Transportation Management CHAPTER 13 Transportation Management Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Learning Objectives To explain contemporary transportation management To discuss how rates are determined To learn about modal and carrier selection Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Learning Objectives To distinguish among various transportation documents To illustrate select activities associated with making and receiving shipments To learn about transportation service quality Copyright © 2015 Pearson Education, Inc.

Transportation Management Key Terms Amodal shipper Bill of lading Class rate system Commodity rate Concealed loss or damage Demurrage Density Detention Documentation Expediting FOB destination Copyright © 2015 Pearson Education, Inc.

Transportation Management Key Terms FOB origin Freight bill Freight claims Rate Routing Routing guide Stowability Tracing Transportation Management Copyright © 2015 Pearson Education, Inc.

Contemporary Transportation Management refers to the buying and controlling of transportation service by either a shipper or consignee1 Transportation is the most costly logistics activity 1Source: John J. Coyle, Edward J. Bardi, and Robert A. Novack, Transportation, 6th ed. (Mason, OH: South-Western, 2006). Copyright © 2015 Pearson Education, Inc.

Contemporary Transportation Management Transportation managers also involved in other operations of the firm Marketing Manufacturing Outbound shipping Purchasing Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Rate Determination One key responsibility of transportation managers Rate Price charged for freight transportation Fare Prices charged for passenger transportation Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Rate Determination Weight x rate = transportation charge Transportation rates based on three factors Product Weight Distance Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Rate Determination Commodity rate One specific rate for every possible combination of product, weight, and distance Class rate system System to simplify rate determination Freight classification used to simplify the number of commodities National Motor Freight Classification (NMFC) Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Rate Determination Factors used for determine product’s freight classification Density refers to how heavy a product is in relation to its size Viewed as primary factor for setting a product’s classification Stowability refers to how easy the commodity is to pack into a load possible considerations involve the commodity’s ability to be loaded with hazardous materials and ability to load freight on top of the commodity Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Rate Determination Factors used for determine product’s freight classification Ease of difficulty of handling refers to challenges to handling that might be presented by a commodity’s size, weight, and so on Liability for loss and damage considers, among others, a commodity’s propensity to damage other freight, its perishability, and its value Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Rate Determination Weight groups are used to simplify shipment weight Weight group examples: <500 lbs (highest rate) 500-999 lbs 1000-1,999 lbs Distances are simplified through rate basis numbers Zip codes are replacing rate basis numbers Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Rate Determination Commodity Classification Standards Board develops and maintains commodity freight classifications Shippers prefer lower classification number (lower rate) Carriers prefer higher classification number (higher rate) Transportation managers can appeal a commodity’s classification Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Rate and Service Negotiations Both rates and service levels may be negotiated due to economic deregulation Allows transportation managers to take advantage of trade-offs between price and service Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Copyright © 2015 Pearson Education, Inc.

Rate (Pricing) Considerations Rate and Service Negotiations Domestic terms of sale When freight charges are paid for a particular domestic shipment Transportation cost analysis Copyright © 2015 Pearson Education, Inc.

Modal and Carrier Selection Two-step process First determine appropriate mode(s) Then select carrier(s) within the chosen mode(s) Carrier selection is more challenging Difficult to be aware of every possible carrier Lack of agreement on the number of relevant factors Copyright © 2015 Pearson Education, Inc.

Modal and Carrier Selection Amodal shipper Refers to a transportation manager who purchases a prespecified level of transportation service and is indifferent to the mode(s) and or carrier(s) used to provide the actual transportation service. Research indicates shippers are more interested in transportation metrics than in modes Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Documentation Documentation Serves practical function What, where, and how much is being transported Potentially provides legal recourse Transportation department is responsible for completing all documents needed to transport the firm’s products Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Documentation Bill of lading Functions as a delivery receipt when products are tendered to carriers Bill of lading classifications Straight bill of lading Order bill of lading Long-form bill of lading Preprinted short-form bill of lading Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Documentation Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Documentation Freight bill Invoice submitted by the carrier requesting to be paid Freight bill-paying service Automated service in attempt to pay carriers within a specific number of working days Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Documentation Freight bill Internal audits Conducted to detect current errors that result in overcharges and to Correct these errors in the future External audits Work is performed by an independent third party to detect errors in freight bills Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Documentation Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Documentation Freight claims Refers to a document that notifies a carrier of wrong or defective deliveries, delays, or other delivery shortcomings Concealed loss or damage difficult for shippers and carriers Refers to situation where loss or damage is not apparent until after a shipment has been unpacked and inspected Copyright © 2015 Pearson Education, Inc.

Making and Receiving Shipments Key area of decision making in transportation management involves making and receiving shipments Refers to tactical planning and control of shipments along with supervision of freight loading and unloading Source: John E. Tyworth, Joseph L. Cavinato, and C. John Langley, Traffic Management: Planning, Operations, and Control (Prospect Heights, IL: Waveland Press, 1991). Copyright © 2015 Pearson Education, Inc.

Making and Receiving Shipments Consolidating small shipments Shipments > 150 and < 500 pounds To get a lower rate, shipment consolidation may occur: aggregating customer orders across time or place or both Copyright © 2015 Pearson Education, Inc.

Making and Receiving Shipments Copyright © 2015 Pearson Education, Inc.

Making and Receiving Shipments Demurrage and Detention Demurrage Penalty payment made to the railroad for keeping a railcar beyond the time when it should be released back to railroad Detention Same concept as demurrage except it usually refers to the trucking industry Copyright © 2015 Pearson Education, Inc.

Making and Receiving Shipments Routing Process of determining how a shipment will be moved between origin and destination1 Routing guide Example of routing Document that can provide a variety of shipment-related information 1http://www.cscmp.org/sites/default/files/user_uploads/resources/downloads/glossary.pdf Copyright © 2015 Pearson Education, Inc.

Making and Receiving Shipments Tracking and Expediting Tracking Refers to determining a shipment’s location during the course of its move Expediting Involves the need to rapidly move a shipment to its final destination Copyright © 2015 Pearson Education, Inc.

Transportation Service Quality Macroenvironmental changes have caused organizations to demand higher levels of service quality Economic deregulation allowed for both price and service competition resulting in a need to measure performance Can measure performance through the use a performance scorecard Copyright © 2015 Pearson Education, Inc.

Transportation Service Quality Copyright © 2015 Pearson Education, Inc.

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