Supply Chain Management

Chapter 13 Transportation in the Supply Chain

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Factors Affecting Transportation Decisions

Shipper - party that requires the movement of the
points in the supply chain (e.g. Dell) Uses transportation to minimize Total cost Transportation, Inventory, Facility and Information costs

product between two

Carrier - party that moves or transports the product

(e.g. UPS)

Makes investment decisions regarding transportation modes and maximizes return from these Vehicle related cost type? quantity? Fixed operating cost terminal facilities Trip related cost labour and fuel

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Transportation Modes
Trucks
TL LTL

Rail Air Package Carriers Water Pipeline

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Truckload (TL)
Lower operating costs Door-to-door shipment and shorter delivery time Economies of scale No transfer required between pickup and delivery Major Issues
Utilization (Idle time) Inconsistent service Backhauls

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Less Than Truckload (LTL)

For smaller lot sizes Higher operating costs Major issues:
Longer delivery time as other loads are to be picked and dropped off Location of consolidation facilities Utilization (Idle time) Vehicle routing Goal is to minimize costs through consolidation without impacting delivery time and reliability
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Rail
Higher operating costs Ideal for very large, heavy, lesser value products over long distances Key issues:
Longer delivery time Scheduling to minimize delays / improve service Delays (at pickup and delivery end) Yard operations

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Air
Fast, reliable but expensive High operating costs aircrafts, supporting infrastructure, fuel, pilots Key issues:
Location/number of hubs Schedule optimization Fleet assignment Crew scheduling Yield management maximize daily flying time and revenue generated per trip
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Package Carriers
Companies like FedEx, UPS, USPS, that carry small packages ranging from letters to shipments of about 70 kg Expensive Rapid and reliable delivery use combination of air, truck and rail Small and time-sensitive shipments Preferred mode for e-businesses (e.g. Amazon, Dell) Consolidation of shipments (especially important for package carriers that use air as a primary method of transport)
Compare the transportation networks of FedEx and UPS
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Water
Ocean, inland waterway system, coastal waters Very large loads at very low cost Slowest in movement, as well as delays at ports, customs, security Dominant in global trade (automobiles, grain, apparel etc.)

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Pipeline
High fixed cost Primarily for crude petroleum, natural gas Best for large and predictable demand Would be used for getting crude oil to a port or refinery but not for getting refined gasoline to a gasoline station (why?)

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Intermodal
Use of more than one mode of transportation to move a shipment to its destination Common examples: rail & truck ; water & rail & truck ; water & truck More convenient for shippers (one entity provides the complete service) Key issue is delay in transfers between modes increasing delivery time

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Design Options for a Transportation Network

Direct shipping network - Delivery direct from a supplier to a buyer
Suppliers Buyers

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Design Options for a Transportation Network

Direct shipping with milk runs - Delivery from single supplier to several
buyers
Suppliers Buyers

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Design Options for a Transportation Network

All shipments via central DC - Suppliers ship only to DC and DC
ships directly to buyers
Suppliers Buyers

DC

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Design Options for a Transportation Network

Shipping via DC using milk runs combination network
Suppliers Buyers

DC

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Transportation and Inventory cost trade-off

Choice of Transportation Mode
Inventory costs must be considered when selecting a mode of transportation A mode with higher transportation costs can be justified if it results in significantly lower inventories Cheaper modes of transport generally have longer lead times and larger minimum shipment quantities thereby resulting in higher inventory levels

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Transportation and Inventory cost trade-off

Inventory aggregation means combining inventories in fewer locations (warehouses). e.g. Toyota.

As a result of inventory aggregation:

Inventory costs decrease Inbound transportation cost decreases Outbound transportation cost increases therefore number of locations, quantity and distance to customer is critical

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Transportation cost and Responsiveness trade-off

Temporal aggregation is the process of combining orders
over a longer time horizon before shipping to customers. Temporal aggregation reduces transportation cost because it results in larger shipments and reduces variation in shipment sizes. e.g.GE Power, GE Aviation. However, temporal aggregation reduces customer responsiveness due to shipping delays.

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Tailored Transportation
Suitable or Customized combination of cross-docking, milk runs and various transportation modes are used based on customer and product characteristics Factors affecting tailored transport:
Customer distance and density Number of customers Product demand and value

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