Session 10 Transportation - Managing the Flow of the Supply Chain
"Land Bridge" Concept
"Land bridge" concept may apply for international shipments where oceans are separated by a large land mass. For example, containers moving from Japan to Europe may dock at Long Beach, CA, transfer the containers to a railroad, and reload the containers onboard another ship in Norfolk, VA., continuing on to a European port. Today, containers supply the major portion of break-bulk overseas shipping. There are several advantages to containerized shipping: reduced loading times allow more efficient use of equipment; shorter transit times and reduced pilferage and damage; and, savings from using less packing materials and insurance. Containers have disadvantages: containers cannot be handled at every port, limiting the number of shipping routes available; difficulty in finding cargo for container backhaul; and, carriers at origin and destination are not always able to use the speed available in loading and unloading containers. Examples of the savings available from combining modes are: maritime bridges, use of double-stack trains, and, air/sea combinations to ship high-value-to-weight items from the Far East to Europe by way of the West Coast of the U.S. The container can be transferred from carrier to carrier and mode to mode. Less commodity handling reduces handling costs, damage costs, theft and pilferage, and the time to complete modal transfer. Less labor is required because the container is too large and heavy for manual movement. Containerization is important to international distribution by reducing the time and cost associated with shipment handling and storage at ports, and damage and theft. Today, containers supply the major portion of break-bulk overseas shipping. There are several advantages to containerized shipping: reduced loading times allow more efficient use of equipment; shorter transit times and reduced pilferage and damage; and savings from using less packing materials and insurance.
Transportation Planning and Strategy
-Functional Control of Transportation: Which department will be responsible for transportation?, Logistics, Procurement, Marketing -Terms of Sale -Decision to Outsource Transportation: (Firms choose between "make" or "buy") Commercial carriers "buy", Private fleets "make", External experts move the freight and/or manage the transportation process "buy", Third-party logistics (3PL) "buy"
Types of Water Carriers
-General cargo ships (Large high capacity cargo holds, Engaged on a contract basis, Many have self-contained cranes for loading/unloading) -Bulk carriers (Specially designed to haul minerals, Can handle multiple cargoes) -Tankers (Specially designed for liquid cargoes, Largest vessels afloat, some VLCCs at 500k+ tons) -Container ships (High speeds for ships; increasingly more common and important, Larger vessels can handle up to 5,000 containers.) -RO-RO (Roll on-Roll off) (Basically a large ferry that facilitates the loading and unloading process by using drive on/off ramps, May also have the capacity to haul containers) -Other (OBO(Ore-Bulk-Oil) multipurpose carriers, Barges (not transoceanic))
Introduction to Transportation
-Transportation involves the physical movement of goods between origin and destination points. -The transportation system links geographically separated partners and facilities in a company's supply. -Transportation facilitates the creation of time and place utility in the supply chain. -Transportation also has a major economic impact on the financial performance of businesses. (In 2010, more than $760 billion was spent on freight transportation in the United States, which is nearly 63 percent of all expenditures for logistics activities, far exceeding the amount of money spent on warehousing, inventory management, order processing, and other fulfillment system expenses. According to an 2011 study, logistics costs for the average company is 7.77 percent of sales. This value may be up to 15% depending on industry sector and company.)
Transportation Service Availability
-Transportation service availability is critical to demand fulfillment in the supply chain. -Transportation efficiency promotes the competitiveness of a supply chain. (=a network of organizations that are separated by distance and time with transportation allowing these organizations to extend the reach of their supply chains beyond local supplier capabilities and market demand. With efficient, effective transportation capabilities, organizations can build global supply chains that leverage low-cost sourcing opportunities, which allows them to compete in new markets.) *In terms of supply management, cost-effective transportation helps companies gain access to higher-quality, lower-priced materials and realize economies of scale in production. Likewise, low-cost transportation improves demand fulfillment opportunities.
The Transport Selection Decision: CARRIER SELECTION DETERMINANTS
1. Cost 2. Transit time and reliability( Can be a competitive advantage, Lowers customers' inventory costs) 3. Capability 4. Accessibility 5. Security The important carrier selection determinants are carrier costs and service performance. Transportation cost was the predominant carrier selection determinant, and includes the factors of; the rates, minimum weights, loading and unloading facilities, packaging and blocking, damage in transit, and special services available. Cost analysis is directed toward evaluating cost factors related to alternative modes, since these factors vary from mode to mode. The acceptance of the business logistics concept made transportation cost analysis less important; making logistics cost trade-offs between carrier services provided and nodal costs of operation, assume greater importance. The service performance determinants are transit time, reliability, capability, accessibility, and security. Transit time is the total time elapsed from when the consignor makes the goods available for transport, to when they are delivered by the carrier to the consignee. This includes the time for pickup and delivery, handling, and movement between origin and destination. Reliability refers to the consistency of the transit time provided by a carrier. Transit time and reliability affect the nodal costs of inventory and stockouts. Lower transit times and higher reliability lead to lower inventory levels and stockout costs. Lower and more reliable transit time is a source of competitive advantage. Capability and accessibility determine whether a carrier can physically perform desired services. Capability is a carrier's ability to provide the equipment and services for a movement. Accessibility is the ability of a carrier to provide service over a particular link. Security involves goods arriving in the same condition as when tendered to the carrier. Unsafe link service results in opportunity costs of forgone profits or productivity because the goods were not available for sale or use.
The Pragmatics (Practical Concerns) of Carrier Selection
1. Transit time reliability 2. Negotiated rates 3. Consolidating shipments among a few carriers 4. Financial stability 5. Sales rep 6. Special equipment The most important service criterion is transit time reliability. Of importance today, is the impact of reliable transit time and total transit time on inventory and stockout cost and customer service. Transportation deregulation allows more opportunity for users to negotiate rates and services with carriers. This has increased interest in the transportation rate factor. Fewer carriers are being used by shippers. This enables the shipper to become more important to the carrier and increase negotiating power. Three factors influence rate negotiation strategy: transportation rates, the carrier's willingness to negotiate, and the carrier's financial stability. Of increasing importance is sales rep's knowledge, and special equipment availability.
Intermodal Transportation: CONTAINERIZATION
A container is a large rectangular box into which commodities are placed for shipment, and not handled again until unpacked from the container at final destination. The container can be transferred from carrier to carrier and mode to mode. Less commodity handling reduces handling costs, damage costs, theft and pilferage, and the time to complete modal transfer. Less labor is required because the container is too large and heavy for manual movement. Containerization is important to international distribution by reducing the time and cost associated with shipment handling and storage at ports, and damage and theft. The land bridge is a unique type of intermodal service using containers. Rail transportation is used to link container moves by ocean transportation, by providing the intermodal bridge between water ports, permitting overall transit times shorter than by all-water shipments. -Referred to as Container-on-Flat-Car (COFC); goods are placed in a large box, where they are untouched until they arrive at the unloading dock. -Reduces theft, damage, multiple handling costs and intermodal transfer time. -Changes materials handling from labor intensive to capital intensive and may reduce costs from 10 to 20%.
Transportation Planning and Strategy: MODAL SELECTION
A critical transportation management issue is MODAL SELECTION; it affects how fast and economically product will flow across portions of the supply chain. Choosing among the modal options is a function of three factors: modal capabilities, product characteristics, and modal freight pricing. All modes provide the same basic service of moving freight from point to point but each mode has unique attributes and capabilities that impact its ability to serve specific customer requirements.
Modal Selection: ACCESSIBILITY
Accessibility determines whether a particular mode can physically perform the transport service required and considers the mode's ability to reach origin and destination facilities and provide service over the specified route in question. Accessibility advantage: Motor carriage, because of its inherent ability to provide service to virtually any location. Accessibility disadvantage: Air, rail, and water. All face accessibility limitations due to infrastructure issues.
Air Carriers
Air Carriers. The principal business of the air carriers is passenger movement, and passenger revenue accounts for the majority of business. Air freight movement accounts for less than one percent of total intercity ton-miles. Air carriers are concentrated in a limited number of carriers, which earn ninety percent of industry revenue, primarily from passenger transport. The mode's cost structure is composed of high variable and low fixed costs. The mode's right-of-way, the airway, is provided by the government, as well as terminals. The carriers pay user charges for the use of these facilities. Much of the air freight is transported as belly freight by scheduled air carriers. Air's major advantage is speed. High cost of service is the major disadvantage of the mode. The mode's accessibility is somewhat limited to airports, and land carriers are relied upon to transport freight to and from the airport. (Thus, accessibility is low as is capacity) Reliability is a potential disadvantage due to weather, congestion at airports, and on highways. The mode is a viable alternative to ocean transport for international shipments. -Limited number of large carriers earn about 90% of the revenue. Any of the air carriers can carry air freight although some carry nothing but freight. -Cost structure is highly variable; do not own rights-of-way. -Transit times are fastest of the modes, but rates are highest. Average revenue per ton mile 18 times higher than rail; twice that of motor carriers. -Seek goods with a high value to weight ratio.
Transportation Planning and Strategy: CARRIER SELECTION
Carrier selection is a specialized purchasing decision that typically will be made after the modal decision has been made with attention to selecting the individual transportation service providers within the mode. The carrier selection is based on a variety of shipment criteria and carrier capabilities: transit time average and reliability, equipment availability and capacity, geographic coverage, product protection, and freight rates. A major difference between modal and carrier selection is the number of options. Modal selection involves six primary options, but the carrier selection may involve fewer or many more alternatives. Another difference is the frequency of the decision as carrier selection requires more active and frequent engagement of the transportation buyer and the type of service provided within a mode impacts carrier selection as well. Within a mode, most carriers have the capabilities to provide similar service, but this can and does vary greatly from one provider to another. As the cost structures are essentially the same for carriers in a given mode, their rates tend to be aligned for a given movement so price it not always a factor. Carrier selection strategy commonly focuses on concentrating the transportation buy with a limited number of carriers. Using a small group of carriers the organization leverage its purchasing dollars for lower overall rates while building relationships with service providers and is reflected by core carrier concept. -Selecting the individual transportation service providers within the mode. -Major difference between modal and carrier selection is the number of options and decision frequency. -Type of service provided within a mode impacts carrier selection. -Most carriers have the capabilities to provide a similar level of service. -Core carrier
Transportation Planning and Strategy: RATE NEGOTIATIONS
Firms have shifted to centralized freight rate negotiations with carriers focusing on developing contracts with carriers for a tailored set of transportation services at a specific price. Transportation companies have focused on volume commitments, shipment frequencies, origin-destination combinations, freight characteristics, and related cost issues that impact their ability to serve the buyer profitably. The strategy of centralized, contract-based rate negotiation aligns well with the core carrier concept described previously. The contracts developed as part of this process also promote the creation of a mutually beneficial, long-term relationship in which the parties collaborate to create greater supply chain value beyond transportation savings. -Centralized freight rate negotiations. -Developing contracts with carriers for a tailored set of transportation services at a specific price. -Leveraging volume with a small set of carriers.
Which products are commonly carried on TRUCKS
Flexible schedules, speed and access Example: clothing, paper goods, computers, books, livestock
Terms of Sale
Free-on-board (FOB) terms of sale specify when the ownership and title of the goods pass from a seller to a buyer. This is a critical issue as it determines control over mode and carrier selection, transportation rate negotiation, and other key decisions. FOB terms determine where the buyer's responsibilities begin and where the seller's responsibilities end, as well as responsibility for carrier payment. Strategically, the use of FOB origin for product purchases and FOB destination for product sales makes sense as this works well providing greater visibility of inbound freight and opportunities to consolidate outbound freight. Coordination of supply chain freight movement can also be achieved through these terms of sale. At times, both the seller and the buyer want to use the FOB terms to be in control of the freight. And factors such as power, expertise, and risk should impact which organization ultimately manages the transportation process.
Which products are commonly carried on RAILROADS/Typical transportation modes for various products
Heavy, bulky full carloads of freight Example: coal, grain chemicals, lumber, automobiles, steel
Intermodal Transportation
Intermodal transportation is the use of two or more carriers in different modes to provide a transportation service. (refers to use of two or mode modes of transportation cooperating on the movement of shipment) Logistics managers often use different transportation modes to service a given link. The basic reason to use intermodal services is the various modes' service characteristics and costs. By manipulating modes, the logistics manager can overcome a mode's service disadvantage and retain its basic advantage. Logistics managers are looking for the best way to move shipments and these often attempt to take advantage of multiple modes of transportation, each of which has certain useful characteristics. Intermodal services maximizes the primary advantages inherent in the combined modes, and minimizes their disadvantages. The decision to use intermodal services must consider the effect on total logistics costs. Popular forms of intermodal service have been truck-rail (trailer-on-flatcar), rail-water (container-on-flatcar); and truck-air. Other combinations such as truck-water, pipeline-water, and pipeline-truck are also used. The high use of motor carriers in intermodal service is because of the accessibility of the motor transport. The ultimate intermodal service is the use of multimodal or megacarriers. The combination of modes in intermodal service is secured by cooperation of the carriers concerned. In the case of multimodal or megacarriers, the combination is secured through ownership of the carriers of the various modes used. A problem with intermodal service is the reluctance of carriers to participate. (cultural bias is towards using only one mode and this makes change more difficult) *Certain types have been fairly well developed, such as rail/water, motor/water, rail/motor, and motor/air.
Transportation Execution and Control: MAINTAIN IN-TRANSIT VISIBILITY
It is important to control the freight and manage key events as product moves across the supply chain and visibility of in-transit freight is a key facilitator of this control as it prevents freight from temporarily "falling off the radar screen." Technology facilitates the ability to monitor product flowing across the supply chain, and such visibility tools must be linked to other capabilities and processes to have an impact on supply chain event management.
Motor Carriers
Motor Carriers provide transportation service to almost all shippers. The mode is second in relative importance in terms of ton-miles, and first in terms of freight expenditures. The mode's high accessibility is due to an intensive highway network The mode has all five legal types of carriers: common, regulated, contract, exempt, and private. The mode's cost structure is composed of high variable costs and low fixed costs. The right-of-way for the mode-the highway, is built and maintained by the government. The mode's major advantage, over other modes, is its inherent ability to provide service to any location, and for the logistics manager, is the most accessible mode of transportation in the domestic market. For truckload movements, shipments go directly from origin to destination. The mode's transit times are faster than rail and water, but slower than air. Weather and highway conditions disrupt service and affect transit time reliability. A specific carrier's reliability relates to the operating efficiency of the carrier for a link, and may vary among a given carrier's links. Motor carriers' primarily transport high-value, manufactured commodities over relatively short distances. The mode is useful for small shipments, due to the physical and legal constraints on carrying capacity. The mode's small shipment size and low transit times enable logistics managers to reduce inventory carrying costs, while maintaining and improving customer service levels. In general, the mode provides safe transportation for commodities. A modal service disadvantage is its relatively high cost, and commodities moved by truck must be of value high enough to sustain the transportation costs. Private motor carriers transport freight that is owned by the firm that owns/leases and operates the trucks. The for-hire carriers are classified as regulated, contract, or exempt. The regulated carriers are not subject to the common carrier obligations, except they are held liable to the damage of shipper's goods. Contract carriers are held liable to the terms and conditions of the contract signed by the carrier and shipper. Exempt carriers are specifically excluded from federal economic regulations. The major advantage of motor carriage is high accessibility. -The motor carrier industry is characterized by a large number of small firms. Low cost of entry causes these large numbers. -Used by almost all logistics systems (Account for 82 percent of U.S. freight expenditures) -Consists of for-hire and private carriers. -Characterized by low fixed costs and high variable costs. -Do not own their rights-of-way. -Limited operating authority regarding service areas, routes, rates and products carried.
Pipelines
Pipelines. Use of the mode is restricted to oil and petroleum products, some chemicals, and an experimental use of coal slurry pipelines to transport coal. Some research has been performed to move minerals in a liquid medium, but outside of a few attempts to transport slurried-coal via pipeline, no real successes have occurred. The mode's accessibility is limited due to its fixed right-of-way. Shippers not adjacent to a pipeline must use another accessible mode to transport commodities to and from the pipeline. Speed is slow, but offers free storage of product in the pipeline. Weather conditions do not disrupt service. The mode's cost structure is one of high fixed to variable costs. The high fixed costs are due to the investment in the right-of-way, terminals, and pumping stations. Low cost is mode's major advantage. The limited product that can be transported limits the usefulness of the mode. The pipeline is the only mode of transportation which is non-contentious. Non-contentious means that there exists economies of scale. This can be proven mathematically, without any need for empirically testing the notion of whether economies of scale exist. -Not suitable for general transportation -Accessibility is very low -Cost structure is highly fixed with low variable costs -Own rights-of-way -Major advantage is low rates
Modal Selection: PRODUCT SAFETY
Product Safety is critical as goods must arrive at the destination in the same condition they were in when tendered for shipment. Precautions must be taken to protect freight from loss due to external theft, internal pilferage, and misplacement, as well as damage due to poor freight-handling techniques, poor ride quality, and accidents with packaging being important. Safety advantage: Air transportation and motor carriage have the best reputations for product security. Safety disadvantage: Rail and water face significant challenges to maintaining product integrity.
Modes of Transportation
Rail, motor, water, pipeline, and air are the basic modes available to the logistics manager. Each mode has different economic and technical structures, and each provides different qualities of link services. The relative importance of the modes can be evaluated on the basis of ton-miles and freight expenditures. The distribution of modal ton-miles ranks rail first, followed by motor, pipeline, water, and air, in that order. On the basis of freight expenditures, motor is ranked first, followed by rail, water, air, and pipeline.
Railroads
Railroads The railroads are labeled as "natural monopolies," because a large investment is required in terminals, equipment, and trackage. The capacity produced by the investment, results in a large proportion of fixed costs in the mode's cost structure, and permits high economy of scale; making the railroads a decreasing-cost industry. The mode is primarily a long-distance, large-volume mover of low-value high density goods. Low accessibility is a disadvantage of the mode, because carriers cannot deviate from their fixed route trackage. If a shipper or user is not adjacent to the rail right-of-way, another transport mode has to be used to gain access to rail service. Another disadvantage is long transport time. The task of consolidating loads in classification yards adds to the slow speed. The reliability of rail service is important to the logistics manager. Weather conditions seldom disrupt rail service, and cause only minor fluctuations in transit time reliability. Railroad profitability is low, causing carriers to reduce costs and increase productivity. This has led to abandoning unused tracks, reducing the rail work force, changing labor work rules, increasing the use of computers, and saving fuel and labor costs. Rail carriers, to increase freight traffic, are entering new markets, and increasing the use of intermodal traffic. -Capable of carrying a wide variety of products, much more so that other modes. -Rail is a long haul, large volume system (high fixed costs). -Accessibility can be a problem. -Transit times are changeable, but are generally long. -Reliability and safety are improving and are generally good. -Premium intermodal services (Straight piggyback and containerized freight, Double stacks)
Modal Selection: RELIABILITY
Reliability refers to the consistency of the transit time provided by a transportation mode and many companies feel that transit time reliability is more important than speed as it and is measured by the statistical variation in transit time. Reliability advantage: Motor carriers and air carriers, as they are the most reliable. Reliability disadvantage: Water carriers and rail carriers have been slow and consistent, but with the capacity and congestion challenges, they have become less consistent.
Transportation Execution and Control: FREIGHT DOCUMENTATION
Shipments are accompanied by related documents that spell out the details of the shipment. The bill of lading is probably the single most important transportation document. Bills of lading differ by type of move whether domestic or international as well as a being unique to the mode. The freight bill is the carrier's invoice for the fees the carrier charges to move a given shipment. The freight bill lists the shipment, origin and destination, consignee, items, total weight, and total charges. BILL OF LADING = originates the shipment, provides all the information the carrier needs, specifies the contract terms, acts as a receipt for the goods the shipper tenders to the carrier FREIGHT BILL = carrier's invoice for carrier charges listing shipment, origin and destination, consignee, items, total weight, and total charges
Transportation Management Systems
Software and information technology tools have been developed to support transportation planning, execution, and performance evaluation. Transportation Management Systems Software tools related to the movement of goods across the supply chain are lumped together in a general category called transportation management systems (TMS), which is defined as information technologies used to plan, optimize, and execute transportation operations Critical TMS planning applications include the following: • Routing and scheduling—proper planning of delivery routes has a major impact on customer satisfaction, supply chain performance, and organizational success. • Load planning—effective preparation of safe, efficient deliveries can be accomplished via TMS load optimization programs to help managers build a database of package dimensions, loading requirements, and equipment capacity. Three key TMS execution tools include the following: • Load tendering determines which carriers are eligible to move the freight and then tenders the freight to the best carrier. • Status tracking maintains visibility of shipments as they move across the supply chain through delivery confirmation. • Appointment scheduling automates the scheduling function. Two useful analytical applications are as follows: • Performance reporting and scorecarding—managing carrier performance and TMS tools can automate the collection of data, measurement of KPIs, and dissemination of periodic reports. • Freight bill auditing—payments made to carriers must reflect the agreed upon contractual rates and the services rendered.
Modal Selection: COST
The cost of transportation is an important consideration in the modal selection decision, especially when a low-value commodity needs to be moved. A number of factors are taken into consideration when freight rates are developed, including weight of the shipment, distance from origin to destination, nature and value of the product, and the speed required. Cost advantage: The cost of transportation service varies greatly between and within the modes and prices vary with the tradeoff is slow speed for low cost. Cost disadvantage: Motor carriage and air transportation are high-cost modes compared to the others. Each transportation situation is unique, and these higher cost modes are appropriate options. Given the varying capabilities and cost of each transportation mode, it is obvious that modal selection is not a quick and easy process. Durability is another key consideration in the modal selection process. Product value is a critical factor in modal selection. Generally, an inverse relationship exists between product value and the impact of transportation on its value. Shipment characteristics—size, route, and required speed—cannot be ignored in modal selection. Infrastructure availability tend to limit modal selection to two or three realistic options and the shipment-related requirements of speed, reliability, and safety must be matched to the modal customer service capabilities.
How to measure Transportation Perfromance
The focus on lean supply chains and just-in-time operations makes consistent, on time delivery a critical requirement, which is the most important KPI used by transportation buyers to evaluate their carriers. • On-time delivery KPIs measure the ratio of shipments delivered in a timely fashion to the total shipments delivered by the carrier. • Delivery consistency metrics compare the average origin to destination transit time of shipments to the transit time promises made by carriers. Freight protection is another key element of transportation service quality. • Claims-free delivery is a primary freight protection KPI. • Billing accuracy KPIs measure a carrier's ability to properly translate customer bill of lading information and instructions to the freight bills. • Freight bill accuracy KPIs measure the ratio of accurate freight bills to the total number of freight bills. • The ultimate service quality KPI is the execution of perfect deliveries, the ratio of defect-free deliveries to the total number of deliveries made. While service quality is critically important for customer satisfaction, transportation service efficiency cannot be ignored. Organizations need to balance their service requirements and the expenses related to moving freight. Asset utilization is a critical aspect of transportation cost control. Moving empty or partially loaded equipment is inefficient and expensive. Equipment utilization KPIs also help buyers work toward effective freight deployment.
Functional Control of Transportation
The initial decision for any organization is straightforward but important—determining which department(s) will be responsible for each part of the transportation process. In most organizations, responsibility for transportation decisions falls to one or more of the following departments: logistics, procurement, and marketing. Firms now assign transportation decision-making responsibility to a single department which strives to coordinate inbound and outbound transportation, develop common goals, leverage purchasing power, and procure quality service in support of supply chain excellence.
Transportation Execution and Control: TRANSPORTATION METRICS
The key service requirements are generally observable and quantifiable. This allows organizations to monitor activities through transportation metrics or key performance indicators (KPIs), which are objective measures of carrier or private fleet performance critical to the success of the organization. Many aspects of transportation performance can be evaluated. Important issues include transportation spending efficiency, freight protection, delivery service quality, and customer satisfaction, among others. The two primary categories of transportation KPIs include service quality and efficiency. KPIs can be used to evaluate: -current performance vs. historical results -internal goals -carrier commitments *The challenge lies in narrowing down metrics available to monitor performance to a manageable number of KPIs
Decision to Outsource Transportation
The organization with FOB freight control and procurement responsibility must analyze the transportation "make or buy" decision. Firms must choose between transporting goods using a private fleet (the "make" option). Firms may also use external service providers to move freight (the "buy" option). Some firms have decided that it is best to have external experts move the freight and/or manage the transportation process as they also offer a variable cost, simplified, headache-free alternative to private transportation. By using for-hire carriers, the customers do not have to incur the large capital cost, invest the time needed to build transportation expertise, or take on the potential risks inherent in operating a private fleet. Third-party logistics provide and alternative and they offer wide array of transportation services and the 3PL serves as the firm's private fleet and devotes a management team, drivers, and equipment to the relationship. Another service is traffic management where the 3PL provides transportation planning and tactical decision making, handles administrative functions like freight bill auditing, and coordinates supply chain activities. Some 3PLs provide international transportation assistance in the areas of documentation carrier and route selection, Customs clearance, and other tasks that impact the timely, cost-effective flow of goods across borders.
The Role of Transportation in Logistics: Physical Link
The transportation system is the physical link that connects the nodes in the logistics system: customers, raw material suppliers, plants, warehouses, and channel members. -Transportation is the physical link connecting the firm to its suppliers and customers. -In a nodes and links scenario, transportation is the link between fixed facilities (nodes= fixed points where some activity temporarily halts the flow of goods in the logistics pipeline.)
Truckload Industry
The trucking industry is comprised of for-hire and private fleet operations. Private fleets transport freight that is owned by the organization that is operating the trucks. For-hire trucking companies are broken down into three general types: • Truckload carriers (TL) handle single large shipments per trailer that exceed 7 tons or use the full cubic capacity of a trailer. TL carriers provide direct service, picking up the load at the origin point and delivering it directly to the destination without stopping at freight-handling terminals. • Less-than-truckload (LTL) carriers move multiple shipments ranging from 50 kgs up to 7,000 kgs in each trailer. • Small package carriers handle shipments up to 50 kgs and move multiple shipments on a single van or truck. They use networks similar to LTL carriers to move freight efficiently. -High accessibility -Reliability can be affected greatly by weather -Small vehicle size coincides with lower inventory strategies and quick replenishment -Transit times faster than rail or water. Relatively high cost compared to rail and water; trade-off is faster service
Challenges to Carrying out this Role (of Transportation)
There are numerous obstacles to synchronizing transportation with other supply chain activities. And part of the challenge is a variety of supply chain trends and external issues that must be addressed. The growth of outsourcing, particularly offshore manufacturing creates major transportation challenges. While the vast distances produce higher transportation costs, the extended transit times and greater potential for supply chain disruptions necessitate higher inventory levels. Customer demands for tailored services and defect-free delivery also impact the transportation function. Transportation capacity constraints pose another challenge to organizations moving freight through the supply chain. Rising transportation rates present another major concern for organizations. The transportation industry is also impacted by governmental requirements that affect cost structures and service capabilities. While the government has taken a market-focused approach toward carrier competition, legislation has been passed to improve the safety of the transportation industry, reduce its impact on the environment, and defend the country against terrorism including: • Changes in commercial drivers' licensing and in the hours of service that drivers can work. • Environmental protection issues including aircraft noise pollution, transportation of hazardous materials and air pollution. • The continued threat of terrorism has led to security-focused legislation. Ultimately, this variety of external issues makes it difficult to develop transportation processes that mesh well with supply chain requirements. -Supply chain complexity -Competing goals among supply chain partners -Changing customer requirements -Limited information availability -Synchronizing transportation with other supply chain activities -Transportation capacity constraints pose a challenge -Rising transportation rates present another major concern for organizations -The transportation industry is impacted by governmental requirements that affect cost structures and service capabilities -Regulation is growing in areas where the transportation industry has the potential to impact the quality of life, the safety of citizens, and the growth of commerce
Modal Selection: TRANSIT TIME
Transit time is critical in supply chain management because of its impact on inventory availability, stockout costs, and customer satisfaction. Transit time is the total elapsed time that it takes to move goods from the point of origin to the destination (i.e., door to door). Transit time advantage: Air transportation is very fast, motor carriage is also relatively fast because it can provide more direct movement from origin to destination Transit time disadvantage: Rail, water, and pipeline are extremely slow
Transportation Execution and Control: MONITOR SERVICE QUALITY
Transportation managers must analyze the outcome of all their transportation strategy, planning, and decision-making efforts through a coordinated, ongoing effort to monitor carrier. Performance and a key requirement for service quality monitoring is information. A popular strategy for developing an objective, holistic view of carrier service quality is to develop standardized scorecards or evaluation reports.
Transportation plays a key role in...
Transportation plays a key role in supply chain design, strategy development, and total cost management. • Transportation service availability, capacity, and costs influence decisions regarding the number and location of supply chain facilities • Transportation capabilities must align with the company's strategy. • Intentional tradeoffs should be made between transportation and related activities to optimize supply chain efficiency.
Water Carriers
Water transportation is an important factor in today's economy. The modal cost structure consists of high variable costs and low fixed costs. Little capital investment is required for market entry, and the mode's right-of-way is provided and maintained by the government. Much of the shipments transported are bulk commodities or bulk oil products, which are exempt from economic regulation. Water carriers are primarily long-distance movers of low-value, high-density freight, easily loaded and unloaded by mechanical devices. Water transport's principal advantage is low cost. The mode's disadvantages are high transit times, easy disruption due to weather conditions, ice, and low water levels, and limited accessibility. Water transport may require a prior or subsequent land transport movement. Transport by ship is the most widely-used international shipment method. Almost any commodity is transported by sea, but most cargo is low weight-to-value commodities. The most common type of ocean vessel is the general cargo ship. These ships usually transport shipload cargoes on a contract basis. Bulk carriers carry cargoes with low value-to-weight ratios, such as ores, grain, coal and scrap metal. Tankers-crude oil ships-carry the largest amount of cargo by tonnage. Container ships carry standardized containers. Roll-on-roll-off (RORO) ships takes cargo driven directly on the ship, and allows carriers to use standard highway trailers to transport cargo. Oil-bulk-ore (OBO) vessels are multi-purpose bulk carriers able to carry both liquid and dry bulk products. Ocean-going barge vessels are towed by an ocean-going tug. -Relatively low cost mode; do not own right-of-way -Typically a long distance mover of low value, bulk-type mineral, agricultural an forest products -Low rates but long transit times -Low accessibility but high capability
Transportation Execution and Control: SHIPMENT PREPARATION
When a shipment needs to be moved across the supply chain, transportation planning efforts culminate and execution processes take center stage. Shipment Preparation: To ensure maximum effectiveness in the shipment-carrier matching process, many organizations maintain a corporate transportation routing guide. The strategy behind routing guides is to promote supply chain excellence through transportation. Transportation managers have the ability to make last-minute, cost-saving decisions such as efforts to consolidate freight, coordinate shipment deliveries and take full advantage of container capacity or by combining multiple orders destined for a single location into a single shipment for distribution. (an accurate freight count should be taken) The transportation operation is the last line of defense in protecting product integrity and value.
Which products are commonly carried in PIPELINES
bulk petroleum and chemicals Example: Oil, processed coal, natural gas, water, chemicals
Which products are commonly carried in AIRWAYS
fast delivery, high-value or perishable goods Example: flowers, perishable food, instruments, emergency parts, overnight mail
Which products are commonly carried in WATERWAYS
heavy, low-value nonperishables Example: petroleum, chemicals, iron ore, bauxite, grain