US, in addition to gaslines
High fixed, high volume, versus low variable
Intermodal
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.

15. Intermodal, continued Product-handling characteristics
Modes of Transportation, continued
Intermodal, continued
Product-handling characteristics
Containerized freight
Transload freight

16. Figure 10.2 Widely Used Intermodal Combinations
Source: Brian J. Gibson, Ph.D.

17. Figure 10.3 Transport Management Planning Activities
Source: Brian J. Gibson, Ph.D.

18. Transportation Planning and Strategy
Functional Control of Transportation
Which department will be responsible for transportation?
logistics
procurement
Marketing
Terms of Sale
Free-on-board (FOB) Origin
FOB destination

19. Table 10.2 Responsibilities Under FOB and Payment Terms
Source: Adapted from Bruce J. Riggs, “The Traffic Manager in Physical Distribution Management”, Transportation and Distribution Management, 1968 p. 45

20. Decision to Outsource Transportation
Transportation Planning and Strategy, continued
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”
Modal Selection
Accessibility
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

21. Modal Selection, continued
Transportation Planning and Strategy, continued
Modal Selection, continued
Reliability
Reliability advantage: Motor carriers and air carriers
Reliability disadvantage: Water carriers and rail carriers
Product Safety
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

22. Table 10.3 Comparison of Modal Capabilities
Source: Brian J. Gibson, Ph.D.

23. Table 10.4 Performance Ratings of Modes
Source: Edward J. Bardi, Ph.D.

24. Carrier Selection Rate Negotiations
Transportation Planning and Strategy, continued
Carrier Selection
Selecting the individual transportation service providers within the mode.
Major difference between modal and carrier selection is the number of options and decision frequency.
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
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.

25. Transportation Execution and Control
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

26. Freight Documentation
Transportation Execution and Control, continued
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
Freight bill
carrier’s invoice for carrier charges listing:
shipment
origin and destination
consignee
items
total weight
total charges

27. Maintain In-Transit Visibility
Transportation Execution and Control, continued
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.
Monitor Service Quality
Analyze the outcome of all their transportation strategy, planning, and decision-making.
Key requirement for service quality monitoring is information.

28. Transportation Metrics
Transportation Execution and Control, continued
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

29. Transportation Management Systems (TMS)
Transportation Execution and Control, continued
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

30. Table 10.5 Transportation Performance Scorecard
Source: Brian J. Gibson, Ph.D.

31. Summary
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.
Managing the transportation process for maximum supply chain impact requires considerable knowledge of transportation options, planning, decision making, analytical skills, and information sharing capabilities.

32. Summary, continued
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.

33. Summary, continued
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 will goods 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.

34. Summary, continued
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.
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.
Organizations must continue to manage freight after it has been tendered to carriers by maintaining in-transit visibility of shipments and monitoring carrier performance.

35. Summary, continued
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.
Transportation management systems are widely used information technologies that support the effective planning, execution, and analysis of transportation processes.