Research note

A framework for
transportation decision
making in an integrated
supply chain

Introduction
Logistics and transportation managers face a
very different environment today than merely
a few years ago. Continued economic
deregulation, increased safety and social
regulation, escalating customer expectations,
increased globalization, improved
technologies, labor and equipment shortages,
and the continually changing face of the
transportation service industry present
today's managers with an array of challenges
and opportunities that contrast dramatically
with those of a decade ago. It is not
surprising, then, that many managers have
failed to fully adapt to the changing
environment, resulting in performance
shortcomings and lost opportunities.
Prominent among the list of lost opportunities
is the prospect of further leveraging the
transportation function as a critical strategic
element within the supply chain.
Despite requirements for strong crossfunctional knowledge, information system
expertise, and financial aptitude in the
modern era of logistics and supply chain
management, managers must still be
fundamentally grounded in traditional
logistical functions. Transportation
management is an area that remains critical to
overall logistics and supply chain success,
accounting for 57 percent of US firms'
logistics costs in 1997 (Berg, 1998). From a
macro-economic perspective, one in seven
jobs in the USA today is transportation
related (Bowersox and Closs, 1996). Yet
shippers often make transportation decisions
using logic devised prior to 1980. This
mentality promises increasingly poor
performance as business moves toward
integrated supply chain management
(Moultrie, 1998).
In order to meet ever-increasing
expectations, the basic work of transportation
has changed from operationally meeting low
cost or high service criteria to providing a
strategic edge by simultaneously meeting
elevated service requirements and
increasingly lower costs. Successful managers
today require a broad view of transportation
management's role and responsibilities in an
integrated supply chain. The purpose of this
paper is to clarify the major transportation
decision areas and position transportation
management within the overall integrated
supply chain environment.

Theodore P. Stank and

Thomas J. Goldsby

The authors
Theodore P. Stank is Assistant Professor of Logistics and
Supply Chain Management, Michigan State University,
East Lansing, Michigan, USA.
Thomas J. Goldsby is Assistant Professor in the
Department of Logistics, Operations and Management
Information Systems, Iowa State University, Iowa, USA.
Keywords
Supply chain, Transport operations, Logistics
Abstract
There has been little conceptual work that
comprehensively examines the changing role of the
corporate transportation function in the modern business
environment. Successful managers today require a broad
view of transportation management's role and
responsibilities in an integrated supply chain. This paper
clarifies the major transportation decision areas and
introduces a framework that positions corporate
transportation management within the overall integrated
supply chain environment. The framework portrays initial
transportation decisions as strategic, long-term decisions
that focus on the overall supply chain transportation
system. Once decisions are understood at this level, the
decision-making scope becomes increasingly tactical in
nature, focusing on operations that implement the overall
system decisions.
Electronic access
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Supply Chain Management: An International Journal

Volume 5 . Number 2 . 2000 . pp. 7177
# MCB University Press . ISSN 1359-8546

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Transportation decision making in an integrated supply chain

Supply Chain Management: An International Journal

Volume 5 . Number 2 . 2000 . 7177

Theodore P.Stank and Thomas J. Goldsby

The following section introduces a

framework that summarizes the primary
transportation decision areas relevant to an
integrated supply chain environment and
provides details regarding how each of the
decision areas may be assimilated into a
comprehensive transportation management
strategy.

Figure 1 Transportation value contribution

Transportation decision-making
framework
only as strong as its weakest component.
Should any one gear fail, the entire machine
fails. Transportation managed independently
of other value-added supply chain operations
often represents one of the chain's weaker
elements. Transportation decisions made in
cooperation with related functions alleviate
this weakness.
When transportation managers are
provided supply chain planning information
that includes resource availability and delivery
requirements they can arrange shipments to
take advantage of load/carrier consolidations
or routing efficiencies. Purchasing,
operations, and customer service should
provide the transportation department with
information regarding when items are
available for shipment and when they are
needed at their destination. With this
information, transportation planners can
assess consolidation requirements and
arrange inbound, outbound, and interfacility
moves such that products flow seamlessly
through the supply chain while finding ways
to combine movements to lower costs
(Bowersox et al., 1999; Moultrie, 1998).
Conversely, the transportation department
should actively provide other functional areas
with information regarding transportation
capabilities and constraints, ensuring minimal
customer service failures and unnecessary
cost.
The emergence of new objectives for the
transportation function has created a need for
a framework that identifies and organizes
transportation decision making in an
integrated supply chain environment. Figure
2 portrays the major decision areas involved
in managing transportation as part of an
integrated supply chain. The framework
portrays initial transportation decisions as
strategic, long-term decisions that focus on
the overall supply chain transportation

Leading firms are making an effort to

coordinate purchasing, operations and
logistics to better manage the physical and
information flows within and outside the firm.
Firms that coordinate transportation and
logistics planning with purchasing and
production are less likely to be purely
reactionary and more likely to identify
consolidation opportunities. These firms are
also likely to seek similar efficiencies across
the supply chain. Bowersox et al. (1998)
found that 16 percent of North American
manufacturers utilized a supply chain strategy
in 1998. Close collaboration and extensive
information sharing with external material
and service providers creates flexible
operating systems characterized by
coordinated operations that can drastically
cut channel cycle times and inventory levels as
goods flow seamlessly from raw material
supplier to end consumer (Bowersox et al.,
1999).
Transportation services play a central role
in seamless supply chain operations, moving
inbound materials from supply sites to
manufacturing facilities, repositioning
inventory among different plants and
distribution centers, and delivering finished
products to customers. Benefits accruing
from world class operations at the points of
supply, production, and customer locations
are pointless without the accompaniment of
excellent transportation planning and
execution. Having inventory positioned and
available for delivery is not enough if it cannot
be delivered when and where needed in a
cost-efficient manner (Fox, 1992; 1993).
The critical role transportation plays in the
supply chain is more explicitly portrayed in
Figure 1. The gears represent the multiple
supply chain entities in a channel. Each gear
is dependent upon its predecessor to keep the
machine in operation. The supply chain is
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Theodore P.Stank and Thomas J. Goldsby

the level of outsourcing desired for each major

product flow, ranging from providing the
transportation using private assets to latchkey turnover of transportation operations to
third-party providers.
Network and lane design decisions should
examine tradeoffs with other operational cost
areas, e.g. inventory and distribution center
costs. A primary factor to consider among
these decisions is that networks need not be
fixed or constant. Rather, substantial service
improvements and cost reductions can be
achieved by critically examining existing
networks and associated flows. For instance,
it may become apparent that stock locations
can be centralized by using contract
transportation providers to move volume
freight to regional cross-dock facilities for
sorting, packaging, and brokering small loads
to individual customers. For example, one
manufacturer reviewed the existing node/link
network and lane designs, with an eye toward
significant adaptations. The manufacturer,
with one plant in the Midwest and one in
Texas, combined the need for frequent
interfacility shipments with demands for lowcost, high-service customer shipments by
contracting with a truckload motor carrier to
operate terminal facilities near each plant.
The carrier ran routine routes between the
facilities morning and afternoon
southbound from the Midwest location and
morning and afternoon northbound from
Texas. The freight included on these runs
consisted of work-in-process moving between
plants as well as finished goods bound for
customers. At the terminals, the carrier sorted
the finished goods bound for customers and
brokered it to a group of less-than-truckload
(LTL) core carriers for final delivery. The
costs incurred for handling freight at the
terminal was more than recovered by the
savings realized from the full truckload
movements between plants and the decreased
miles that freight moved by LTL. Ultimately,
the manufacturer reduced freight costs by
$1.3 million per year while decreasing average
transit times from seven to four days.

Figure 2 Transportation decision making in an

integrated supply chain

system. Once decisions are understood at this

level, the decision-making scope becomes
increasingly tactical in nature, focusing on
operations that implement the overall system
decisions. Details regarding each decision
area are provided below.

Total network and lane design decisions

At the highest strategic decision level,
transportation managers must understand
and be constantly appraised of total supply
chain freight flows and have input into
network design. This area involves
consideration of the network link/node
structure, i.e. supplier, plant, distribution
center, and customer locations as well as the
various physical movements among them. At
this level, long-term decisions related to the
appropriateness and availability of
transportation modes for freight movement
should be made. For example, managers
should decide which primary mode of
transportation is appropriate for each general
flow (i.e. inbound, interfacility, outbound) by
product and/or location, paying careful
attention to consolidation opportunities
where feasible. Plans should indicate the
general nature of product flows, including
volume, frequency, seasonality, physical
characteristics, and special handling
requirements. Strategic mode and carrier
sourcing decisions should be considered part
of a long-term network design, identifying
core carriers in each relevant mode to gain
enhanced service quality commitments and
increase bargaining power. Additionally,
managers should make decisions regarding

Lane operation decisions

The second level of decision making regards
lane operation decisions. Where network and
lane design decisions focus on long-term
planning, these decisions focus on daily
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Supply Chain Management: An International Journal

Volume 5 . Number 2 . 2000 . 7177

operational freight transactions. At this level,

transportation managers armed with real-time
information on product needs at the various
system nodes must coordinate product
movements along inbound, interfacility, and
outbound shipping lanes to meet service
requirements at lowest total costs. Decision
makers adept at managing information realize
consolidation opportunities such that
products arrive where they are needed in the
quantities they are needed just in time to
facilitate other value-added activities, while
realizing transportation cost savings.
The primary opportunities associated with
lane operation decisions include inbound/
outbound consolidation, temporal
consolidation, vehicle consolidation, and
carrier consolidation. If managers have access
to inbound and outbound freight movement
plans, opportunities to combine freight to
build volume shipments become apparent. An
inbound shipment may arrive from a supplier
located in Philadelphia, for example, on the
same day that a production order destined for
a customer in Wilmington, Delaware
becomes available for movement. If this
information is known to transportation
planners far enough in advance, arrangements
could be made for the inbound carrier to haul
the outbound load back to Wilmington. In
many cases the inbound carrier would be
willing to negotiate lower roundtrip rates to
avoid deadhead miles on the backhaul. This is
particularly true if the carrier and/or driver are
headquartered in the Philadelphia area. If this
happens to be a heavy traffic lane, the firm
may consider strategically sourcing a core
carrier in this geographic region to capitalize
on this opportunity.
Similarly, less-than-volume-load (LVL)
shipments moving to the same geographic
region on consecutive days may be detained
until sufficient volumes exist to justify a full
load on one carrier with multiple stops
(temporal consolidation). By avoiding the
LVL terminal system, the detained freight
often arrives at the same time or earlier than
the original LVL shipment, and at a lower
cost. Multiple, small shipments inbound from
suppliers or outbound to customers in the
same geographic region scheduled for delivery
on the same day may also be combined on
one vehicle at full-volume rates, paying stopoff charges but saving on multiple LVL rates
(vehicle consolidation). One multi-divisional
electronics manufacturer with five plants in

the same Southwestern city, for example,

discovered that each facility was receiving
LTL shipments of electrical fasteners from
the same supplier in Chicago nearly every
week. The annual savings generated by
consolidating the multiple LTL shipments
into one TL move with multiple deliveries
were substantial easily exceeding the
subsequent inventory carrying costs.
Another opportunity for consolidation
springs from the core carrier concept.
Assigning greater shipping volumes to fewer
carriers should result in lower per-unit
transportation costs and higher priority
assigned to the shipper's increased freight. In
addition to consolidating the carrier base, the
shipper can identify reliable carriers in need of
backhaul miles. For instance, a plastics
distributor identifies carriers that operate a
high percentage of deadhead miles in lanes
over which the firm regularly moves freight
(Macht, 1996). The firm negotiates
advantageous rates with these carriers in
exchange for guaranteed backhaul revenue
miles. If the plastics firm plans to move
significant amounts of product from Texas to
Florida, the transportation manager will find
a Florida carrier that moves a large volume of
product from Florida to Texas. Given
sufficient planning information, the
transportation manager can use guaranteed
volumes on the backhaul to negotiate
attractive rates.
Unfortunately, transportation planners are
sometimes aware of opportunities to
consolidate replenishment shipments,
customer deliveries, and inbound materials,
but they are hindered by a lack of information
and the fact that these supply chain
movements are handled by different
functional groups. Specific information
regarding inbound freight movements, for
example, is frequently unknown to firms since
suppliers often control these movements. As
noted earlier, transportation cost information
is rolled into the total purchase price of the
supplied products in these instances. If firms
do have specific inbound freight data, they are
usually managed by a different information
system than that used to manage outbound
movements. It may be difficult or impossible
to exchange information between the two
systems. The transition of planning systems
from functionally focused applications such as
materials requirements planning (MRP) and
distribution requirements planning (DRP) to

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Theodore P.Stank and Thomas J. Goldsby

equivalent service. Similarly, package delivery

carriers are competing with traditional LTL
business. Truckload carriers, on the other
hand, are increasingly bidding for low-volume
shipments as well as for overnight freight
movements. For the shipper seeking 24-hour
delivery, truckload carriers may offer an
alternative to air carriers at significantly lower
rates and, quite possibly, higher reliability.
In an integrated decision-making scenario,
depicted in Figure 4, each shipment would be
evaluated based upon the service criteria that
must be met, (e.g. delivery date/time or
special handling requirements) as well as the
cost constraints of the movement. All core
carriers regardless of mode that could
possibly meet the service and cost criteria
would be pulled from the database. Managers
would then choose the carrier from this multimodal set based on availability and existing
rates (Lillibridge, 1996).

integrated systems such as enterprise resource

planning (ERP) may help to provide the
transportation manager with the needed
information to make these decisions.

Mode/carrier assignment decisions

Just as information enables the deployment of
different techniques in network and lane
operations decisions, the capability to store
and access large amounts of data facilitates a
new approach to transportation mode/carrier
assignment decisions. Traditional methods of
selection, portrayed in Figure 3, suggest
sequential decision making based upon a set
of product, market, service, and cost criteria
for a given freight movement. First the
appropriate mode is chosen, followed by the
specific type of carrier, and, ultimately, the
individual carrier (Coyle et al., 1996). The
pool of potential carriers becomes smaller
with each sequential decision until, finally, a
set of carriers that meets the criteria is
identified. This set can then be contacted to
determine resource availability and rates. For
example, if a shipper requires 24-hour
delivery the traditional modal choice is air,
with the type of air carrier chosen based upon
the type and size of load and origin/
destination. Of the carriers that fit these
criteria, the one that has satisfactory financial
and operational track records, available
assets, and the lowest rate is typically chosen.
Traditional mode/carrier assignment
decisions, however, prevent consideration of
other options that may meet these criteria at a
lower total cost. Due to the blurring of service
capabilities among traditional transportation
modes, options that in the past would not be
considered feasible may now emerge as the
preferred choice. For example, rail container
service may offer a cost-effective alternative to
long-haul motor transport while yielding

Service negotiations
Transportation managers are increasingly
managing relationships with transportation
service providers rather than managing
private fleets. The wide array of cost and
service options available today requires
managers to possess a broad knowledge of
strategic and tactical business issues. While
price remains a central concern among
transportation managers, a thorough
understanding of service expectations and
customer- and product-specific costs must be
included in contract negotiations. Crossfunctional tradeoffs and inter-firm
relationships present themselves for
consideration as well. For example, a
manager may decide to incur increased
transportation costs if the subsequent
transportation service results in substantially
lower inventory levels. Similarly,

Figure 3 Traditional mode/class/carrier selection

Figure 4 Integrated mode/class/carrier selection

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Theodore P.Stank and Thomas J. Goldsby

from more efficient and effective load

planning, routing and scheduling. For
example, if a vehicle is being loaded with
multiple customer orders, dock level
managers must ensure that the driver is
informed of the most efficient route and that
loads are placed in the order of the planned
stops. Modern transportation managers, even
at the dock level, must develop expertise in
using the information tools available to aid in
these decisions.
In addition, most would agree that poor
blocking and bracing of a load can result in
damaged products. The implications of
damaged product in the modern environment
are far greater than that of the past. When
many retailers today operate on a continuous
replenishment basis, without an abundance of
safety stock, a short order often leads to
stockouts and backorders instances that can
send today's demanding, sophisticated
consumer to rival retailers in future
transactions. The retailer subsequently
penalizes the manufacturer when it must send
customers away unhappy as a result of
damage occurred in transit. Therefore, while
strategic decisions tend to gain the attention
of top executives in the firm, one must
appreciate the execution of the strategy that
takes place at the operational level. Poor
decisions at the dock or over the road can
prove extremely costly.
The need for sound dock level decisions
and execution stems from the recognition that
the work taking place here serves as the ``face''
presented to customers. Distribution center
personnel and delivery drivers represent the
firm with each and every transaction. Poor
decisions and mistakes at this stage of the
process ruin the efforts and value added over
preceding stages. In an age of customer
success, management must emphasize to
dock workers and drivers that errors made in
the closing stages of order fulfillment can
devastate a critical supply chain relationship.

transportation carriers may be able to provide

sorting and packaging services in transit more
efficiently and effectively than moving
product to regional distribution centers for
the same services.
In addition to the operational decisions that
must be made with regard to transportation
service choices, managers must also become
more knowledgeable about the legal
implications of contracts. While shippers
would agree that deregulation has vastly
improved transportation operations, it has
also opened the door to a number of difficult
issues related to the nature of contracts and
legal arrangements between shippers and
their transportation providers. In today's
deregulated environment, virtually every facet
of a relationship between a shipper and carrier
must be negotiated and stated in a contract.
Otherwise, the carrier is free to make
assumptions that may not be beneficial to the
shipper. The old warning of ``let the buyer
beware'' appropriately describes the shipper's
environment where legal resolutions are now
based upon what is written in the contract
not necessarily by traditional precedents
established under rule of the Interstate
Commerce Commission. Many
transportation managers, comfortable with
their knowledge of business under the old
precedents, find out the hard way that these
precedents are no longer binding (Barrett,
1998).

Dock level decisions

The final set of transportation decisions
involves dock level operations, such as load
planning, routing and scheduling. These
activities encompass the operational
execution of the higher level planning
decisions. While the fundamental purpose of
shipping docks may not have changed much
over the years, the manner in which work is
done certainly has. One obvious change is the
common usage of advanced information
technology and decision support systems.
These tools help the dock personnel to make
better use of the transportation vehicle space,
to identify the most efficient routes, and to
better schedule equipment, facilities and
drivers on a given day. As with other decision
areas, transportation departments that avail
themselves of better and more timely
information can derive significant benefits

Conclusions
The supply chain processes emerging from
transportation deregulation, advances in
information technology, time-based
competition, and globalization will continue
to evolve in the early part of the twenty-first
century. The basic concepts of supply chain
management will evolve as firms and
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Theodore P.Stank and Thomas J. Goldsby

information technology development for

decision making in network planning, tactical
planning, communications, transactions and
the effects of Internet/intranet for electronic
commerce. In sum, this framework serves as a
point of reference for managers, educators
and researchers to reconceptualize the role of
transportation in a changing environment.

industries struggle with implementation. This

evolution represents a continuous
improvement process as firms and managers
learn to overcome their fear of change. The
framework presented in this paper is intended
to provide a road map for synthesizing
transportation decisions with an integrated
supply chain approach.
Transportation managers will continue to
encounter significant challenges as their firms
proceed down the road toward supply chain
integration. Managers must encourage their
firms to view the total cost and total value
provided by carriers, and refrain from buying
transportation solely based upon lowest
transactional cost. While this reflects thinking
in line with strategic materials procurement,
many firms that consider goods suppliers to
be strategic partners view transportation
providers as commodities and treat them as
such. Carriers, on their part, must stop selling
price and emphasize the value added by their
services. Additionally, the role of outsourcing
must be addressed. Managers must ensure
that shipper goals are aligned with those of the
transportation provider and that rewards
and risks are shared. Transportation service
providers should be provided with incentives
to seek the shipper's best interest, not its own.
This philosophy suggests that if a
transportation provider is able to reduce a
shipper's overall freight bill, the provider
should receive a share of the savings.
Another intention of the framework is to
suggest areas for further research. Some of
those areas include negotiating and writing
contracts including legal implications and
liabilities, what information to exchange and
how often, what performance measures to
monitor, how to collect them and how often.
Another area of interest lies in the area of

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