TRANSPORTATION MANAGEMENT DECISION MAKING MODE AND CARRIER SELECTION

TRANSPORTATION MANAGEMENT Transportation management; describe the functional area dedicated to shipper network strategy. Traffic management; used for the tasks of obtaining and controlling transportation services for shippers or consignees or both. applied to a position or an entire department in almost any extractive,raw material,manufacturing, assembling, or distribution firm. Transportation management replaced traffic management Applied to purchase and control of transportation services in some organizations. The transportation manager develops strategies to address the procurement of transportation in general, as well as small,bulk and inbound shipments.

Transportation is often one of the largest cost elements and decisions in this are can be favorably or negatively impact the total distribution performance. Example, slow but low-cost transportation can have an adverse impact on; customer service inventory levels. minimize transportation cost, inventory levels might need to be much higher to accomodate longer transit times. These higher stocking levels, with the resultant increase in inventory-carrying costs, might be more than any saving in freight charges.

Transportation Management Mode of transport Method of selection Transportation costs Fleet sizing and configuration Routing and scheduling Futuristic direction in transportation

Selection of transport

Transportation-Related Service Elements Speed: time-in-transit Availability: accessible to customers when they want it Dependability: pick-up and delivery time variability Flexibility: adjustment to shipper’s needs 7

Selection of Mode of transport.

Method of selection The selection procedure for the transport mode could vary from the simple decision either to identify one feasible method of distribution. Judgment: Identification of the important factors affecting the transport problem by the transport manager, and the transport mode from a list of alternatives available, so that the important features of the transport requirements are met. Cost- trade-off: It is where the impact of transport is calculated in relation to immediate terminal objectives and activities, and the total cost of distribution system is optimized. Distribution models: This identifies and explains the interrelationships between the components of the distribution system at various levels of daily, weekly or monthly demands.

Transportation costs Transport costs vary;less than 1% (for machinery) to over 30 % (for food) of the recommended selling price of products, depending upon the nature of the product range and its market. The average transport costs is between 5 to 6% of the recommended retail price of a product. With inflation, transport costs also rise because the major components are the workforce, fuel, spare parts and overall operating costs.

Fleet sizing and configuration Fleet size can be regulated and minimized by Utilizing standard size pallets and transport containers Vigorously monitoring fleet utilization levels periodically Maintaining total fleet visibility, including loading times, unloading, transit times and maintenance times. Choosing low-use periods to conduct routine maintenance Monitoring and charging for demurrages for fleet detention by suppliers, customers, port authorities and carriers. Utilizing alternative coverage means during super peak periods to avoid carrying the burden of an oversized fleet.

Routing and Scheduling Goals: find best path a vehicle should follow through networks of roads, rail lines, shipping lanes, and air routes determine best pattern for stops, multi-vehicle use, driver layovers, time of day restrictions Benefits: greater vehicle utilization improved and more responsive customer service reduced transportation expenses reduced capital investment in equipment 41

Principles for Good Routing/Scheduling load trucks with deliveries for customers closest to each other stops on individual days arranged together start routes with farthest stops first circular routes - don’t cross paths use largest vehicles first if can be filled mix pickups in with deliveries, not at end if one stop far from other, use other truck avoid narrow stop time windows, or handle separately 42

Routing and scheduling Delay in delivery due to routing problems increase costs of goods manifold. Efficient versus inefficient routing can save tremendous amount of money in fuel, labor, capital expenditures and significantly enhance customer satisfaction. The objectives of routing and scheduling to minimize. Total route costs Number of routes Distance travelled

Routing and scheduling The constraints are Customer requirements and time available Balancing of the route for the driver, to avoid overtaxing Maximum route time Vehicle capacity Start & Stop points enroute Infrastructure constraints

A basic routing problem looks for the best path for a delivery vehicle around a set of customers. There are many variations on this problem, all of which are notoriously difficult to solve. Real problems are much more complicated. competing aims uncertain costs variable delivery times varying speeds caused by traffic conditions customers with different importance and conditions for deliveries incompatible products different logistics facilities

Transportation Strategy Transportation Strategy is concerned with the purchase and control of transportation services. Transportation purchasing decisions include; modal selection, consolidation, private transportation, intermediaries and contracting. The strategies in guiding the transportation decisions are concerned with controlling transportation. Transportation strategies have been seperated into those that apply to all types of shipments, including small and bulk shipments.

Transportation Strategy

Management Strategy: Six Factors Proactive Management Approach Reducing the Number of Carriers Negotiating with Carriers Contracting with Carriers Consolidating Shipments Monitoring Service Quality

Management Strategy: Proactive Management Approach Absence of the regulatory safety net encourages logistics mangers to take a proactive management approach to identify and solve transportation problems. Creativity in problem solving no longer restricted by fixed regulations. Positive attitudes result in using transportation to solve company problems in many functional areas.

Proactive Management Elimination of economic regulations to control transportaiton rates and services, the transportation manager is able to develop innovative approaches to a company’s transportation problems. The transportation manager relies on basic management techniques to seek innovative transportation systems that will provide the company with a competitive price or service advantage in the marketplace.  The thrust of proactive managament strategy is problem solving. Today the transportation manager must rely on his/her ability and creativity to design a transportation system that permits product differentiation and a competitive advantage.

Management Strategy: Reducing the Number of Carriers/Limit Number of Carriers By reducing the number of carriers it uses, a shipper increases its market power and therefore ability to effectively negotiate with its carrier. Consolidation of freight increases the shippers leverage with the remaining carriers. Being one of a carrier’s largest customers gives the shipper increased negotiating power. Shippers become more important to the carriers as they funnel larger volumes to fewer carriers.

Management Strategy: Reducing the Number of Carriers Improved service from the remaining carriers decreased its inventory by $30 million. Supply chain strategic alliances are also created through consolidation. Disadvantage of limiting the number of carriers used is the increased dependency on the carriers that are used.This risk must be balanced against the benefits.

Management Strategy: Negotiating with Carriers Before deregulation, carrier negotiation was almost nonexistent. With the market free of economic regulation all carrier rates and services are matters for negotiation With rate negotiation a common outcome of deregulation, consolidation provides the leverage to successfully negotiate more favorable terms of carriage. Market power; the shipper’s ability to negotiate acceptable rates and services.To increase market power shippers use the strategy of limiting the number of carriers. A shipper’s market power and negotiating strength also determined by the characteristics of its freight.

Management Strategy: Contracting with Carriers Elevating the carrier to partnership status in the supply chain philosophy assists in assuring a win-win arrangement between the partners. As in any contract, special and/or custom services such as JIT can be negotiated. Contracting widely adopted by rail; rates, types of equipment, service levels and minimum quantities are subject to contract terms. Contracting out the entire distribution function and the related information function Subcontracting specific logistics activities to a third-party specialist service provider.

Management Strategy: Consolidating Shipments Small shipment strategies consist of freight consolidation, using drop-off carriers and pooling services and avoid using private motor carrier. The strategic thrust for small shipments is to reduce the inherently high transportation costs associated with small-sized shipments. Shippers are often rewarded with lower rates as the amount shipped increases. Contracts may be written with minimum shipment size per shipment or for annual cumulative shipment size. Quantity/rate discounts are real savings that the carriers pass on to shippers, from 30-50%.

Management Strategy: Monitoring Service Quality Product movements that are consistent, timely, and undamaged can be a competitive advantage for a customer. Trade-offs between speed and cost of service must be analyzed to provide the service customers need without paying for speed that might not be required. Examine the Carrier Evaluation Report; usually on a quarterly basis. Used to assure that carriers are providing the service quality that is demanded or specified by agreement.

Decision Making 1.Step: Mode Selection 2.Step: Carrier Selection 3.Step: Mode and carrier assignment

Mode/Carrier Selection step 1 step 2 Modal Choice basic mode Specific Carrier step 3 intermodal legal type Transport individual carrier provider 31

Examples of Information Flows

Transportation Decision Making in an Integrated Supply Chain Macro Understand total network flows Strategic Understand individual lane flows Decision Flow Understand current carrier usage patterns Decision Scope Make mode/carrier decisions Routing/Scheduling, Load Planning, etc. Micro Operational Supplier Manufacturer Customer Inbound Outbound 18

Choice of Mode Choice of mode depends on a variety of factors.The main ones are the nature of materials to move, the volume and distance. Other factors include: Value of materials Importance Transit times, Reliability Cost and flexibility to negotiate rates Reputation and stability of carrier Security, loss and damage Schedules and frequency of delivery

The Carrier Selection Decision: Various modes of transportation should be considered. Choose a carrier or carriers within the selected mode, if there is a choice. Carefully examine the service capabilities of the carrier as services can vary widely between carriers.

Carrier Selection Determinants: Cost Transit time and reliability Can be a competitive advantage Lowers customers’ inventory costs Capability Accessibility Security

Carrier Selection Determinants and User Implications

The Pragmatics of Carrier Selection: Transit time reliability Negotiated rates Consolidating shipments among a few carriers Financial stability Sales rep Special equipment