Chapter 10 TransportationManaging the Flow of the Supply Chain Learning Objectives

After reading this chapter, you should be able to do the following:

Explain the role transportation plays in the supply chain. Discuss the service and cost characteristics of the primary transportation modes. Discuss the key activities involved in transportation planning and execution.

Learning Objectives (cont.)

After reading this chapter, you should be able to do the following:

Explain current transportation management strategies used to improve supply chain performance.

Use service and cost metrics to analyze transportation performance.

Describe how information technology supports transportation planning and execution.

Introduction
Transportation

involves the physical movement of goods between origin and destination points. transportation system links geographically separated partners and facilities in a companys supply. facilitates the creation of time and place utility in the supply chain. also has a major economic impact on the financial performance of businesses.

The

Transportation

Transportation

Role of Transportation in Supply Chain Management

Transportation provides the critical links between these organizations, permitting goods to flow between their facilities. Transportation service availability is critical to demand fulfillment in the supply chain. Transportation efficiency promotes the competitiveness of a supply chain

Challenges to Carrying out This Role

supply chain complexity competing goals among supply chain partners changing customer requirements limited information availability synchronizing transportation with other supply chain activities

Challenges to Carrying out This Role

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.

Modes of Transportation
primary

modes of transportation

truck rail air water pipeline intermodal transportation

Modes of Transportation

moves approximately 19.5 billion tons valued at nearly $13 trillion Modal breakdown:

Trucking 80.0 % $635 billion

Rail 06.7%
Air 04.7% Water 04.6% Pipeline 01.2%

Modes of Transportation

Motor Carriers

widely used mode of transportation in the domestic supply chain 573,469 private, for hire, and other U.S. interstate motor carriers economic structure of the motor carrier industry contributes to the vast number of carriers in the industry
comprised of for-hire and private fleet operations

Truckload carriers. Less-than-truckload (LTL) Small package carriers

Low fixed cost, high variable

Modes of Transportation

Modes of Transportation
Railroads 7 Class I railroads revenues in excess of $290 million

Activity levels have been achieved despite a lack of direct accessibility to all parts of the supply chain

Railroads are natural monopolies

Two carrier types: Linehaul Shortline carriers High fixed, low variable

Modes of Transportation
Water Major facilitator of international trade 81% international freight movement 19% coastal, inland, and Great Lakes traffic High variable and low fixed cost Two primary carrier types

Liner Charter Container ships Bulk carriers Tankers General cargo ships Roll-on, roll-off (RORO) vessels

Options include

Modes of Transportation
Air Carriers

491 air cargo carriers Combination carriers Air cargo carriers Integrated carriers Nonintegrated carriers

Domestic market is dominated by 14 major carriers High variable and low fixed cost

Modes of Transportation
Pipeline Unique mode of transportation as the equipment is fixed in place and the product moves through it in high volume 174 operators of hazardous liquid pipelines that primarily carry crude oil and petroleum products Three primary types

Gathering lines Trunk lines Refined product pipelines

High fixed versus low variable

Modes of Transportation
Intermodal Transportation Use of two or more different modes in movement Greater accessibility Overall cost efficiency Facilitates global trade Development of standardized containers that are compatible with multiple modes. Product-handling characteristics

Containerized freight Transload freight

Modes of Transportation

Functional Control of Transportation

Which department will be responsible for transportation?

Logistics Procurement

Marketing

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

Modal Selection
Accessibility

Accessibility advantage: Motor carriage Accessibility disadvantage: Air, rail, and water

Transit

Time

Transit time advantage: Air and motor carriage Transit time disadvantage: Rail, water, and pipeline

Reliability

Reliability advantage: Motor carriers and air carriers Reliability disadvantage: Water carriers and rail carriers

Modal Selection
Product

Safety

Safety advantage: Air transportation and motor carriage Safety disadvantage: Rail and water
Cost

Cost advantage: The cost of transportation service varies greatly between and within the modes Cost disadvantage: Motor carriage and air transportation

Modal Selection

The nature of a productsize, durability, and value Durability

Product value
Shipment characteristicssize, route, and required speed

Carrier Selection

selecting the individual transportation service providers within the mode major difference between modal and carrier selection is the number of options difference is the frequency of the decision

type of service provided within a mode impacts carrier selection

most carriers have the capabilities to provide a similar level of service Core carrier

limited number of carriers leverage its purchasing dollars

Rate Negotiations

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

Shipment Preparation
corporate

transportation routing guide cost-saving decisions

last-minute,

consolidate freight coordinate shipment deliveries take full advantage of container capacity an accurate freight count should be taken

Freight Documentation
bill

of lading
originates the shipment provides all the information the carrier needs

stipulates the contract terms, including carriers liability for loss and damage
acts as a receipt for the goods the shipper tenders to the carrier in some cases, shows certificate of title to the goods

Freight bill

carriers invoice for carrier charges lists:

shipment origin and destination consignee items total weight total charges

Freight claims form

Filed with the carrier to recoup monetary losses resulting if carrier fails to protect the shipment. Carriers are not liable for freight claims if the damage is attributable to:

Natural disaster or some other act of God Military attack or similar act of public enemy Government seizure of freight or act of public authority Failure to adequately package the freight or other negligent act of the shipper Extreme fragility, perishability, or similarly problematic inherent nature of the goods

Maintain In-Transit Visibility

manage key events as product moves across the supply chain technology facilitates the ability to monitor product visibility tools must be linked to other capabilities and processes to have an impact on supply chain event management

Monitor Service Quality

analyze the outcome of all their transportation strategy, planning, and decision-making

key requirement for service quality monitoring is information

Transportation Metrics key performance indicators (KPIs)

can be used to evaluate

current performance versus historical results

internal goals carrier commitments

challenge lies in narrowing down metrics available to monitor performance to a manageable number of KPIs primary categories of transportation KPIs include service quality and efficiency

Transportation Management Systems (TMS)

Critical 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

Load tendering Status tracking Appointment scheduling

Summary

Without question, transportation is a very dynamic activity and a critical supply chain process. Not only is it the largest logistics cost component in most supply chains, but it also directly impacts fulfillment speed and service quality. By providing the physical links between key participants across domestic and global supply chains, transportation facilitates the creation of time and place utilities. Organizations with highly efficient and effective transportation processes can differentiate their product in the marketplace through lower landed costs and greater inventory availability. Managing the transportation process for maximum supply chain impact requires considerable knowledge of transportation options, planning, decision making, analytical skills, and information sharing capabilities.

Transportation is a key supply chain process and must be included in supply chain strategy development, network design, and total cost management. Numerous obstaclesglobal expansion of supply chains, rising costs, limited capacity, and government regulationmust be overcome to synchronize transportation with other supply chain processes.

Fulfillment of supply chain demand can be accomplished through five modal options or the intermodal use of truck, rail, air, water, and pipeline transportation.

Summary (cont.)

Multiple planning activities occur prior to carrier and mode selection: who will be responsible for managing the transportation function within the organization, what terms of sale and payment will be used, and how goods will be transported must all be determined with a strategic supply chain focus. Mode selection is based on the relative strengths of each modal/intermodal option in terms of accessibility, transit time, reliability, safety and security, transportation cost, and the nature of the product being transported. Carrier selection focuses on the type of service required (direct or indirect), geographic coverage, service levels, and carrier willingness to negotiate reasonable rates. Most commercial freight moves under contractual rates that are negotiated directly between freight buyers and transportation companies for specific volumes of tailored services at mutually agreed-upon prices.

Summary (cont.)

Shipment routing guides help organizations ensure internal compliance with service contracts and maintain centralized control over freight tendering decisions. Freight documentation provides the details of each shipment, sharing critical information that promotes uninterrupted flows of goods through the supply chain. Domestic transportation documents include the bill of lading, freight bill, and freight claims, while international freight requires additional paperwork such as a commercial invoice, shippers letter of instructions, certificate of origin, and insurance certificates. Organizations must continue to manage freight after it has been tendered to carriers by maintaining in-transit visibility of shipments and monitoring carrier performance. Numerous metrics are available to evaluate transportation service quality in terms of carrier timeliness, freight protection, accuracy, and perfect deliveries. Service efficiency measures focus on spending proficiency, asset utilization, and labor productivity.

Summary (cont.)

Transportation management systems are widely used information technologies that support the effective planning, execution, and analysis of transportation processes. Emerging tools such as event management and RFID have the potential to improve supply chain visibility and dynamic response to potential challenges.