Supply Chain Management Chapter 14: Transportation in a Supply Chain

Major airlines in the United States that carry both passengers and cargo include American, Southwest, United, and Delta. Airlines have three cost components: Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 403). Pearson Education. Kindle Edition.

(1) a fixed cost of infrastructure and equipment, (2) cost of labor and fuel that is independent of the passengers or cargo on a flight but is fixed for a flight, and (3) a variable cost that depends on the passengers or cargo carried. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 403). Pearson Education. Kindle Edition.

Besides the shipper and the carrier, two other parties have a significant impact on transportation: Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 401). Pearson Education. Kindle Edition.

(1) the owners and operators of transportation infrastructure such as roads, ports, canals, and airports and (2) the bodies that set transportation policy worldwide. Actions by all four parties influence the effectiveness of transportation. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 401). Pearson Education. Kindle Edition.

Making Transportation Decisions in Practice Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 427). Pearson Education. Kindle Edition.

1. Align transportation strategy with competitive strategy. 2. Consider both in-house and outsourced transportation. 3. Use technology to improve transportation performance. 4. Design flexibility into the transportation network.

The Mumbai dabbawalas, however, have successfully run such a distribution system for more than a century—while charging customers about $7/month for this service, and including reverse logistics: all empty lunchboxes are delivered back home after lunch. Their distribution network uses several ideas discussed earlier, from milk runs to cross-docking. Besides their discipline and commitment, three factors facilitate the success of the dabbawala distribution network: Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 415). Pearson Education. Kindle Edition. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 415). Pearson Education. Kindle Edition.

1. Low uncertainty of demand 2. Temporal aggregation of demand 3. Use of transportation resources when they are underutilized Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 415). Pearson Education. Kindle Edition.

Three basic questions need to be considered when designing a transportation network between two stages of a supply chain: Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 409). Pearson Education. Kindle Edition.

1. Should transportation be direct or through an intermediate site? 2. Should the intermediate site stock product or only serve as a cross-docking location? 3. Should each delivery route supply a single destination or multiple destinations (milk run, discussed later)? Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 409). Pearson Education. Kindle Edition.

Inventory Aggregation

Firms can significantly reduce the safety inventory they require by physically aggregating inventories in one location Inventory aggregation decisions must account for inventory and transportation costs. Inventory aggregation decreases supply chain costs if the product has a high value-to-weight ratio, high demand uncertainty, low transportation cost, and customer orders are large. If a product has a low value-to-weight ratio, low demand uncertainty, large transportation cost, or small customer orders, inventory aggregation may increase supply chain costs. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 423). Pearson Education. Kindle Edition. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 419). Pearson Education. Kindle Edition.

Water

In global trade, water transport is the dominant mode for shipping all kinds of products. Cars, grain, apparel, and other products are shipped by sea. Water transport, by its nature, is limited to certain areas. Within the United States, water transport takes place via the inland waterway system (the Great Lakes and rivers) or coastal waters. Water transport is ideally suited for carrying large loads at low cost. Within the United States, water transport is used primarily for the movement of large bulk commodity shipments and is the cheapest mode for carrying such loads. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 405). Pearson Education. Kindle Edition. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 405). Pearson Education. Kindle Edition.

Rail Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 404). Pearson Education. Kindle Edition.

Labor and fuel together account for more than 60 percent of railroad expense. From an operational perspective, it is thus important for railroads to keep locomotives and crews well utilized. In 2002, rail carried about 3 percent of U.S. shipments by value, 10 percent by weight, and more than 30 percent of total ton-miles. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 404). Pearson Education. Kindle Edition. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 404). Pearson Education. Kindle Edition.

Pipeline

Pipeline is used primarily for the transport of crude petroleum, refined petroleum products, and natural gas. Pipeline operations are typically optimized at about 80 to 90 percent of pipeline capacity. Given the nature of the costs, pipelines are best suited when relatively stable and large flows are required. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 405). Pearson Education. Kindle Edition. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 405). Pearson Education. Kindle Edition.

Choice of Transportation Mode Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 416). Pearson Education. Kindle Edition.

Selecting a transportation mode is both a planning and an operational decision in a supply chain. When selecting a mode of transportation, managers must account for unit costs and cycle, safety, and in-transit inventory costs that result from using each mode. Modes with high transportation costs can be justified if they result in significantly lower inventory costs. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 419). Pearson Education. Kindle Edition. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 416). Pearson Education. Kindle Edition.

All Shipments via Intermediate Distribution Center with Storage Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 411). Pearson Education. Kindle Edition.

Under this option, product is shipped from suppliers to a central distribution center, where it is stored until needed by buyers when it is shipped to each buyer location, Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 411). Pearson Education. Kindle Edition.

All Shipments via Intermediate Transit Point with Cross-Docking Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 411). Pearson Education. Kindle Edition.

Under this option, suppliers send their shipments to an intermediate transit point (which could be a DC), where they are cross-docked and sent to buyer locations without storing them. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 411). Pearson Education. Kindle Edition.

Direct Shipment Network to Single Destination Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 409). Pearson Education. Kindle Edition.

With the direct shipment network to a single destination option, the buyer structures the transportation network so that all shipments come directly from each supplier to each buyer location, The major advantage of a direct shipment transportation network is the elimination of intermediate warehouses and its simplicity of operation and coordination. A direct shipment network to single destination is justified only if demand at buyer locations is large enough that optimal replenishment lot sizes are close to a truckload from each supplier to each location.

A milk run Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 410). Pearson Education. Kindle Edition.

a route on which a truck either delivers product from a single supplier to multiple retailers or goes from multiple suppliers to a single buyer location, In direct shipping with milk runs, a supplier delivers directly to multiple buyer locations on a truck or a truck picks up deliveries destined for the same buyer location from many suppliers. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 410). Pearson Education. Kindle Edition. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 410). Pearson Education. Kindle Edition.

LTL operations Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 404). Pearson Education. Kindle Edition.

are priced to encourage shipments in small lots, usually less than half a TL, as TL tends to be cheaper for larger shipments. LTL is suited for shipments that are too large to be mailed as small packages (typically more than 150 lbs.) but that constitute less than half a TL. LTL operators tend to run regional or national hub-and-spoke networks that allow consolidation of partial loads. LTL shipments take longer than TL shipments because of other loads that need to be picked up and dropped off. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 404). Pearson Education. Kindle Edition.

Package carriers Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 403). Pearson Education. Kindle Edition.

are transportation companies such as FedEx, UPS, and the U.S. Postal Service, which carry small packages ranging from letters to shipments weighing about 150 pounds. Package carriers use air, truck, and rail to transport time-critical smaller packages. Package carriers are expensive and cannot compete with LTL carriers on price for large shipments. The major service they offer shippers is rapid and reliable delivery. Thus, shippers use package carriers for small and time-sensitive shipments. Package carriers also provide other value-added services such as package tracking and, in some cases, processing and assembly of products. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 403). Pearson Education. Kindle Edition.

Supply chains also use responsive transportation to Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 401). Pearson Education. Kindle Edition.

centralize inventories and operate with fewer facilities. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 401). Pearson Education. Kindle Edition.

The effectiveness of any mode of transport is influenced by Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 402). Pearson Education. Kindle Edition.

equipment investments and operating decisions by the carrier and the available infrastructure and transportation policies. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 402). Pearson Education. Kindle Edition.

The role of transportation is even more significant in Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 401). Pearson Education. Kindle Edition.

global supply chains. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 401). Pearson Education. Kindle Edition.

TL Operations

have relatively low fixed costs, and owning a few trucks is often sufficient to enter the business. This industry is characterized by shipments of 10,000 pounds or more; more than 50,000 carriers offer TL services in the United States. The challenge in the TL business is that most markets have an imbalance of inbound and outbound flows. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 404). Pearson Education. Kindle Edition.

Tailored Network Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 413). Pearson Education. Kindle Edition.

is a suitable combination of previous options that reduces the cost and improves the responsiveness of the supply chain. Here, transportation uses a combination of cross-docking, milk runs, and TL and LTL carriers, along with package carriers in some cases. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 413). Pearson Education. Kindle Edition.

Shipping via DC Using Milk Runs Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 412). Pearson Education. Kindle Edition.

milk runs can be used from a DC if lot sizes to be delivered to each buyer location are small. Milk runs reduce outbound transportation costs by consolidating small shipments. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 412). Pearson Education. Kindle Edition.

Transportation refers to the Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 400). Pearson Education. Kindle Edition.

movement of product from one location to another as it makes its way from the beginning of a supply chain to the customer. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 400). Pearson Education. Kindle Edition.

Idle time Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 404). Pearson Education. Kindle Edition.

occurs when trains exchange cars for different destinations. It also occurs because of track congestion. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 404). Pearson Education. Kindle Edition.

The carrier is the Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 401). Pearson Education. Kindle Edition.

party that moves or transports the product. A carrier makes investment decisions regarding the transportation equipment (e.g., locomotives, trucks, airplanes) and, in some cases, infrastructure (rail), and then makes operating decisions to try to maximize the return from these assets. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 401). Pearson Education. Kindle Edition. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 401). Pearson Education. Kindle Edition.

The shipper is the Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 401). Pearson Education. Kindle Edition.

party that requires the movement of the product between two points in the supply chain. A shipper, in contrast, uses transportation to minimize the total cost (transportation, inventory, information, sourcing, and facility) while providing an appropriate level of responsiveness to the customer.

The trucking industry consists of two major segments Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 404). Pearson Education. Kindle Edition.

segments—truckload (TL) or less than truckload (LTL). Trucking is more expensive than rail but offers the advantage of door-to-door shipment and a shorter delivery time. It also has the advantage of requiring no transfer between pickup and delivery. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 404). Pearson Education. Kindle Edition.

Temporal aggregation Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 423). Pearson Education. Kindle Edition.

the process of combining orders across time. Temporal aggregation decreases a firm's responsiveness because of shipping delay, but also decreases transportation costs because of economies of scale that result from larger shipments. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 423). Pearson Education. Kindle Edition.

Tailored Transportation

the use of different transportation networks and modes based on customer and product characteristics. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 425). Pearson Education. Kindle Edition.

Intermodal Transportation

the use of more than one mode of transport to move a shipment to its destination. A variety of intermodal combinations are possible, with the most common being truck/rail. Intermodal traffic has grown considerably with the increased use of containers for shipping and the rise of global trade. Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 405). Pearson Education. Kindle Edition.

Any supply chain's success is closely linked to the appropriate use of Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 401). Pearson Education. Kindle Edition.

transportation

Supply chains use a combination of the following modes of transportation: Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 402). Pearson Education. Kindle Edition.

• Air • Package carriers • Truck • Rail • Water • Pipeline • Intermodal Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 402). Pearson Education. Kindle Edition.

The trade-off between transportation and inventory costs is significant when designing a supply chain network. Two fundamental supply chain decisions involving this trade-off are Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 416). Pearson Education. Kindle Edition.

• Choice of transportation mode • Inventory aggregation Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 416). Pearson Education. Kindle Edition.

Managers must consider the following trade-offs when making transportation decisions: Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 416). Pearson Education. Kindle Edition.

• Transportation and inventory cost trade-off • Transportation cost and customer responsiveness trade-off Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 416). Pearson Education. Kindle Edition.

When using milk runs, a shipper incurs two types of costs: Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 426). Pearson Education. Kindle Edition.

• Transportation cost based on total route distance • Delivery cost based on number of deliveries Chopra, Sunil; Meindl, Peter. Supply Chain Management: Strategy, Planning, and Operation (Page 426). Pearson Education. Kindle Edition.