1 utdallas.edu/~metin Managing Transportation in a Supply Chain Chapter 13

2 utdallas.edu/~metin Parties Involved in Transportation Carriers, owners of the vehicles; E.g. Passengers by Southwest airlines; Cargo by Cargolux airlines, only freight; Passengers and cargo by railways Care about u Vehicle related costs u Fixed operating costs, hubs u Trip related costs u Quantity related cost u Overhead cost Shippers, consolidator of shipments; E.g. Postal service; Administrative assistants; Care about u Transportation cost -paid to carriers u Inventory cost u Consolidating facility cost u Processing cost u Service levels, customer satisfaction Is FedEx a Carrier or a Shipper?

3 utdallas.edu/~metin 14.3: Transportation Modes u Trucks –TL: Truckload. High utilization of trucks. –LTL: Less than truckload. Fast delivery. »Suffering from high transportation costs, Lennox wants to use more TL in the future. u Rail –Carload –Intermodal u Air u Package Carriers u Water u Pipeline

4 utdallas.edu/~metin Truckload (TL) u Average revenue per ton mile in 1996 = 9.13 cents u Average haul = 274 miles u Average Capacity = 17.5 to 21 tons = 42, ,000 lb. u Low fixed and variable costs u Major Issues –Coordination of local and interstate hauls –Utilization –Backhauls »Return trips are empty »What to send back to China from the U.S.? –Consistent service among different companies –Dynamic pricing, is the industry ready?

5 utdallas.edu/~metin Less Than Truckload (LTL) u Average revenue per ton-mile in 1996 = cents u Average haul = 646 miles compare to 274 miles of TL u Higher fixed costs (terminals) and low variable costs u Major Issues –Location of consolidation facilities –Utilization –Vehicle routing –Customer service

6 utdallas.edu/~metin Rail u Average revenue / ton-mile in 1996 = 2.5 cents u Average haul = 720 miles u Average load = 80 tons u Key Issues –Scheduling to minimize delays / improve service –Off track delays (at pick up and delivery end) –Yard operations »To build a train – on the next page –Variability of delivery times

7 utdallas.edu/~metin Yard operations to build a train Cities: Disassembling and assembling a train

8 utdallas.edu/~metin Air u Key Issues for Passenger Airlines, $250 B /year –Cost cutting, costs in 2004 are about $0.1 per customer per mile –Location/Number of hubs –Depeaking: Moving operations away from rush hours –Location of fleet bases / crew bases –Schedule optimization, Fleet assignment, Crew scheduling »Recent idea: Always keep the same crew with the same aircraft –Yield management u Cargo Airlines, $40 B /year –Shape, weight, volume of the cargo –Cargo shippers, consolidators –Safety: Risk sharing between shipper and carrier. New legislation expected. u Service supply chains deal heavily with airline issues

9 utdallas.edu/~metin How far does 1 Ton of Cargo go with 1 Gallon of Fuel? Source: Brian Wickett Fall 2007 SCM student

10 utdallas.edu/~metin An Example of Multimodal Cargo Transportation Source: “A Threat in Every Port”. By L. M. Wein. NYT OpEd article on June 14, 2009.

11 utdallas.edu/~metin 14.4: Transportation System Design u AC Delco : Very high value, low volume parts –Three plants: Milwaukee(Wisc), Kokomo(Ind), Matamoros(Mex) –21 assembly plants (customers for above plants) u Products: ACs, batteries, hoses, brakes, belts, etc. –What are the distribution options?

12 utdallas.edu/~metin All Shipments Direct Milwaukee Kokomo Matamoros Milwaukee Kokomo Matamoros All Shipments Via Kokomo (with or without cross dock)

13 utdallas.edu/~metin Milk Runs Milwaukee Kokomo Matamoros Milk run is a loop containing either a single supplier or a single retailer. Milk Runs From Kokomo Milwaukee Kokomo Matamoros Milk Runs From Plants

14 utdallas.edu/~metin Shipments via a Central Warehouse Milwaukee Kokomo Matamoros Milwaukee Kokomo Matamoros Shipments via a Central Warehouse Using Milk Runs

15 utdallas.edu/~metin Cross Docking This approach is useful if deliveries are time sensitive and there are several small dropoffs in proximity, not all of which can be delivered on a single truck. Items are shifted from one truck to another without going in to storage. Timing of truck arrivals/departures is very crucial. Milwaukee Kokomo Matamoros

16 utdallas.edu/~metin Summary u Key modes of transport and major issues u Transportation options