Chapter 9

Transportation Pricing

- Cost of Service Pricing - Value of Service Pricing - Combination Pricing - Net-Rate Pricing

Transportation Company Classifications

-Contract Carriers -Private Carriers -Common Carriers -Exempt Carriers

Primary Functions of a Warehouse

1. Receiving 2. Storage 3. Picking 4. Packing 5. Shipping

Modes of Transportation - Pipeline

2% of total US freight spend Most reliable form of transportation Lowest per unit cost for transportation

Modes of Transportation - Air

5% of total US freight spend Generally the fastest mode of transportation. Most expensive mode of transportation

Transportation cost savings

8 FTL Shipments are less expensive per unit than 16 LTL Shipments.

Modes of Transportation - Rail

9% of total US freight spend. -cheap, slow, long distance -product type: low-med value, med-high density

Cross Docking

A LEAN concept because it eliminates the need to store inventory, and reduces some transportation, which are both wastes

public warehouses

A business that provides storage and related warehouse functions to companies on a short or long-term basis, generally on a month-to-month basis for a fee. -Own their own equipment and hire their own staff to manage the facility. -Fees are typically a combination of a monthly storage fee plus a pallet-in/ pallet-out fee.

private warehouses

A storage facility that is owned by the company that owns the goods being stored in the facility. Generally established by companies that have a large volume or highly valuable goods, or the need for some type of specialized storage or handling.

General Freight Carriers

A trucking company which handles a wide variety of commodities in standard trailers. Freight is generally palletized.

Specialized Carriers

A trucking company which handles the movement of cargo that requires specialized equipment for transportation because of the shipment's size, weight and shape

Contract Warehouse

A variation of public warehousing that handles the shipping, receiving, and storage of goods on a contract basis for a fee. -The contract can be for an entire building, or for a defined portion within a building. -Usually requires a client to commit to services for years.

Modes of Transportation - Water

Accounts for approximately 5% of total US freight spend -cheapest, slowest, long distance -product type: low value, high density

Public Warehouse Adv/Disadv

Advantage: -Lower costs and reduced risk -Access to special features and services -No capital investment or property taxes -Flexibility Disadvantage: -Potential for incompatible computer systems -Specialized services may not be what is required/needed -Space may not be available when/where needed

Private Warehouse adv/ disadv

Advantages: -Control: Offers greater flexibility in designing the warehouse and gives users significant control over operations. -Visibility: inventory, material flow, handling, supervision, and associated costs. -Cost: Operating cost can be 15% - 25% lower if the company achieves at least 75% utilization. Disadvantages: -High Start-up Cost: Capital to build or buy a warehouse. Long, risky investment. Cost of hiring and training employees. Purchase of material handling equipment. -Fixed Location: Not easy to move to another location if the market changes. -Fixed Size and Costs: When volume is low, the company still assumes the fixed costs.

3PL Adv/Disadv

Advantages: Cost: Eliminates the need for a company to invest in warehouse space, technology, and staff to execute the logistics process. Logistics Expertise: Knowledgeable of industry best practices and the latest developments in technology. Efficiency: 3PL's can leverage relationships and volume discounts, which result in lower overhead and the fastest possible service. Disadvantages: Control: A company will not have direct control over the logistics operation. Dependency: Outsourcing logistics creates a dependency on the 3PL. Pricing: The company is locked into the pricing model specified in the contract

Contract Warehouse Adv/Disadv

Advantages: Services: client can obtain specialized services tailor-made to suit their needs. Cost: can be bundled in the contract and negotiated at a lower cost. Control: contract warehousing offers a degree of control at a reasonable price Disadvantages: Duration: The client company is expected to enter into a contract for a specific period of time; generally three years.

Inventory Efficiency

As there is no storage at the warehouses, total inventory in the supply chain can be reduced.

Transportation Broker

Bring shippers and carriers together

Free on Board (F.O.B) Origin

Buyer is responsible for all costs until item is received

Green Reverse Logistics Programs

Can have a positive impact on the environment though activities such as recycling, reusing materials and products, or refurbishing unused products.

Market Positioned Strategy

Close to customers to maximize distribution services and improve delivery

Product Positioned Strategy

Close to supply source to collect goods and consolidate before shipping products out to customers.

Freight Forwarder

Consolidates LTL shipments into FTL shipments.

Net-Rate Pricing

Established discounts and accessorial charges are rolled into one all-inclusive price. Pricing is tailored to the individual customer's needs

Interstate Commerce Act of 1887

Established the ICC (Interstate Commerce Commission) - monitors the business operation of carriers transporting goods and people between states - created to regulate railroad prices

Warehouse

Facility used to store purchases, work-in-process (WIP), and finished goods inventory

Warehousing

Function that allows a company to receive, store, breakdown, repackage, and distribute items to a manufacturing location, or finished products to a customer

Intermodal Transportation

Intermodal is sometimes referred to as the sixth mode of transportation, but it is really the use of multiple modes of transportation execute a single transport shipment.

Warehouse Network Strategy Types

Market Positioned Strategy Product Positioned Strategy Intermediately Positioned Strategy

Intermediately Positioned Strategy

Midway between supply source and customers, when distribution requirements are high and product comes from various locations

Outbound Logistics

Move finished goods to the customer

Material Handling

Move goods and materials between sites

Inbound Logistics

Move goods and materials from suppliers to buyers

Shippers' Association

Nonprofit cooperatives which arrange for members' shipping

hub-and-spoke approach

One hybrid network where there is a centralized warehouse which holds most of the inventory linked to a series of smaller geographically dispersed warehouses which hold only a small amount of inventory to support their local area in the immediate time frame

shipping

Outgoing shipment of parts, components, and products. Includes packaging, marking, weighing, and loading for shipment.

Exempt Carriers

Person or company specializing in services or transporting commodities exempt from regulation by the Interstate Commerce Act.

Common Carriers

Person or company who transports freight for a fee that can be hired by anyone to transport goods.

Contract Carriers

Person or company who transports freight under contract to one or a limited number of shippers.

Receiving

Physical receipt of material, identification, inspection for conformance with the purchase order (quantity and damage), put-away, and preparation of receiving reports

packing

Placing one or more items of an order into an appropriate container for safe shipping , and marking and labeling the container with customer shipping destination data, and other information that may be required.

Single Warehouse Advantages

Positives: Less complicated Operating costs and inventory will be lower No duplication of equipment, warehouse staff, and managers

Multiple Warehouses Advantages

Positives: Potentially faster delivery to customers from a decentralized network that is geographically dispersed throughout the market, assuming adequate inventory in each warehouse

Global Trade Management Systems (GTM)

Provides global visibility, standardization, and documentation to comply with international trade regulations.

Ownership Types:

Public Warehouses Contract Warehouses Private Warehouses

Intermodal Marketing Company

Purchase blocks of rail capacity and sell it to shippers

Five R's of Reverse Logistics

Returns Recalls Repairs Repackaging Recycling

Free on Board (F.O.B.) Destination

Seller has title until goods are received at destination

Cross-Docking Warehouse

The logistics practice of unloading materials from an incoming truck or railcar and loading these materials directly onto outbound trucks or railcars, with little or no storage in between to reduce inventory investment and storage space requirements.

Storage

The safe and secure retention of parts or products for future use or shipment.

Warehouse Management Systems (WMS)

Track and control the flow of goods from receiving dock to outbound shipment. New technologies, such as RFID tags, facilitate tracking.

Cross-Docking Warehouse Advantages

Transportation Cost Savings Operational Efficiency Inventory Efficiency

modes of transportation- Truck

Trucking is Moss flexible more of transportation Carries > 80% of U.S. Freight Short Haul = 0 - 200 miles Long Haul = over 200 miles

Transportation Management Systems (TMS)

Used to select the best mix of transportation services and pricing.

Break-Bulk Warehouse

Warehouse operation that divides full truckloads of items from a single source or manufacturer into smaller, more appropriate quantities for use or further distribution.

Assembly Operation

Warehouse operation that puts products together with other items/components before shipping them out to the final customer.

Consolidation Warehouse

Warehouse operation that receives products from different plants or suppliers stores them, and then combining them with similar shipments from other plants or suppliers for further distribution.

Operational Efficiency

Warehouse operations are more efficient as the material does not have to be stored at the warehouse, moving directly from receiving to shipping.

Picking

Withdrawing components from stock to make assemblies or finished goods, or to ship to a customer.

Fourth Party Logistics (4PL)

an interface between the client company and multiple logistics service providers

Third Party Logistics

an outsourced provider that manages all, or a significant part, of an organization's logistics requirements for a fee.

Types of Warehouses

consolidation, break-bulk, cross-docking

Quality Inspections

incoming and outgoing.

Reverse Logistics

involves the process of moving a product from the point of customer receipt back to the point of origin to recapture value or ensure proper disposal.

Value of Service Pricing

is a pricing strategy which sets prices based on the value perceived by the customer

cost of service pricing

is the setting of a price for a service based on the costs incurred in providing it.

Private Carriers

person or company that transports its own cargo as a part of a business that produces, uses, sells or buys the cargo that is being hauled.

Combination Pricing

price is set at a value between cost-of-service minimum and value-of-service maximum. Most carriers use some form of combination pricing. Common in highly volatile markets and changing competitive situations

ICC Termination Act of 1995

terminated the ICC and created the surface transportation board

Logistics

that part of supply chain management that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information, from the point of origin to point of consumption, in order to meet customer requirements

Warehouse Network

the number of, and the relationship between, the warehouses that a company has in their organizational structure.

Full-Truckload (FTL)

the transport of goods that fill up a full truck, or a partial load shipment occupying an entire truck. Advantages: Best way to transport large shipments. Ideal for high risk or delicate freight shipments. Considerably faster than LTL. Disadvantages: Costs more than LTL.

Less-Than-Truckload (LTL)

the transportation of relatively small freight, i.e., the freight does not require the entire space of a truck Advantages: Can be cost effective. There are more available carrier options. Ideal for small businesses. Disadvantages: Increased risk of theft/damage. Increased shipping times and delays