Managing the Flow of the Supply Chain

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Presentation transcript:

Managing the Flow of the Supply Chain TRANSPORTATION: Managing the Flow of the Supply Chain

Learning Objectives Learn the role transportation plays in the supply chain. Study the service and cost characteristics of the primary transportation modes. Identify the key activities involved in transportation planning and execution.

Understand how IT supports transportation planning and execution. Learning Objectives, continued Study current transportation management strategies used to improve supply chain performance. Apply service and cost metrics to analysis of transportation performance. Understand how IT supports transportation planning and execution.

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

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 the Transportation Role in SCM Growing practice of outsourcing Increasing complexity of supply chain Competing goals among supply chain partners Changing customer requirements (of defect and error free delivery) Unstable transportation rates in the market place (due to fuel, labor and other expenses) Synchronizing transportation with other supply chain activities

Transportation capacity constraints pose a challenge. Challenges to Carrying out this Role, continued Transportation capacity constraints pose a challenge. Rising transportation rates present another major concern for organizations. The transportation industry is impacted by federal governmental requirements (de-regulation) that affect cost structure and service capabilities. (Local) 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 Motor (Truck) Carriers Rail Water Air Pipeline Multiple modes

Table 10.1 U.S. Domestic Freight Shipments 2007 Source: Bureau of Transportation Statistics, Pocket Guide to Transportation (2011) 32

Modes of Transportation Motor Carriers Widely used mode of transportation in the domestic supply chain 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 (a total of 500K carriers) Truckload carriers. Less-than-truckload (LTL) Small package carriers Low fixed cost, high variable for handling varying commodities and shipment sizes

Figure 10.1 Motor Carrier Options Source: American Trucking Trends 2003 p 60

Railroads 563 railroads, but only seven Class I railroads. Modes of Transportation, continued Railroads 563 railroads, but only seven Class I railroads. Class I railroad carriers generated $46B of revenues and handled 26M carloads and 9.9 intermodal trailers and containers. BNSF railway, CSX transportation, Norfolk Southern Railway, and Union Pacific Railroad are the four Class I dominant carriers. Railroads are for long-distance movement of low value raw materials and products. They are “natural monopolies”. Two carrier types: Linehaul: between major markets and customers. Shortline: the local and regional links between customers and the national rail network of the Class I railroads. High fixed, low variable

Air Carriers Water Carriers Modes of Transportation, continued Air Carriers Historically viewed as expensive and used only for emergency There has been a sustained growth lately for small, expensive and perishable items. $594B globally and $33B in the US in 2010 in air freight. 22 out of 88 are considered a major carrier (>$1B) by FAA, including FedEx, UPS, Delta, and United. Water Carriers Carried a total of $115B worth of cargo and 4.7% of total tonnage. 652 carriers in the US domestic and half of them on the Mississippi river. They compete heavily with railways. High variable and low fixed cost

Pipelines, continued Intermodal Modes of Transportation, continued Pipelines, continued Considered as the “hidden giants” handling 5.2% of US freight tonnage. Very economical form of transp. Three primary types Gathering lines: very small pipelines (2-8 in.) Trunk lines: 8-24 inches in diameter Refined product pipelines up to 42 inches 95K miles in total in the US, in addition to gaslines High fixed, high volume, versus low variable Intermodal 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.

Intermodal, continued Product-handling characteristics Modes of Transportation, continued Intermodal, continued Product-handling characteristics Containerized freight Transload freight

Figure 10.2 Widely Used Intermodal Combinations Source: Brian J. Gibson, Ph.D.

Figure 10.3 Transport Management Planning Activities Source: Brian J. Gibson, Ph.D.

Transportation Planning and Strategy Functional Control of Transportation Which department will be responsible for transportation? logistics procurement Marketing Terms of Sale Free-on-board (FOB) Origin FOB destination

Table 10.2 Responsibilities Under FOB and Payment Terms Source: Adapted from Bruce J. Riggs, “The Traffic Manager in Physical Distribution Management”, Transportation and Distribution Management, 1968 p. 45

Decision to Outsource Transportation Transportation Planning and Strategy, continued 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

Modal Selection, continued Transportation Planning and Strategy, continued Modal Selection, continued Reliability Reliability advantage: Motor carriers and air carriers Reliability disadvantage: Water carriers and rail carriers 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

Table 10.3 Comparison of Modal Capabilities Source: Brian J. Gibson, Ph.D.

Table 10.4 Performance Ratings of Modes Source: Edward J. Bardi, Ph.D.

Carrier Selection Rate Negotiations Transportation Planning and Strategy, continued Carrier Selection Selecting the individual transportation service providers within the mode. Major difference between modal and carrier selection is the number of options and decision frequency. 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.

Transportation Execution and Control Shipment Preparation Corporate transportation routing guide Last-minute, cost-saving decisions consolidate freight coordinate shipment deliveries take full advantage of container capacity an accurate freight count should be taken

Freight Documentation Transportation Execution and Control, continued Freight Documentation Bill of lading originates the shipment provides all the information the carrier needs stipulates the contract terms, including carrier’s 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 carrier’s invoice for carrier charges listing: shipment origin and destination consignee items total weight total charges

Maintain In-Transit Visibility Transportation Execution and Control, continued 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 Transportation Execution and Control, continued 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) Transportation Execution and Control, continued 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

Table 10.5 Transportation Performance Scorecard Source: Brian J. Gibson, Ph.D.

Summary 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. Managing the transportation process for maximum supply chain impact requires considerable knowledge of transportation options, planning, decision making, analytical skills, and information sharing capabilities.

Summary, continued Transportation is a key supply chain process and must be included in supply chain strategy development, network design, and total cost management. Numerous obstacles—global expansion of supply chains, rising costs, limited capacity, and government regulation—must 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, continued 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 will goods 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.

Summary, continued 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. 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. Organizations must continue to manage freight after it has been tendered to carriers by maintaining in-transit visibility of shipments and monitoring carrier performance.

Summary, continued 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. Transportation management systems are widely used information technologies that support the effective planning, execution, and analysis of transportation processes.