chapter 8 chapter 9

CHAPTER 9- DOMESTIC AND CHAPTER 9- DOMESTIC AND INTERNATIONAL TRANSPORTATIONINTERNATIONAL TRANSPORTATION

Principles of Supply Chain Management:

A Balanced Approach

Prepared by Daniel A. Glaser-Segura, PhD

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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IntroductionIntroduction

In 2002 there was $8.4 Trillion in US freight

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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IntroductionIntroduction

Without transportation methods a supply chain can not exist…

But why wouldn’t we ever have transportation methods in the world???

•1934 Longshoreman Strike•2002 Slowdown, The Resolution•Current ILWU Situation•But its not just strikes… Katrina

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Impact of Transportation on Supply Impact of Transportation on Supply Chain ManagementChain Management

Time utility- products are delivered at the right time. Place utility- products are delivered to the desired location.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Fundamentals of TransportationFundamentals of Transportation

The Objective of Transportation- Satisfying customers while minimizing costs & making a profit contribution.

Legal Forms of Transportation-

•Common carriers- Offer transportation services to all shippers at published rates between designated locations without discrimination. TSI Website•Contract carriers- Not bound to serve the general public. Contract carriers serve specific customers under contractual agreements.•Exempt carriers- Exempt from regulation of services & rates & if they transport certain exempt products like produce, livestock, coal, or newspapers.•Private carrier- Not subject to economic regulation & typically transports goods for the company owning the carrier.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

The Modes of Transportation

Motor Carriers (trucks)- most flexible mode of transportation & account for over 80 % of U.S. freight. Trucks compete w/rail & air for short-to medium hauls. Weather is primary disadvantage.•Less-than-truckload (LTL) carriers or truck-load (TL) carriers. LTL carriers move small shipments & fees are higher.•General freight carriers carry the majority of goods shipped & include common carriers. •Specialized carriers transport liquid petroleum, household goods, building materials, & other specialized items.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Rail Carriers- compete most favorably when the distance is long & the shipments are heavy or bulky.

– Rail relatively slow & inflexible, rail roads have begun purchasing motor carriers & can thus offer point-to-point pickup & delivery service known as trailer-on-flatcar (TOFC) service.

– Rail companies use each other’s rail cars. Keeping track of rail cars & getting them where they are needed can be problematic.

– Railroad infrastructure & aging equipment are also problems for the railroads.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Air Carriers- Very expensive relative to other modes but also very fast. Air carriers transport about 5 % of the U.S. freight bill.

– Airlines cannot carry extremely heavy or bulky cargo. – For light, high value goods that need to travel long

distances quickly, most small cities & towns do not have airports.

– Half of the goods transported by air are carried by freight–only airlines, ex. Fedex.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Water Carriers- Inexpensive, slow & inflexible. Include inland waterway, coastal & intercoastal, & deep-sea.

– Inland waterway transportation is used for heavy, bulky, low-value materials (e.g., coal, grain). Competes w/rail & pipeline.

– Water carriers are paired w/trucks to enable door-to-door delivery.

– Supertankers are +1,500 ft long & 200 ft wide.

Pipeline Carriers- Limited in variety they can carry. Little maintenance once pipeline is running. Materials hauled in a liquid or gaseous state.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Intermodal Transportation- Combinations of the various transportation modes, is becoming an extremely popular method.

– Trailer-on-flatcar (TOFC), container-on-flatcar (COFC), piggy-back service. The same containers can be placed on board containerships & airliners.

– ROROs or roll-on-roll-off containerships truck trailers & containers to be directly driven on & off the ship, without the use of cranes.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Third-Party Logistics Services- intermediaries facilitate use of the transportation alternatives.

– Freight forwarders- consolidate shipments to fill trucks or rail cars.

– Transportation brokers- handle transportation requirements of shippers. legally authorized to act as agents on shippers behalf.

– Shipper’s Associations- non-profit orgs that move member’s cargo. Consolidate members’ shipments to get volume discounts.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Fundamentals of Transportation- Cont.Fundamentals of Transportation- Cont.

Transportation Pricing– Cost-of-service pricing- varies based on volume and distance.– Value-of-Service Pricing- services priced at market bearing

competitive levels. A profit maximizing pricing approach.– Terms of Sale- price includes transportation FOB destination free

on board to the shipment’s destination.• FOB Destination• FOB Origination

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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WarehousingWarehousing

Crossdocking- to receive, breakdown, repackage, & distribute components to a manufacturing location or finished products to customers warehouse. Today’s warehouses are more correctly referred to as distribution centers.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Warehousing- Cont.Warehousing- Cont.

Consolidation Warehouses - Collect large numbers of LTL shipments, consolidate, then transport in TL or CL quantities.

Private Warehouses- Refers to warehouses that are owned by the firm storing the goods.

– Owning offers greater control, provides better workforce utilization, & can generate income & tax advantages through leasing of excess capacity &/or asset depreciation.

– Nonetheless, owning a private warehouse represents a financial risk & loss of flexibility.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Warehousing- Cont.Warehousing- Cont.

Public Warehouses- owned by for profit organizations that contract their services to other companies.

– Breakbulk: shipments are broken down & items are combined into specific customer orders.

– Repackaging: items are repackaged for specific customer orders.– Assembly: final assembly operations to satisfy customer requests.– Quality inspections: perform incoming & outgoing quality

inspections.– Material handling, equipment maintenance, & documentation

services.– Storage.

•Pro- Provide the flexibility & investment cost saving. •Con- Disadvantage lack of control.

•Reverse logistics services disposition of returned products

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Warehousing- Cont.Warehousing- Cont.

Warehouse Location– As the number of warehouses increases, the system becomes

more decentralized. Responsiveness & delivery service increase. – However, warehousing operating & inventory costs also increase.

Trade-off between costs & customer service must be considered.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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Warehousing- Cont.Warehousing- Cont.

Warehouse Location Strategies proposed by Edgar Hoover– Market-positioned strategy- warehouses close to customers to

maximize distribution svcs & improve transp. economies of scale.– Product positioned strategy- warehouses close to the sources

of supply to enable the firm to collect goods & consolidate these. – Intermediately positioned strategy- warehouses midway

between the sources of supply & the customers when distribution requirements are high & product assortments come from various locations.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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International Transportation IssuesInternational Transportation Issues

International Freight Security- Conflict between U.S. govt. & industry toward more security & restrictions for inbound shipments.International Intermediaries

– Customs Brokers- move shipments through customs & handle documentation.

– International Freight Forwarders- move goods from production to foreign destination w/ surface & air transportation.

– Trading Companies- Put foreign buyers & sellers together & handle all of the export/import arrangements.

– Non-Vessel-Operating Common Carriers- operate like freight forwarders but use scheduled ocean liners.

– Global Logistics Service Providers- Companies like DHL & UPS offer total global logistics solution.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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International Transportation Issues- International Transportation Issues- Cont.Cont.

Land Bridges- Intermodal movements between Europe & East Asia utilize the United States as a land bridge.

Foreign Trade Zones (FTZs) secure sites in U.S. under supervision of U.S. Customs. FTZs bring goods into the site & offer storage, exporting, manufacturing, assembly, repacking, testing, & repairing services.

North American Free Trade Agreement began on January 1, 1994, & removes most barriers to trade & investment among U.S., Canada & Mexico.

Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan. © 2005 Thomson Business and Professional Publishing

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E-Commerce and TransportationE-Commerce and Transportation

Electronic Invoice Presentment & Payment- A recent development designed to create greater efficiency among companies.

Supply Chain Visibility Technologies- Time managed benefit. Consisting of planned movement of freight; immediate rates & special service fees; make orders; trace shipments; manage other elements of shipments.

Third-Party Electronic Transaction Platforms- Allow shippers & carriers to perform various transactions over the Web. These sites provide freight matching services, auctions, & on–line communities or marketplaces.

Offshore Information Technology Outsourcing- U.S. IT service providers are contracting with offshore IT providers for software development services.