Supply Chain Management
Transportation
Session Outline
The role of transportation in the supply chain
Factors affecting transportation decisions
Modes of transportation and their performance
characteristics
Design options for a transportation network
Trade-offs in transportation design
Tailored transportation
Routing and scheduling in transportation
Making transportation decisions in practice
Factors Affecting
Transportation Decisions
Carrier (party that moves or transports the product)
Vehicle-related cost
Fixed operating cost
Trip-related cost
Shipper (party that requires the movement of the
product between two points in the supply chain)
Transportation cost
Inventory cost
Facility cost
Transportation Modes
Trucks 65%: TL & LTL
Rail:3.3 million tons of freight daily
Air
Package Carriers
Water: In India about 96% of the foreign trade by quantity and 70%
by value takes place through the ports.[139] Mumbai Port & JNPT(Navi
Mumbai) handles 70% of maritime trade in India.[140] There are twelve
major ports: Navi
Mumbai, Mumbai, Kochi, Kolkata (including Haldia), Paradip, Visakha
patnam, Ennore, Chennai, Thoothukudi, New
Mangaluru, Mormugao and Kandla.[1
Pipeline: Length of pipelines for crude oil is 20,000 km (12,427 mi).
Length of Petroleum products pipeline is 15,000 kilometres (9,300 mi).
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14-6
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Truckload (TL)
Average revenue per ton mile (1996) = 9.13
cents
Average haul = 274 miles
Average Capacity = 42,000 - 50,000 lb.
Low fixed and variable costs
Major Issues
Utilization
Consistent service
Backhauls
Less Than Truckload (LTL)
Average revenue per ton-mile (1996) = 25.08
cents
Average haul = 646 miles
Higher fixed costs (terminals) and low variable
costs
Major issues:
Location of consolidation facilities
Utilization
Vehicle routing
Customer service
Rail
Average revenue / ton-mile (1996) = 2.5 cents
Average haul = 720 miles
Average load = 80 tons
Key issues:
Scheduling to minimize delays / improve service
Off-track delays (at pickup and delivery end)
Yard operations
Variability of delivery times
Air
Key issues:
Location/number of hubs
Location of fleet bases/crew bases
Schedule optimization
Fleet assignment
Crew scheduling
Yield management
Package Carriers
Companies like FedEx, UPS, USPS, that carry small
packages ranging from letters to shipments of about 150
pounds
Expensive
Rapid and reliable delivery
Small and time-sensitive shipments
Preferred mode for e-businesses (e.g., Amazon, Dell,
McMaster-Carr)
Consolidation of shipments (especially important for
package carriers that use air as a primary method of
transport)
Water
Limited to certain geographic areas
Ocean, inland waterway system, coastal waters
Very large loads at very low cost
Slowest
Dominant in global trade (autos, grain, apparel,
etc.)
Pipeline
High fixed cost
Primarily for crude petroleum, refined
petroleum products, 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?)
Intermodal
Use of more than one mode of transportation to move a
shipment to its destination
Most common example: rail/truck
Also water/rail/truck or water/truck
Grown considerably with increased use of containers
Increased global trade has also increased use of
intermodal transportation
More convenient for shippers (one entity provides the
complete service)
Key issue involves the exchange of information to
facilitate transfer between different transport modes
Design Options for a
Transportation Network
Direct shipping network
Direct shipping with milk runs
All shipments via central DC
Shipping via DC using milk runs
Tailored network
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14-24
Trade-offs in Transportation Design
Transportation and inventory cost trade-off
Choice of transportation mode
Inventory aggregation
Transportation cost and responsiveness trade-
off
Choice of Transportation Mode
A manager must account for inventory costs when
selecting a mode of transportation
A mode with higher transportation costs can be
justified if it results in significantly lower
inventories
Inventory Aggregation: Inventory vs.
Transportation Cost
As a result of physical aggregation
Inventory costs decrease
Inbound transportation cost decreases
Outbound transportation cost increases
Inventory aggregation decreases supply chain costs
if the product has a high value to weight ratio, high
demand uncertainty, or customer orders are large
Inventory aggregation may increase supply chain
costs if the product has a low value to weight ratio,
low demand uncertainty, or customer orders are
small
Trade-offs Between Transportation Cost and
Customer Responsiveness
Temporal aggregation is the process of combining
orders across time
Temporal aggregation reduces transportation cost
because it results in larger shipments and reduces
variation in shipment sizes
However, temporal aggregation reduces customer
responsiveness
Tailored Transportation
The use of different transportation networks and
modes based on customer and product
characteristics
Factors affecting tailoring:
Customer distance and density (LTL & 3PL)
Customer size (L, M, S)
Product demand and value
Risk Management in Transportation
Three main risks to be considered in transportation
are:
Risk that the shipment is delayed
Risk of disruptions
Risk of hazardous material
Risk mitigation strategies:
Decrease the probability of disruptions
Alternative routings
In case of hazardous materials the use of modified containers,
low-risk transportation models, modification of physical and
chemical properties can prove to be effective
Market Factors 5
Customer Profiles
Consumer or Industrial
Customer
Market Factors Size of Market
That Affect
Channel
Choices Geographic Location
Product Factors 5
Product Complexity
Product Price
Product Life Cycle
Product Factors
That Affect
Channel
Choices Product Delicacy
Transportation 7
Cost
Transit Time
Reliability
Criteria Capability
for
Transportation Accessibility
Mode
Choice Traceability
Criteria for Ranking 7
Modes of Transportation
Highest Lowest
Relative
Air Truck Rail Pipe Water
Cost
Transit
Water Rail Pipe Truck Air
Time
Reliability Pipe Truck Rail Air Water
Capability Water Rail Truck Air Pipe
Accessibility Truck Rail Air Water Pipe
Traceability Air Truck Rail Water Pipe
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