1. CHAPTER 9 Decision Strategies in Transportation

2. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 9-2 Areas in the Supply Chain Affected by Transportation Source: Adapted from The Emergence of Third Party Logistics, White Paper no. 4 (Atlanta, GA: PricewaterhouseCoopers, 1998), p. 5.

3. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 9-3 Mode/Carrier Selection Problem recognition Search process Choice process Postchoice evaluation

4. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 9-4 Cost Factors Often Considered in Mode Carrier Selection Freight costs Inventory carrying costs –inventory in pipeline –cycle stock at the receiving location –required safety stock at the receiving location Investment cost required to produce the inventory to fill the pipeline a

5. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 9-5 Service Factors Often Considered in Mode Carrier Selection Perceived quality of customer service Shipment tracking and tracing capabilities Billing/invoicing accuracy Electronic data interchange (EDI) capabilities Potential to develop mutually beneficial long-term partnership Cargo capacity limitations Ability to provide service that does not damage goods in transit Customs clearance capabilities for international shipments Impact on the shipper’s negotiating position/leverage on other shipping activities 9-4 b

6. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 9-6 10 Steps in Evaluating Private Carriage Option 1. Define the problem. 2. Develop transport objectives. 3. Collect pertinent information 4. Determine present cost. 5. Analyze present operations. 9-5 a

7. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 9-7 10 Steps in Evaluating Private Carriage Option (cont.) 6. Develop alternatives. 7. Determine private fleet costs. 8. Consider indirect factors. 9. Summarize alternatives. 10. Make the decision. 9-5 b

8. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 9-8 Financial Considerations in the Decision to Private Carriage Capital Requirements Annual Cash Inflows Cost of buying or leasing fleet Cost of maintenance facilities Cost of terminal facilities Savings over using public carriers Reduction in lost sales Reduction in inventory carrying costs due to more efficient routing Total 9-6 a

9. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 9-9 Financial Considerations in the Decision to Private Carriage (cont.) Annual Cash Outflows Fuel Labor - drivers Labor - maintenance and terminal Insurance - trucks - drivers -maintenance and terminal facilities License fees Parts supply Utilities Supervision Administrative- billing, telephone, accounting Total Annual cash inflows - Annual cash outflows 9-6 b

10. Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 9-10 Steps in Logistics Alliance Formation Objectives and selection criteria Identify qualified vendors Needs determination and request for bids Evaluate bidders and select Integrate logistics providers with own systems Implement and manage the relationship Measure performance and analyze deviations Redefine goals and objectives Know your needs and wants Define criteria Phase 1 Need awareness Phase 2 Planning and management Phase 3 Evaluation Know the marketplace Cooperate in management and control Cooperate in critical review Logistics IS Train partners Revisit needs and provider capability Identify partners Articulate needs and wants DO ACT CHECK PLAN Continuous Improvement Process Logistics Alliance Phases 7-7