Supply Chain Management Principles LB 6: Transportation Operations Overview

LB Objectives Understand how different areas of product transportation affect the overall success of companies Recognize supply chain technology tools used in transportation systems Identify the challenges in establishing efficient and effective transportation processes within industries Determine which modes of transportation are more cost-effective in given situations and why Demonstrate metrics used to measure transportation service quality and efficiency LO1

Transportation Operations Overview Transporting goods often require multiple modes of transportation and can vary based on: Cost Values Dimensions Weights Time-definite delivery requirements, and Other special considerations LO2

Availability of Service Availability of transportation systems is essential to fulfilling customer demand in the supply chain Availability impacts company’s ability to compete in certain markets The modes of transportation are: Truck Train Ship Plane Pipeline LO1

Efficiency of Service Demand for transportation is derived from customer demand Low-cost transportation has no value if products do not arrive on time to the correct location or if they are damaged Managing transportation processes can be complex and includes obstacles. Effective transportation systems impact an organization’s ability to thrive in the market place. Keys to transportation are: The right products The right customers The right quantities The right conditions The right places The right times The right costs LO1

Challenges Complexity of Chains – Competitive markets and increases in customer requirements. Creates less cost-efficient supply chain Growth of offshore manufacturing – Reliance on global supply chains requires expensive transportation processes Customer demands for more tailored service – Use of 3PL’s…Advantages include: enhanced customer service capabilities, greater flexibility affecting variable costs, improved operational efficiency & reduced capital expenditures LO2

Challenges Capacity constraints from other types of infrastructure – Transportation capacity constraints can create roadblocks Rising transportation rates – Carriers may raise prices as cost of fuel, labor, & equipment increase Government regulations – DoT’s 13 bureaus regulate the five transportation modes. These bureaus include: Federal Motor Carrier Service Administration Federal Highway Administration Federal Aviation Administration Federal Railroad Administration Maritime Administration Federal Transit Authority National Highway Traffic Safety Administration Pipeline and Hazardous Material Safety Administration LO2

Modes of Transportation There are five major modes of freight transportation Motor Carriers or Road Transport or Common Carriers – Most widely used domestic mode of transportation because most freight is routed regionally Characteristics of Road Transport: Mode of choice for high-value, time-sensitive goods Highly competitive industry due to low barriers to entry. You only need a truck and a driver Two main categories are for-hire and private fleet Challenges include: Rising costs, driver shortages, and competition LO3

Modes of Transportation Railroads are used for high-volume and when the distance exceeds 900 miles The characteristics of railroad transportation are: Highest cost per ton mile (one ton of freight carried one mile) mode of transportation Used for long-distance movement of low-value raw materials and manufactured goods Cost of entry is high for buying locomotives, rail cars, and building & maintaining railroad tracks Rail equipment is organized in loads and transported by manifest rains, unit trains, or intermodal trains Challenges: large investment, virtually unchangeable tracks LO1

Modes of Transportation Air Transport – Often viewed as too expensive and used only in emergencies. However, the importance of maintaining lower inventory levels has created the need for airfreight as a faster option with JIT The characteristics of airfreight are: Ecommerce has increased the need for airfreight International air transportation is projected to grow Choice for shipping small quantities of high-value & low weight semi-finished goods Challenges are: Cost issues for profitable growth, competition and security LO5

Modes of Transportation Water Transportation is the major mode for international trade and dominates other modes in international freight revenue Characteristics of Water Transportation are: Slow, high volume freight, efficient fuel, & low cost Wide variety of goods from low value commodities to imported automobiles Two types dominate for hire-carriers: Liner services and charter services Use of specialized ships: container ships, bulk carriers and tankers Challenges: Capacity, trade imbalances, rising costs, piracy, & careful planning for perishable cargo LO5

Modes of Transportation Pipeline Transport – the hidden giant of transportation. Used for inter-city ton-mileage of freight. Characteristics are: Equipment is in place thus providing a warehousing function while protecting product from contamination Most economical mode of transportation with lowest cost per ton-mile U.S. has the largest network of pipelines Comprised of for-hire and private carriers Challenges include: Issues of safety and security LO5

Modes of Transportation Intermodal is the use of two or more modes to transport and deliver the same cargo Significant growth in the last twenty years using railways, ships, and trucks without handling cargo Benefits of intermodal transportation include: Greater accessibility by linking individual modes of transportation Cost efficient without sacrificing quality of service Ease of global trade Growth is attributed to: Better information systems for tracking, development of intermodal terminals, & creation of standardized containers Challenges: Congestion in transfer points, capacity, and labor issues LO5

Transportation Proceses Shipment Preparation - Transportation decisions must take the following into consideration: Shipment size Route Delivery method Freight documentation Additionally, products must be packed and packaged properly to prevent shipping and transportation damage and ensure safe delivery When products are shipped, in-transit problems must be resolved, and quality of service must be monitored LO5

Transportation Processes Shipment preparations - To maximize efficiency & effectiveness, companies maintain corporate transportation routing guides which contain instructions on: Packing & Packaging Carton and shipment labeling Insurance and billing requirements Advanced shipping notification These strategies promote centralized control over the number of carriers used and ensure contractual agreements with carriers are being fulfilled LO5

Freight Documentation Shipment documents state what it contains, where it is, where it is going, & to whom it is being sent The most common types of documentation are: The bill of lading The freight invoice The freight claim Shippers instruction letters help ensure freight is handled and shipped according to their requirements LO5

Freight Documentation The Bill of Lading – This is an official document or contract that can be used in a court of law. It is proof of an agreement between companies responsible for shipping goods and companies transporting those goods It contains an explanation of the goods, the quantity being transported, and their destination They are generated by the shipper or 3PL company It functions as the receipt upon delivery, must accompany the goods, and must include authorized signatures from shippers, carriers, & receivers LO5

Freight Documentation Freight bills or freight invoices – These are distinct from bills of lading because they do not serve as evidence in any potential dispute Freight bills differ from bills of lading because they include additional specific information, including transaction-related information and charges that describe the information on the bill of lading LO5

Freight Documentation Freight Claim – aka shipping claims, cargo claims, transportation claims, or loss & damage claims. Freight claims are considered to be legal claims by shippers or consignees against carriers for financial compensation for loss or damage of shipments The three types of freight claims include: Shortage or loss Damage Delay Damage can be apparent or concealed. They are concealed when the damage is discovered after the shipment has been signed and received with no visible damage noticed on the cartons or products LO5

Safety & Security While deregulation by government has provided more freedom to operate competitively, regulation has increased in other areas related to quality of life Legislation has been passed to improve safety in the transportation industry, reduce its impact on the environment and protect the country against terrorism. The Department of Transportation introduced new regulations regarding hours of service rules, effective July, 2013 Drive 11 hours within a consecutive 14-hour period, off for 10 hours Average maximum work week: 70 hours from the previous 82 hours After 70 max. hours, allow drivers to resume driving if they rest for 34 consecutive hours including at least 2 nights from 1AM-5AM Require 30-minute break during the first 8 hours of a shift LO5

Safety & Security Other regulations include: Environmental protection relating to noise pollution Air pollution Hazardous waste material Known shippers Vehicle emissions Industry experts argue that vehicle emission regulations have led to: Higher fuel prices More expensive truck engines Lower fuel efficiency Hours of service operations have led to rate increases at driving organizations LO5

Quality of Service Control of freight in transit assist buyers in meeting customers’ needs. The following service quality areas are monitored for carrier performance: Customer service demands Service level of carriers Shipment date, arrival date, & damage information Use of standardized scorecards KPI’s for carrier performance are used for benchmarks & internal review. They are compared against the competition Transportation spending efficiency Freight protection Delivery service quality Customer satisfaction LO5

Transportation Management System (TMS) TMS includes software tools that support the movement of goods throughout the supply chain TMS tools assist buyers and managers make pre-shipment decisions TMS works with an OMS, WMS, & other planning tools TMS software applications include: Routing and scheduling Planning how to load containers or vessels Tracking orders Performance reporting and scorecarding LO5

Transportation Planning & Strategy Inbound Logistics – Transport, storage, and delivery of goods coming into a business (Company/Supplier relationship) Outbound Logistics – Transport, storage, and delivery of goods leaving a business. Deals exclusively with end customers Reverse Logistics – Transportation of goods returned from customer to manufacturer LO5

Transportation Planning & Strategy Companies choose between using their private fleets or external service providers Private fleets can be: Cost-effective Provide flexibility in scheduling External Service Providers include for-hire carriers and 3PL’s that can: Eliminate the need for larger capital investments Transfer risks like insurance liability Labor safety Government regulations Other transportation services LO5