Supply Chain Ch. 9 Domestic US and Global Logistics

Transportation Regulation

The laws that protect consumers in areas of transportation monopoly, pricing, safety, and liability

Motor Carriers

-Most flexible -Offer door to door service, local pickup and delivery, and small as well as large shipment hauling -Low fixed and variable costs Disadvantages: -Weather and traffic problems Classifications: 1. Less-Than-Truckload Carriers (LTL): Move small packages or shipment that take up less than one truckload and the shipping fees are higher per hundred weight than TL fees 2. Truckload Carriers (TL): Have trailers dedicated to a single shipper's cargo Good Type Classifications: 1. General Freight Carriers: Carry the majority of goods shipped in the US and include common carriers 2. Specialized Carriers: Transport liquid petroleum, household goods, agricultural commodities, building materials, and other specialized items 3. Road Trains: Transport goods between geographically dispersed communities not served by rail

For-Hire Transportation Service Company Classifications

1. Common 2. Contract 3. Exempt 4. Private

Rate Categories

1. Line Haul Rates: The charges for moving goods to a nonlocal destination; further classified as class rates, exception rates, commodity rates, and miscellaneous rates 2. Class Rates: Published annually by the NMFTA. Based on an evaluation of four transportation characteristics: density, stowability, handling, liability. There are 18 classes numbered 50-500--the higher the class rating, the higher the price 3. Exception Rates: Rates that are lower than the NMFC class rates for specific origin-destination locations or volumes and generally are established on an account-by-account basis 4. Commodity Rates: Apply to minimum quantities of products that are shipped between two specified locations 5. Miscellaneous Rates: Apply to contract rates that are negotiated between two parties and to shipments containing a variety of products

Objectives of Transportation

1. Maximize value by correctly communicating the firm's service needs to transportation providers 2. Services and prices are negotiated such that the transportation provider's delivery costs are covered while allowing them and acceptable profit contribution 3. Must ensured the desired services are performed effectively

Modes of Transportation

1. Motor (truck) 2. Rail 3. Air 4. Water 5. Pipelines

Differences Between Centralized and Decentralized Warehousing Systems

1. Safety Stock and Average System Inventory: As firms move toward fewer warehouses and a more centralized warehouse system, safety stocks and average inventory levels across the system are decreased 2. Responsiveness: As warehouse centralization increases delivery lead times increase and the firm isn't able to respond as quickly to changes in demand 3. Customer Service to the Warehouse: As centralization increases, customer service levels provided by the warehouses' suppliers are likely to increase, reducing the likelihood of stockouts for a given level of average system warehouse inventory 4. Transportation Cost: As centralization increases, outbound transportation costs increase. Inbound transportation costs decrease 5. Warehouses System Capital and Operating Costs: As centralization increases, warehouse capital and operating costs decrease

Water Carriers

A carrier using ships for transportation -Inexpensive but also very slow and inflexible Types: -Inland waterway:Hauls heavy, bulky, low value materials such as coal, grain, and sand and competes primarily with rail and pipeline carriers -Lake -Coastal and intercoastal ocean -Global deep-sea Deep-Sea Transportation: Ocean-going shipping vessels, primarily carrying containers -Has made water transportation cheaper and more desirable, even with the slow transportation times

Crossdocking

A continuous replenishment logistics process at a distribution center where incoming goods are sorted and/or consolidated and then shipped out to their final destinations without the need to store the goods. Crossdocking generally takes place within 24 hours, sometimes less than an hour, after shipment arrivals and is used to replenish high demand inventories

Transportation Worker Identification Credential

A transportation security initiative for transportation workers mandated by the Maritime Transportation Security Act of 2002 and the Safe Port Act of 2006

Distribution Center

A warehouse that performs break-bulk activities and then forms outbound specific product assortments that are then shipped to the customer

Rail Carriers

Compete most favorably when the distance is long and the shipments are heavy or bulky -Slow and inflexible -Less expensive than air and motor carriers and can compete fairly well on long hauls -Offer point-to-point pickup Trailer-on-flatcar service: Railroads that offer flatcars used to carry truck trailers Real-Time Location Systems: Use active, wifi enabled frequency identification tags to allow tracking of rail cars and their assets in real time High-Speed Trains: Passenger trains that typically average 70 miles per hour or greater

Time Utility

Created when customers get products delivered at precisely the right time, not earlier and not later

Place Utility

Created when customers get things delivered to their desired locations

Centralized Warehousing System

Fewer warehouses means outbound transportation costs will be higher which brings up risk pooling *The more centralized a warehousing system is, the lower the safety stock required*

Transportation Intermediaries

For-hire agencies that bring shippers and transportation providers together Examples: 1. Freight Forwarders: Consolidate large numbers of small shipments to fill entire truck trailers or rail cars to achieve truckload or carload transportation rates 2. Logistics Brokers: Bring shippers and carriers together. Handle cargo claims, obtain specialized equipment, use dependable carriers, and track deliveries in real time 3. Shippers' Associations: Non-profit membership cooperatives which make domestic and international arrangements for the movement of members' cargo. Consolidate their members' shipments into full carloads, etc. to achieve volume discounts and to negotiate improved terms of service 4. Intermodal Marketing Companies: Companies that act as intermediaries between intermodal railroad companies and shippers

Air Carriers

For-hire airlines -Very expensive and very fast mode of transportation for long distances -Carries small amounts of freight since airlines cannot carry heavy or bulky cargo -Best for light, high-value goods that need to travel long distances -Limited in terms of geographic coverage

Exempt Carriers

For-hire carriers that are exempt from regulation of services and rates. Classified as exempt if they carry certain exempt products like produce, livestock, coal, garbage, or newspapers. -Ex: School buses, taxis, and ambulances

Third Party Logistics Services

For-hire outside agents that provide transportation and other services including warehousing, document preparation, customs clearance, packaging, labeling, and freight bill auditing

Public Warehouses

For-profit organizations that contract or lease a wide range of light manufacturing, warehousing, and distribution services to other companies Services: -Breakbulk: Large quantity shipments are broken down so that items can be combined into specific customer orders and then shipped out -Repackaging: After breakbulk, items are repackaged for specific customer orders. Warehouses can also do individual product packaging and labeling -Assembly: Some public warehouses provide final assembly operations to satisfy customer requests and to creare customized final products -Quality inspections: Warehouse personnel can perform incoming and outgoing quality inspections -Material handling, equipment maintenance, and documentation services -Short and long-term storage -Short term flexibility and investment cost savings -Lack of control provided to the goods owners -Lack of communication with warehouse personnel -lack of specialized services or capacity at desired locations -Lack of care and security

Terms of Sale

Free-On-Board Destination Pricing (FOB): When products are purchased from a supplier, it may quote a price that includes transportation to the buyer's destination -Best for high-value shipments, small shipments, or when the buyer has little transportation expertise FOB Origin Pricing: A price quotation in which the buyer may decide to purchase goods and provide the transportation to the shipping destination; in this case, the supplier quotes are lower

Market Positioned Strategy

Locates warehouses close to customers to maximize customer service levels -Recommended when there are high levels of distribution flexibility and customer service

Product Positioned Strategy

Locates warehouses close to the sources of supply to enable the firm to collect various goods while minimizing inbound transportation costs. -Works well when there are large numbers of goods purchased from many sources of supply and assortments of goods ordered by customers

Contract Carriers

Might also be common carriers however they are not bound to serve the general public. They serve specific customers under contract agreements Ex: Delta carrying sports teams

Private Carriers

Not subject to economic regulation and typically transports goods for the company owning the carrier -Flexibility and control

Decentralized Warehousing System

Number of warehouses used increases -Responsiveness and delivery service levels will increase since goods can be delivered more quickly to customers -Warehousing system operations and inventory costs will also increase -Trade-off between cost and customer service

Common Carriers

Offer transportation services to all shippers at published rates between designated locations -Must offer their transportation services to the general public without discriminating -The most heavily regulated of all carrier classifications -Ex: Southwest Air, Amtrak, Greyhound, Carnival Cruise Lines

Pipeline Carriers

One of the five modes of transportation; carries oil, natural gas, coal slurry, and other liquids/gases -Very inexpensive

Lead Logistics Provider or Fourth Party Logistics Provider

Outside agents that manage all of a firm's 3Pl's

Intermediately Positioned Strategy

Places warehouses midway between the sources of supply and the customers. -Recommended when distribution service requirements are relatively high and customers order product assortments purchased from many suppliers

Airline Security

Protection that is provided for airlines against terrorist attacks and other illegal activities

Transportation Security

Protection that is provided to transportation companies against unlawful activities such as terrorism

Green Logistics Reverse Program

Reducing the environmental impact of certain modes of transportation used for returns, reducing the amount of disposed packaging and product materials by redesigning products and processes, and making use of reusable totes and pallets

Warehouse Management Systems

Software applications facilitating the proper storage and movement of inventory and minor malfunctioning such as assembly or labeling activities within the warehouse, and movement of shipments onto the transportation carrier

Transportation Management Systems

Software applications that allow firms to find carriers, select the best mix of transportation services and pricing to determine the best use of containers or truck trailers, better manage transportation contracts, rank transportation options, clear customs, track fuel usage and product movements, and track carrier performance

Global Trade Management

Software that enables shippers and carriers to submit the correct import/export documents as goods are moved between countries

Square Root Rule

Suggest that the system average inventory is equal to the original system inventory times the ratio of the square root of the new number of warehouses to the square root of the original number of warehouses

Reverse Logistics

The backward flow of goods from customers in the supply chain occurring when goods are returned, either by the end-product consumer or by a business customer within the supply chain

Transportation Deregulation

The laws that seek to reduce government regulation in the transportation industry, allowing market forces to dictate services offered

Logistic

The process of planning, implementing, and controlling procedures for the efficient and effective transportation and storage of goods including services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements

Risk Pooling

The relationship between the number of warehouses, inventory and customer service

Intermodal Transportation

The use of combinations of the various transportation modes -Can make the movement of goods cheaper, quicker, and more secure Combinations: -Trailer-On-Flatcar (TOFC): Railroads that offer flatcars used to carry truck trailers -Container-On-Flatcar (COFC): Standardized shipping containers are transported via rail flatcar, and they can also be placed on a truck chassis or on an ocean going container ship -Roll-On-Roll-Off (RORO): Allow truck trailers and containers to be directly driven on and off the ship, without the use of cranes

Transportation Prices

Two basic pricing strategies: 1. Cost-of-service pricing: Used when carriers desire to establish prices that vary based on their fixed and variable costs. Represents the base or lowest price for carriers 2. Value-of-service pricing: Allows carriers to price their services at competitive levels the market will bear. This is a profit maximizing approach When the shipments are large enough, carriers and shippers enter into: 1. Negotiated Pricing: Transportation pricing that is agreed upon by both parties.

Private Warehouses

Warehouses that are privately own and used by an organization -Provides lower costs and more control for firms with large volumes of goods to store or transfer

Consolidation Warehouses

Warehouses that collect large numbers of LTL shipments from nearby regional sources of supply, then deliver in TL or CL quantities to a manufacturer

Lean Warehousing

When warehousing, cross-docking, packaging and freight consolidation is offered to companies who are looking to increase speed and reduce costs as much as possible Examples of lean capabilities: 1. Greater emphasis on cross-docking 2. Reduced lot sizes and shipping quantities 3. A commitment to customers and service quality 4. Increased automation 5. Increased assembly operations 6. A tendency to be green