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