SCMT 3443: Exam 2
airline load factor
(# of passengers / total # of seats) x 100 increasing over time (80% now) bc of airlines using smaller planes and less flights
3PL relationship development process
1. performance strategic assessment 2. decision to form relationship 3. evaluate alternatives 4. select partners 5. structure operating model 6. implementation and continuous improvement
4 step risk management process
1. risk identification 2. risk assessment 3. risk prioritization 4. risk mitigation
crude trunk lines
10"-24" in diameter move oil from gathering stations to tank farm/refineries, long distance movement (800 miles), laid underground surface
finished product trunk lines
30"-50" in diameter move product from refineries to market terminals, long distance movement (400 miles), laid underground, final delivery to customer usually by truck
specialty service- dedicated contract carraige
3PL acts as customers private fleet, customer gains advantage of private fleet without capitalization, operating/management responsibilities
gathering lines
<8" in diameter bring oil from fields to storage areas, short distance movement, on ground surface
transport based 3PL
Business origin in freight movement that involves companies who move freight, manage transportation operations, operate fulfillment centers and develop logistics solutions
distribution based 3PL
Business origin in the public or contract warehousing that involves focusing on inventory management, warehousing, and order fulfillment, but may also provide transportation services
information based 3PL
Digitized activities that were previously performed manually or required the use of licensed software. Examples of services include online freight brokerage services, cargo planning, routing & scheduling; internet access (pay per use) to TMS, WMS, performance management tools.
intermediary services- intermodal marketing companies
Shippers' Agents and Consolidators, facilitators of transportation only, assume no legal liability, function like a broker, typically work for shipper, usually handle shippers payment to carrier (beware)
financial based 3PL
Specialize in monetary issues and financial flows in the supply chain. Examples of services include freight rating, freight payment, freight bill auditing, accounting, electronic payment, carrier compliance reporting and freight claims.
Champion Oil Case
US Supreme Court Case ordered pipelines to operate as common carriers (only carrier still regulated)
transportation risk
a future freight movement event with a probability of occurrence and the potential for impacting supply chain performance
transportation disruption
an unanticipated event that interrupts the normal flow of goods and materials through the supply chain. These disruptions expose companies in the supply chain to operational and financial risks
classification of airlines
by size/annual operating revenues (majors- over $1 billion, nationals- $100 million-$1 billion, regionals- less than $100 million) or service
airline rates
cargo pricing is dependent on weight/density operating ratio= (expense / revenue) x 100 ^over 100 means losing money
supply chain secturity
changes following 9/11: more complex US customs process, challenge for US policy-makers to find balance b/t security and efficiency Dept of Homeland Security conducts inspections before cargo reaches US (reverse is required)
step 5: structure operating model
clarify each party's responsibility, activities, processes, and priorities that will drive day-to-day operations
types of pipeline carriers
common carriers are 90%
intermediary services- surface forwarders
consolidates small shipments
intermediary services- air freight forwarders
consolidates small shipments while using airlines benefits: fast, door-to-door, single carrier/BOL, tracing service disadv: cost
non-asset based 3PL
contracts with other firms to provide services rather than owning required assets adv: more flexible, unbiased decision making disadv: subject to competition for capacity from external providers, more intensive relationship management required
reasons for using 3PL
cost reduction opportunity, ability to focus on core competencies, can improve customer service, use capital for more productive, increase in inventory turns, productivity improvement opportunity, expansion to new markets
water carrier classification
determined by waterway used (great lake carriers, coastal carriers- Atlantic/Pacific/Gulf, intercoastal carriers- Panama Canal)
water carrier primary commodities
dry, bulk commodities (coal, cinders)
step 6: implementation and continuous improvement
duration depends on complexity of new relationship, continuous improvement is key to future success of relationship, well defined KPIs
risk avoidance
eliminate risk by not performing activity associated with risk (often not feasible, pushing risk to another portion of supply chain is not included)
step 2: decision to form relationship
evaluate whether trans/logistics is core competency -drivers: compelling reasons to partner (asset/cost efficiency, marketing adv, customer service, profit stability/growth) -facilitators: supportive corporate environment factors (corporate compatibility, management philosophy, mutuality of commitment to relationship -components: definition of the work to be done (ex- Joint Business Planning, Marketing Plan, Process Improvements) -outcomes: agreed to metrics/measurements (joint scorecards, KPIs, defined objectives)
risk retention
for some risks, the most cost effective strategy is to retain the risk (retained risks should be managed, including monitoring and development of contingency plans)
airport terminals
government invests in and operates (owns) airports and airways, airlines do not own airports and therefore have minimal costs
pipeline cost structure
high fixed costs and low variable costs
strengths of airlines
high terminal-to-terminal speed, reliability (consistent), low rates of damages on freight
airline cost structure
high variable costs (fuel, labor) and low fixed costs not big opportunity to leverage costs per seat-mile is lower for larger planes
water carrier cost structure
high variable costs (maintenance and dock fees) and low fixed costs
container security initiative (CSI)
identify/inspect in foreign ports all containers that pose a potential threat
customs-trade partnership against terrorism (CTPAT)
improve international supply chain and US border security through voluntary government-business cooperative relationships
pipeline competition
intermodal competition (railroads and water carriers)
competition in airlines
intramodal, intense competition among air carriers service competition: primary focus is the frequency and timing of flights on a route
specialty services- pool distribution
large quantity of freight moved as 1 shipment in bulk to central distribution point, freight unloaded/sorted by customer, delivered to local destination, competes with LTL adv: faster transit time, less handling, lower rates, lower inventory costs
constraints of airlines
limited accessibility, reduced frequency of flights, high rates/cost, airport congestion
constraints of pipelines
limited responsiveness due to slow speed, limited geographic accessibility, limited products that can be transported
reasons NOT to use 3PL
logistics is a core competency of company, lack of cost control/reduction, company has more expertise than 3PL, service level commitments wouldn't be realized, logistics is too important to consider outsourcing, global capacities for 3PLs need improvement, security issues
strengths of water carriers
low cost for large volumes over long distances, large carrying capacities, fuel efficient
strengths of pipelines
low rates, low damage rates, warehousing function, very dependable
intermediary services- freight brokers
middlemen between shipper and motor carrier, normally represents the carrier, charges shipper and takes broker fee, not considered a carrier
reasons for declining share in water carrier
more emphasis on faster modes (most taken by railroads)
risk transfer
most common form is insurance and 3PL providers
desirable characteristics of RM strategies
must focus on high priority risks, consistent with corporate strategies, cost-/time-effective, should produce an action plan for mitigating high priority risks, and use standardized process
pipeline pricing
no backhaul in this mode (only mode this isn't an issue), tender means "shipment"
intermediary services- Shippers Association
non-profit organization that arranges transportation for all of the members
step 3: risk management strategies
objectives: create strategies for cost effective mitigation of risks, identify special efforts/actions/procedures needed to reduce frequency/impact of high priority risks *risk is rarely totally eliminated
step 2: risk assessment
objectives: evaluate identified risks, develop priorities for directing risk management and contingency planning resources key dimensions: probability, impact
commodities hauled by pipelines
oil products, natural gas, coal (slurry- coal crumbled in water), chemicals
forwarder based 3PL
originated from intermediaries such as freight forwarders, brokers, and agents that involves arrange transport-related services for LTL/international shipments, considerable mergers and acquisitions
asset based 3PL
owns assets/labor forces needed to run transport and logistics activities adv: readily available capacity, permanent employees, direct control of the customers freight disadv: potential for bias toward 3PL own internal resources in developing solutions for customers *customers would prefer to work with company who own warehouse
step 4: select partners
partner should be selected only after close consolidation of the credentials of the top candidate 3PLs is made (interact on intimate basis, achieve consensus, established understanding of expectations)
Where does most revenue come from in the airline carrier?
passengers (2/3 revenue, 68-70%)
step 1: perform strategic assessment
perform a logistics/SC audit (identifies current state, needs, and strategy alignment) info to be collected in audit includes: goals/objectives, requirements of customers/providers/supplier, analyze strategic movement, gap between current and desired performance
types of water carriers
private water carriers: few private carriers for domestic front, own the freight transported, own the vessels for-hire carriers: charge a fee for services, contract carriers
step 1: risk identification
purpose: identify potential disruptions techniques: brainstorming, individual interviews/surveys, historical data should seek input from broad personnel, list of potential disruptions
approaches for action plans (RM Strategies)
risk avoidance, risk reduction, risk transfer, risk retention
specialty services- drayage
short haul trucking, pickup/delivery of containers, typically contracted for by rail/ocean carriers
water carrier competition
significant intermodal competition (railroad and pipeline)
constraints of water carriers
slow speed, vulnerable to weather, limited accessibility, packaging requirements
risk reduction
strategies that reduce likelihood of risk/mitigate severity of financial loss general types: hedging (diversification), postponement, buffering (adding capacity)
step 4: risk review/monitoring
testing risk mitigation plans should be dynamic and validate cost-effectiveness of efforts to reduce risks 2 approaches: communicated/controlled tests, surprise tests actions should change/improve
risk
the chance of something going wrong, a hazard that has a possibility of incurring loss
impact
the consequences, in terms of time, cost, or service quality, if the risk does occur
probability
the likelihood of the risk occuring
business continuity planning (BCP)
the proactive processes/procedures an org puts in place to ensure that essential functions can continue during and after a disruption (advance planning to develop readiness, "fire drill" approach)
water carrier terminals/ports
typically not owned by the water carrier company, not an expense for the transportation company
step 3: evaluate alternatives
uses drivers/facilitates to identify the most appropriate type of 3PL relationship, transactional or "arms length" relationship (drivers not present, facilitating factors not present), structured/formal relationship (share common drivers, facilitating factors present), evaluation should include cross-functional perspectives