MGT 301 Supply Chain Exam 1 CH 2

brokers

intermediaries that coordinate transportation arrangements for shippers, consignees, and carriers

in-transit inventory

inventory captive in the transport system

released value rate

limits carrier liability in case of loss or damage

transport lane

movements between origin and destination points

diversion

occurs when the original shipment destination is changed after a product has been shipped

economy of distance

the cost per unit weight decreases as distance increases (tapering principle) the farther you go, the smaller per mile you're paying---adjusted rate NOT the farther you go, the cheaper the distance

economy of scale

the cost per unit weight decreases as the size of the shipment increases cost decreases because the fixed cost of the carrier is allocated over a larger weight of the shipment

TOFC

trailer on a flatcar Advantages --comes with wheels Disadvantages can't stack

mode

transportation method

detention

trucks use the word detention to cover similar delays-----in the case of motor carriers, the permitted time is specified in the tariff and is normally limited to a few hours

Chicago is the biggest hub

true

demurrage

used by railroads for holding a railcar beyond 48 hours before unloading the shipment

limited service rate

utilized when a shipper agrees to perform selected services typically performed by the carrier, such as trailer loading, in exchange for a discount

pipeline

Highest fixed cost (rights-of-way, construction, requirements for control stations, and pumping capacity). Lowest variable cost (no labor cost) operate on a 24 365 basis, limited only by commodity changeover and maintenance highest fixed cost---due to right-of-way for pipeline, construction and requirements for control stations, and pumping capacity lowest variable cost-----since pipelines are not labor intensive, the variable operating cost is extremely low once the pipeline has been constructed disadvantage: not flexible and are limited with respect to commodities that can be transported----can only transport gas, liquid, slurry

integrated logistics service providers

ISPs------under contract to perform transport services for specific shippers

air

Low fixed cost (aircraft and handling and cargo systems). High variable cost (fuel, labor, maintenance, etc.) least utilized advantage: speed disadvantage: expensive---limited by load size, weight lift capacity, and aircraft capability fixed cost is relatively low-----air is second to truck with respect to low fixed cost

truck

Low fixed cost (highways in place and provided by public support). Medium variable cost (fuel, maintenance, etc.) has the most amount of mileage available to it small fixed investment in terminal facilities and operate on publicly financed and maintained roads ---------variable cost per mile is high because a separate power unit and driver are required for each trailer or combination of tandem trailers trucking is labor intensive causing high wages to be a major concern reduced capacity reduction in driver supply compliance with the North America Free Trade Agreement (NAFTA)----can move freely from U.S to Canada but not to Mexico

Water

Medium fixed cost (ships and equipment). Low variable cost (capability to transport large amount of tonnage). oldest mode of transportation the percentage of river and canal ton-miles has increased, while the Great Lakes ton-miles have decreased. this reflects a shift from rail and highway to lower-cost water movements on river and coastal canals advantage: can transport extremely large shipments water transport ranks between rail and motor carrier in terms of fixed costs disadvantage: limited range of operation and slow speed

Railroads have the largest percentage of intercity freight ton-miles, but motor carriers have the largest revenue. How do you explain this relationship?

Motor carriers are able to generate larger revenues because they are able to do things trains cannot. Trains are able to carry larger loads at a smaller cost to the merchant, but they are not able to carry the product directly to the location of the purchaser. Trucks are faster and much more efficient than a train when it comes to shorter distances.

Freight of all kind (FAK) rates

a mixture of different products is transported under a negotiated rating rather than determine the classification and applicable freight rate of individual products, an average rating is applied for the total shipment

transportation decisions are influenced by six parties

1. shipper, sometimes referred to as the consignor 2. destination party (consignee) 3. carriers and agents (want to charge customers the highest freight possible while minimizing labor, fuel, and vehicle operating costs) 4. government (desires a stable and efficient transportation environment to support economic growth) 5. internet (carriers can share real-time information with customers and suppliers) 6. public (concerned with transportation accessibility, expense, and effectiveness)

under current law, motor carriers can drive how many hours in a row

14

the first widely recognized air package service was initiated by Federal Express (FedEx) in

1973

Motor Carriers: HOS

Current Rule 10 hours off duty 14 consecutive hours on duty 11 driving hours 34 hour restart (60 hours on / 7 days) (70 hours on / 8 days)

Seven economic drivers that influence transportation cost were presented. Select a specific product and discuss how each factor impacts determination of freight rate.

Distance, weight, density, stowability, handling, liability, and the market COME BACK AND ANSWER

The five basic modes of transportation have been available for well over 50 years. Is this the way is will always be, or can you identify a sixth mode that may become economically feasible in the foreseeable future?

Drones?

Compare and contrast the transportation principles of economy of scale and economy of distance. Illustrate how they combine to create efficient transportation.

Economy of scale: means that the cost per unit of weight decreases as the size of the shipment increases. Therefore, truckload (TL) shipments that utilize the total vehicle capacity have a lower cost per pound than less then truckload (LTL) shipments. The economies of scale exists because the fixed costs associated with moving the load is distributed over the increased weight. Economy of distance: refers to a decrease in the transportation cost per unit of weight as the distance increases. Therefore, a shipment for 800 miles will cost less to move than two shipments of the same weight each moving 400 miles. This principle is also called the tapering principle. Longer distances allow fixed costs to be spread over more miles resulting in lower per mile charges.

Fastest and Slowest for each

Speed Fastest: Air Speed Slowest: Pipeline Availability best: Truck Availability worst: Pipeline Dependability best: Pipeline Dependability worst: Air Capability best: Water Capability worst: Pipeline Frequency best: Pipeline Frequency worst: Water

Modal characteristics

Speed: elapsed movement time Availability: ability of a mode to service any given pair of locations Dependability: potential variance from expected or published delivery schedules Capability: handle any transport requirement, such as load size Frequency: quantity of scheduled movements

surcharge

an additional charge designated to cover specific carrier costs

minimum charge

applies to all shipments regardless of shipment size or distance -----created the opportunity for companies offering specialized service to enter the small-shipment or package-service market

common costs

carrier costs that are incurred on behalf of all or selected shippers

reconsignment

change in consignee prior to delivery diversion and reconsignment can be incredibly important particularly with regard to food and perishable products where market demand can quickly change

piggyback service

combines the flexibility of truck for short distances with the low line-haul cost associated with rail for longer distances

intermodal

combines two or more modes to take advantage of the inherent economies of each and thus provide an integrated service at lower total cost

shipper associations

consolidate small shipments into large shipments to gain cost economies

COFC

container on a flatcar: Advantages===can stack Disadvantages: sits there, can't move on its own once delivered

split delivery

desired when portions of a shipment need to be delivered to multiple destinations

impact of building bigger boats

disadvantage: no port in U.S that can receive the boat liability from greater amount of product being shipped in-transit inventory costs go up ----able to push out smaller companies and it creates less competition

7 Cost Drivers

distance---the farther you go, the more expensive---charge more for heavier weight: cost per pound decreases as weight increases until the carrier vehicle is full density: volume --cost per unit of weight declines as product density increases stowability: easier to pack/stow ---has facilitated the container to grow (intermodal) handling: special equipment may be needed to load and unload trucks liability: some packages are more valuable than others market----competition level, location of markets, nature and extent of gov regulation

classification

each product is assigned an item number for listing purposes and then given a classification rating ----the higher a class rating, the higher the transportation cost for the product

freight forwarders

for profit businesses that consolidate small shipments from various customers into a bulk shipment and then utilize a common surface or air carrier for transport

Rail

high fixed cost in equipment, terminals, tracks, etc. Low variable cost. high fixed costs because of expensive equipment, right-of-way and tracks, switching yards, and terminals low variable operating costs

transit services

permit a shipment to be shopped at an intermediate point between initial origin and destination for unloading, storage, and/or processing

five basic transportation modes

rail truck water pipeline air

environmental services

refer to special control of freight while in transit, such as refrigeration, ventilation, and heating

special equipment charges

refer to the use of equipment that the carrier has purchased for a shipper's convenience for ex: special sanitation equipment is necessary to clean and prepare trailers for food storage and transit if the truck has previously been used for non-food commodities

rating

refers to a product's transportation characteristics in comparison to other commodities

Cost drivers

regulatory drivers economic drivers carrier pricing strategy rates and rating

exception rates

special rates published to provide prices lower than the prevailing class rates

aggregate tender rate

utilized when a shipper agrees to provide multiple shipments to a carrier in exchange for a discount or exception from the prevailing class rate the primary objective is to reduce carrier cost by permitting multiple shipment pickup during one stop at a shipper's facility or to reduce the rate for the shipper because of the carrier's reduced cost

local rate

when a commodity moves under the tarriff of a single carrier

commodity rate

when a large quantitiy of a product moves between two locations on a regular basis

joint rate

when multiple carriers are involved in the actual transportation process

shipper load and count rate

where the shipper takes responsibility for loading and counting the cases