BMGT370 Exam 1
Yield Management Pricing
price to availability of capacity and consumers willingness to pay - want to maximize load factor
relationship between value of service pricing and elasticity of demand
the higher value the service, the more inelastic the demand
7. List several examples of "technology game changers."
More Effective and digital warehouses Industrial Robotics 3D Printing
Operating Ratio
(operating expenses/operating revenue) x 100 - LTL Motors: 93-96 - TL Motors: high 80's to low 90's
cost of PTC
$8 billion of freight railroads own funds - expected to be $10 billion - doesn't include 100$ mil a year in maintenance costs
technology impact of safety
- # of deaths has remained relatively stable with increasing demand for transportation - Enhanced Safety features - Electronic logging devices - Fatigue reduction research
Economic Significance of Motor Carriers
- 10.5 Billion tons transported by motor carriers in 2015 - 70% of total US freight tonnage in 2015 - 7.3 million people employed in the motor industry - On average, 82 cents of every dollar spent on transportation goes to trucking industry
Development of railroads in US
- 1850's - WW2 - dominant mode, big for the US development - 1920's: Domination wanes - funding for air, water and roads begins - Present: improved price and service competitiveness after economic deregulation
Highway trust fund
- 1956 to provide a more dependable source of funding from federal government for the construction of the interstate highway system - Sub Funds: highway account and mass transit account - Highway Account- construction and maintenance of highways and bridges - Mass Transit Account- make capital expenditures for buses, rail, subways, etc. - taxes on tires and heavy vehicles makes up the rest of the 10-15% of the HTF
28. List the quality standards and key characteristics of information.
- Accuracy - Accessibility - Relevancy - Timeliness- up to date info and delivered within reasonable time - Transferability- can be shared between locations and systems in network- digital - Usability- only useful if it can drive key decision making - Reliability- from trustworthy internal and external sources - Value
Service (for hire)
- All Cargo - mostly cargo - ex. fedex - commuter air carrier - basically regional - Charter - taxis = transfer people and freight
Social aspects of transportation
- Average household expenditure on transportation is 17% - Health and welfare - Education delivery system - Social Interaction - Lifestyle
Pricing considerations
- Corporate objectives - Competitive Strategy - Stage of product or service life cycle - Markets (carrier with multiple markets)
Nature of transportation demand
- Demand is derived: there is a demand for goods which causes a demand for transportation
How have small railroads fared in dealing with PTC?
- Disproportionately burdened by requirements - May not have sufficient funds - May require government subsidies, rate increases or both
3. What is the economic basis and logic for interregional and global trade?
- Economies of scale. Countries can focus on their absolute advantage and comparative advantage - Trade is a win-win - reducing trade barriers are good because of adam smith
What is Next Gen technology in the airline industry?
- FAA modernization efforts in new interconnected systems that change and improve how National Airspace System users see, navigate and communicate - Pilots and air traffic controllers gain better information and tools that help passengers and cargo arrive at their destinations more quickly, consuming less fuel and produce fewer emissions - getting rid of ground based technology
Constraints in Rail
- Fixed right of ways impede door to door service - Prone to delays in delivery
Strengths in Rail
- Large carrying capacity - Capable of handling almost any type of cargo - Railroads assume liability for loss and damage
Proper level of optimality in business logistics
- Lowest long run average cost (bottom of economies of scale curve) - Taking advantage of tradeoff in proper way
For Revenue
- Major - major airlines that fly all around the world - National: fly in between big cities and less populated destinations - Regional: for specific area, (connect less popular to more populated area)
Pure/Perfect Competition
- Market price and price taker - Large number of sellers - Homogeneous product or service When many businesses sell the same product and there is a plentiful supply of that good or service
Main commodities transported by rail
- Mixed Shipments - Coal- railroads primarily - Chemical and Allied Products- specially designed tank cars - Farm Products- growth in domestic markets and increase in exports - Motor Vehicle and Equipment- different because not low value high volume - Food and kindred products - Nonmetallic Materials
Real Purchasing Power of HTF
- Not pegged to inflation, not been raised since 1993. Potential revenue eroded over time. - Nominal value today of gas tax is much higher than where it is
Interoperable
- Passenger, commuter and freight trains must be able to seamlessly communicate and operate across all railroad systems. - Breakdown in interoperability presents unacceptable risks to the safety and efficiency of Americas rail network
Characteristics of Companies that use Yield Management Pricing
- Perishable inventory - Relatively fixed capacity - High fixed costs, low variable costs - Advance reservations - Time variable demand - Appropriate cost and pricing structure - Segmentable markets Exs. Airline, hotel, car rental, cruise line, railroad, TV broadcast/telecommunications, restaurants
Breakbulk Operations of Trucking
- Pickup terminal - LTL shows up and gets the shipments - break bulk terminal: packages are collected and sorted for final delivery - then go to line haul - to another break bulk facility - delivery terminals: taken to delivery terminals
Environmental aspects of transportation
- Pollution: Air, noise, water - Sustainability - Safety: Injury, loss of life, etc. - Energy: Fossil Fuels
technology impact on sustainability
- Protection of marine environment - Noise pollution being controlled by DOT - Technology can help make tractors and trailers more aerodynamic - Upgrade fleet with technologically advanced engines - Renewable energy
Private Transportation
- Provide a service to the industry or company that that owns or leases the vehicles - Do not charge a fee, but service provider incurs costs - Transport commodities for hire as exempt for hire carriers - Reduces empty backhaul miles Advantages: control Disadvantages: ore competency (getting into an area where you may not have competency)
Nature of Pricing in Trucking
- Right of way determines whether or not a cost is fixed or variable Low fixed costs - due to public investments High variable costs (70-90%): Labor (40%), fuel (25%), maintenance, highway user fees
Political aspects of transportation
- Transportation spend is 9% of US GDP - National unity/defense - Humanitarian Aid - Government intervention- governance, system maintenance and development
Emerging transportation technologies
- automation: self driving trucks, truck platooning - Blockchain for freight: digital, decentralized record of all transactions that take place in a network
Economies of Density in Airlines
- carrier has significant volume between an origin destination pair to fully utilize capacity on forward haul movements as well as utilize significant capacity on backhaul movements Southwest- when deciding which market to enter, choosing the city pair that offer high volume of potential passengers to fill outbound aircraft - 7/25 top passenger markets in US
How PTC works
- computer system receives and tracks data - conductor given advanced warning of movement, authority limits, speed limits, track conditions ahead, given the engineer time to react and bring train to safe speed or controlled stop - if corrective action is not taken, ptc will automatically apply breaks
extended enterprise
- crosses the boundaries of the individual firm to span their related activities involved in the supply chain. - Two way flows a group of loosely connected companies that work together to maximize the value of their economic outputs
Why is PTC so complex
- data - hardware and software failure - integration of thousands of telecommunication components
Inherent Advantage
- different modes of transportation have different advantages due to the methods of transport and its features - what makes it better - ex. airlines= inherent advantage is speed - ex. railroads= very efficient compared to other modes - moving large volumes of freight in long distances
Rationale for Rail Line Abandonments
- early over expansion - increased competition between modes and railroad bankruptcies caused track abandonment - most involve duplicate tracks - alternative uses for land - rails to trails, and rail banking program
What is the significance of the import and export flows of merchandise?
- efficient transportation is imperative for global trade and has a unique element which is derived demand - the more trade that is occurring, the more capacity in transportation is required → more demand would be created where there are greater flows - we don't measure the demand for transportation directly - Shows the economic standing for each company and shows a growth in global commerce and the importance of logistics and a global supply chain - lowest price WTP= short run marginal cost
trends in labor costs after deregulation
- elimination of cabooses - modifying/elimination roles for workers
Economic Impacts of Passenger Transportation
- growth of suburban area - increased land and property value - tourism
strengths of airline industry
- high terminal to terminal speed - reliability (low transit time variations) - low rates of damages - ideal for high value and volume shipments
User Fees In Airline Industry
- landing fees - rent and lease payments for space - taxes on fuel - aircraft registration taxes
constraints in airline industry
- limited accessibility - reduced frequency of flights - congestion and limited slot availability at hubs - added access and terminal time - significant cost under 800 miles
Rail Line Abandonments
- much easier for railroads to shed unprofitable lines - unit trains - fewer interchanges
factors contributing to HTF shortfalls
- rising construction costs and the growing needs of aging highway
Major Issues in trucking
- safety - technology - driver turnover - financial stability issues
Cost Structure of Rail Industry
- short run: large indirect fixed costs (railroads operate on tracks they own and maintain) Semi-variable costs: maintenance of right of ways Variable costs: labor = .24 cents for every dollar, and fuel
Issues In Rail
- substance abuse - energy - technology - smaller railroads: cost disadvantage, more flexible and adaptable, usually not unionized, financial assistance - local drayage - customer service
5. Discuss the relationship between technology and resource scarcity
- technology allows us to be efficient in our use of crops, water, food, and energy - this allows us to consume less while keeping utilization steady
Less Than Truck Load
- tender shipments lower than minimum quantity. 50-10,000 pounds - Must consolidate smaller shipments into truckload quantities for linehaul (intercity) movement - In contrast, TL can pick up truckload and deliver the same truckload at the destination
Economic Impacts of Efficient Transportation
- trade inside and in between countries - bridges the supply and demand gap - global development
utility and how its created through transportation
- utility = usefulness - we conclude that transportation is created by time and place utility Form utility: created by the manufacturer - also a marketing job - transportations job = maintain form utility
Elements of systems approach
1. Focus on total cost 2. Take advantage of trade-offs 3. Avoid sub-optimization - focusing on the big picture instead of smaller aspects
Advantages of trucking industry
1.Accessibility- deliver in urban area 2. Speed- almost always less time than other modes 3. Carrying capacity- since smaller (compared to barge/railcar), allows shipper to use TL rate, or volume discount, with lower volume. Good for inventory levels 4. Smooth transport 5. For hire is customer orientated
Quality of infrastructure in the US compared to world
10th
Heavy LTL
12000-25000 pounds (upper end of lower limit)
Airline history
1903- First flight by Wright brothers, sold to the federal government 1908- Development of air transportation began Today- airline is a common form of travel for long distance
10. Discuss the evolution of logistics over the past 40 years.
1960s: Physical Distribution Management- focus on system costs and trade offs among transportation, inventory levels, warehousing, packaging, materials handling and customer service 1980s: Integrated Logistics- coordination between inbound and outbound. Analyze customer tradeoffs for the lowest total cost and the value of demand aspects of customer service effectiveness 1990s: Supply Chain Management- Extended Enterprise- focuses on a system of connected networks between the original vendor and the ultimate final customer
Four C's
Cost Competition Consumer Demand Controls
6. Explain the phrase, "technology acts as an internal change agent and an external driver of change."
External Change Agent- new forms of competition or new business models. Change or perish Internal Change Agent- enhanced efficiency, effectiveness and competitiveness of organization
Cargo Security
FBI task forces - improved employment practices like background checks, staff training, and validating driver credentials - technology initiatives: GPS tracking, IOT sensors, intelligence information sharing
Market structure of rail
Freight Rail: 547 Class I Rail: 7 Non-class I: 567
Fuel Management Strategies
Fuel Surcharge: pass increased price of fuel to customers, partially - off-peak delivery: shift delivery time for some customers from daytime to nighttime hours - less fuel use because of favorable traffic decisions = lower pollution - Engine Idling time: when truck terminal is not doing anything but getting loaded Optimal Load Speed: 55-60 mph Out of Route Miles: follow shortest routes - Network Truck Stops - Bulk Purchasing - Equipment Adjustments - Large Fuel Tanks - Prevent Fuel Leakage and theft - fuel optimizer software
9. Identify the micro level challenges of globalization.
Increased level of competition and complexity Shorter Product Life Cycles New Forms of Competition New Business Models
8. Identify the macro level of benefits of globalization.
Lower Prices Wider Availability of goods/Services Land and Resource Development New employment opportunities BRIC and VISTA
Key Measures In Airlines
Operating Ratio Load Factor
4. Identify the major factors contributing to global flows and trade.
Population Size and Age distribution Urbanization Land and Resources Technology Information Globalization
2. How do the trends in trade agreements and policies on import tariffs or other forms of trade restriction affect transportation?
Positive trade agreements, policies on import tariffs etc can improve transportation because countries are open to exporting and importing with one another.
Primary of Goals of PTC
Prevention: - Train to train collisions - Derailments caused by excessive train speed - Train movements through misaligned track switches - Unauthorized train entry into work zones - CANNOT prevent accidents at railroad crossings
Types of Air Carriers
Private: rarely routinely carries freight For-Hire: For revenue Service:
Flows in a Supply Chain
Product flow: suppliers and distributors (downstream) Information flow: bullwhip effect Financial flow: through wholesalers, retailers and customers - faster fin. flows leads to less capital requirements
Development of Motor Carriers In the US
Started around WW1 1950-1990: interstate highway was developed - steadily replaced roads
comparative advantage
Trade is beneficial even if one country has lower cost of production than another country in multiple products
PTC
advanced system designed to automatically stop a train before certain accidents occur
11. Describe the integrated supply chain concept.
all of the supply chain is constantly apart of the flows of information, financials and products
economies of distance
as distance increases, average cost per ton decreases
Cost of Service Pricing
basing prices on marginal cost or average cost
Most common mistake companies make when pricing
focus too much on cost - should consider demand, competition, government controls fail to react or capitalize on market changes
Pricing Before and After Deregulation
before: Carriers relied on tariffs as their price lists for their services - Little incentive for carriers to differentiate after: Differentiating tactics (service enhancements or pricing strategies) - Pricing decisions are driven by business environment - Customers (market) - Government - Other channel members - Competition
strategic decision making
big picture, overarching, long term
backhaul
bringing equipment and driver from point b back to point a - result from the original move
Differential Pricing
can be done through time or place differences
Aircraft Pricing for Passengers
characterized by discounts from full fare. - Seats on the same plane can have big diff in prices on ex. Staying over weekend or booking in advance - JetBlue, Southwest and Airtran aggressively discount their seats. Factors Competition Time and day of departure and return Level of service (first class)
Value service pricing
charging what the traffic will bear - high prices for expensive items and low prices for low valued commodities
Oligopoly
competition between few larger firms with relatively homogenous products price leadership/collusion
intramodal competition for airlines
competition is very intense - excess capacity on flights is frequency - overcapcity of carriers in market - existing carriers priced really low to kick them out -
Peddle run
daily driven route out of Pickup and Dropoff terminal for the purpose of collecting freight from inbound moves
Class I PTC status
deadline: July 1st, 2018 - 70% of required routemiles have PTC
Fronthaul pricing
demand that initiates the original movement of carriers equipment and shippers goods from point a to point b
Cargo Pricing for Airfare
dependent on weight and cubic dimensions Low density= 8 pounds/cubic foot
Owner Operators
entrepreneur drivers own their own cars, but work with laarger carrier contractors to get work - get higher rates from carriers
Cost Structure of Airline
fixed cost (20%) - low thanks to gov Variable costs (high - 80%) - fuel (15%) - labor (33%) - equipment (7%)
two perspectives of derived demand
freight: demand for one good or service in one sector occurring as a result of demand from another passenger: primarily consume the service not because of its direct benefits but because they wish to access other services
Primary costs in the trucking industries
fuel and labor
Sales based pricing
high price until competition enters - helps offset initial outlays for advertising/development, portrays high quality service
Company Driver
hired by specific carrier and the trucks they operate are owned by that company - driver paid only for labor
price elasticity of demand
how variable demand is, given a small change in price Elasticity= % change in demand/% change in price
Concerns and Issues with Nextgen
implementation, capital and communication
Survival based pricing
increase cash flow through low prices
Goals of Nextgen
increase safety improve efficiency capacity predictability resiliency
Intermodal airline competition
limited competition - w/ automobiles - high valued goods and people (some extent)
intermodal Rail Competition
major source of competition in the industry, particularly for motor carriers
Monopolistic Competition
many sellers, some product differentiation - prices vary with ability to differentiate product
tactical decision making
narrower, day to day, routine
Predominant market structure in transportation
oligopolies - except for TL trucks
Unit Train
one commodity trains: train that carrys one kind of item - Run on priority service schedules from Origin to Destination, no stops - Shippers own rail cars - Improved overall car utilization - Empty backhauls
Top cost categories for rail
operation, maintenance and ownership
Commuter Railroads status for PTC
over half of commuter railroads
Theory of Contestable Markets
pricing behavior influenced not only by actual competition, but by potential competition Factors: 1. barriers to entry cannot exist - when barriers to entry are high, contestability is low 2. mobility of capital - all markets are contestable, but there are some markets that are more contestable then others
For Hire Transportation
providing a service to the public, but charging a fee for the service
Average cost approach
rates are based on average or fully allocated costs
marginal cost approach
rates are based on the cost of producing one more unit
Intramodal Competition
reduced competition due to mergers, limited competition between railroads serving same geographical area
common for hire transport
required to serve general public on demand, at reasonable rates, and without discrimination
Main Issues in airline industry
safety security: homeland security, TSA, technology
third degree price discrimination
seller sets two or more different prices for different groups of customers with essentially the same service necessary conditions: 1. must be able to separate buyers 2. seller must be able to prevent the transfer of sales between the submarkets 3. seller must possess some degree of monopoly power
contract transportation
serve specific shippers with whom the carriers have a continuing contract Dedicated carriage over regular routes
profit maximization
skimming prices - high price to attract those after quality - use when concerned about ROI
Gov't spending on highways
state gov= 50% local gov= 30% Federal gov= 20%
Truck Load (TL)
tender sufficient volume to meet the minimum weights required for a truckload shipment. Or willing to pay for TL rate even though freight is LTL - monopolistic competittion
Gas Tax
the highway trustfund receives 85-90% of its revenue from the gas tax - excise tax on motor fuels - 18.4 cents/gallon - 24.4 cents/gallon diesal
Differentiated Rail Oligopoly
there are a small number of very large railroads - few markets
Stem Time
time that elapses from when the driver leaves the terminal until they make their first pickup and also the time it takes from the last delivery to return - driving time - not making revenue during this time because no shipments are handled
Transportation is measured by
ton miles and passenger miles - combo of volume and distance
Absolute Advantage
trade is beneficial if cost of production for the same product differs between countries
Trailer on Flatcar (TOFC)
transports highway trailers on railroad flatcars. combines line-haul efficiencies of rail with the flexibility of motor transport. on-time deliveries, regularly scheduled departures, and fuel efficiency major reasons for growth.
Container on Flat Car (COFC)
transports shipping containers on railroads. Land bridge operations key for this intermodal. Double stacking increases efficiency
Inherent advantages of trucking
trucks can go anywhere and provide complete service
unit volume pricing
utilize carriers existing capacity to the fullest by pricing to encourage market to fulfill that capacity
Market Share Pricing
when revenues are declining, use this pricing strategy to get share back from competitors
Peddle Time
when the driver is actively involved in drop-off and pickup of delivery freight
congestion rate compared to world
worst overall in the world