426 W5: Case Discussion
Tie3D
Ch11PPT10e.pptxCHAPTER 11
Transportation—Managing the Flow of the Supply Chain
Supply Chain Management: A Logistics Perspective (10e)
Coyle, Langley, Novack, and Gibson
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May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Discussion Outline
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The role of transportation in supply chain management
Modes of transportation
Transportation planning and strategy
Transportation execution and control
Transportation technology
The Role of Transportation in Supply Chain Management (SCM)
Transportation provides the critical links between organizations in a supply chain network, permitting goods to flow between their facilities. Transportation also influences supply chain design, strategy development, and total cost management.
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Transport service availability
Transport efficiency
Customer-focused transport
Effective transport
Demand fulfillment
Supply chain competitiveness
Organization success
Supply chain flexibility
The Role of Transportation in SCM Role Inhibitors
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Offshore manufacturing
Changing customer requirements
Transportation capacity constraints
Transportation rate variation
Growing governmental requirements
Modes of Transportation
Modes of Transportation
The five basic modes of transportation and intermodal transportation each has different economic and technical structures, and each can provide different qualities of link service.
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| Mode of Transportation | Value of Goods | Tons (Millions) | Ton-Miles (Billions) |
| Truck | 72.9% | 70.2% | 40.2% |
| Rail | 3.6% | 11.1% | 26.4% |
| Water | 1.3% | 3.6% | 8.2% |
| Air | 2.2% | <1% | <1% |
| Pipeline | 4.8% | 8.7% | 15.0% |
| Multiple modes | 11.5% | 3.2% | 8.4% |
| Other/Unknown | 3.6% | 3.1% | 1.6% |
Source: Table 11.1
Freight Shipments within the US (2015)
Modes of Transportation Motor Carriers
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Motor carriage is the most widely used mode of transportation in the US domestic supply chain, and is useful for shipping goods to an adjacent countries like Canada and Mexico.
Much of the freight moved by the trucking industry is regional in nature, moving within a 500-mile radius of the origin.
Multiple equipment types and sizes allow motor carriers to transport a wide variety of commodities and shipment sizes.
Trucking is a high-variable-cost, low-fixed-cost business.
Images courtesy of Forbes
Modes of Transportation Motor Carriers (continued)
The trucking industry is highly competitive, comprising of 532,024 interstate carriers and intrastate hazardous materials carriers that range in size from single-truck, owner-operator service providers to conglomerate like UPS.
Key challenges: Labor, costs, and competition
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Motor Carrier Industry
For-Hire (48%)
Truckload (TL)
Less-than-Truckload (LTL)
Small Package
Private (42%)
For-Hire/Private Hybrid (8%)
Others(2%)
Modes of Transportation Railroads
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Railroads is a high ton-mile mode of transportation, moving nearly 2.2 billion tons of freight with average shipment length of 805 miles annually.
Railroad transportation is primarily used for the long-distance movement of low-value goods. Railroads also handle some high-value goods, primarily automobiles and intermodal containers.
Railroads cost structure consists of high fixed costs in proportion to variable costs due to a large investment in terminals, equipment, and trackage.
Rail equipment can be organized into loads and transported in one of the three primary ways: mixed trains, unit trains, and intermodal trains.
Modes of Transportation Railroads (continued)
There are 575 railroads in the US, but the industry is dominated by seven Class I railroads. No single rail carrier services the entire country. Carriers use interline agreements to provide coast-to-coast rail service.
Key challenges: Captive shippers’ demand for rate relief, external factors e.g. fluctuating economic conditions & severe weather events, and capacity.
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575 Freight Rail Carriers
7 Class-I Linehaul Freight Carriers
BNSF, Canadian National, Canadian Pacific, CSX, Kansas City Southern, Norfolk Southern, Union Pacific
568 Shortline Carriers
Modes of Transportation Air Carriers
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Air cargo transportation is specialized mode in terms of tonnage with U.S. spending at $28 billion in 2014, $12 billion of which is international cargo.
Air transportation is used to ship small quantities of high-value, low-weight goods.
The air carrier cost structure consists of high variable costs in proportion to fixed costs.
Images courtesy of imgkid.com
Modes of Transportation Air Carriers (continued)
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Key challenges: Decreased demand for products previously moved in large volume via air, mode-shifting of freight from air to ocean, new rail connections in Asia, near-shoring and on-shoring strategies.
Combination Carriers
Air Cargo Carriers
Integrated carriers (e.g. FedEx and UPS) provide door-to-door service, scheduled pickup and delivery windows, and expedited service through their hub-and-spoke networks.
Nonintegrated carriers provide on-demand, air-only service from airport to airport.
Air Carriers
Modes of Transportation Water Carriers
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Domestic water carriers compete with railroads for long-distance movement of low-value, high-density, bulk cargoes.
Globally, water carriers dominate all other modes, garnering approximately half of the international freight revenue and handling nearly all tonnage.
Images courtesy of pixshark.com
Water transportation is a high variable cost business.
The fleet of U.S. flagged fleet moves 2.2 percent of the nation’s freight value.
The international ocean fleet includes approximately 50,000 merchant ships: 16,800 bulk carriers, 11,651 tankers, 10,381 general cargo ships, and 5,106 containerships.
Modes of Transportation Water Carriers (continued)
Key challenges: Significant overcapacity in the container shipping sector, congestion at major ports and transfer points for containers, schedule reliability of liner service lagging behind other modes.
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Water Carriers
For-Hire
Liner Services
Charter Services
Private
Widely used specialized ships include:
Containerships
Bulk carriers
Tankers
General cargo ships
Roll-on, roll-off (RO–RO) vessels
Modes of Transportation Pipelines
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Images courtesy of Hi-tech Online
The United States has the largest network of energy pipelines of any nation in the world.
Pipelines is the most economical form of transport with the lowest cost per ton of any mode.
The major difference of natural gas pipeline network from that of oil is the direct delivery of natural gas to homes & businesses via local distribution lines.
Pipelines handled 5.6 percent of U.S. freight tonnage, the vast majority of products moved are liquids and gases.
The oil system is made up of three primary types of pipelines: gathering lines, trunk lines, and refined product pipelines.
Pipeline costs are predominantly fixed as pipeline operators must build their own right-of-way.
Modes of Transportation Pipelines (continued)
Key challenges: Network capacity, Health and environmental safety
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Pipeline Carriers
For-Hire
Private
For-hire carriers of liquid products can move different products through their system at the same time.
Private carriers include petroleum & natural gas companies that use pipelines to move product to and from their facilities. Companies, like a power plant or a chemical plant, may operate a small pipeline system to move fuel or feed-stocks.
Modes of Transportation Intermodal
Intermodal transportation service refers to uses of two or more carriers of different modes in the origin-to-destination movement of freight.
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Greater accessibility
Overall cost efficiency without sacrificing service quality or accessibility
Global trade facilitation
Primary Benefits
Number of containers flowing through North American ports more than doubled in 20 years; from 24.7 million TEUs in 1995 to 56.9 million TEUs in 2014
Importance & Volume Growth
Development of standardized containers
Better information systems
New generations of ocean vessels, railcars, and truck trailers
Growth Drivers
Modes of Transportation Intermodal (continued)
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The freight services provided by intermodal transportation can be viewed in terms of product-handling characteristics or the type of service used.
Containerized freight is loaded into or onto storage equipment at the origin and delivered to the destination in or on that same piece of equipment with no additional handling.
Transload freight involves goods that are handled and transferred between transportation equipment and mode multiple times.
Product-Handling Characteristics
Type of Service Used
Pick up
Linehaul
Delivery
Transportation Planning & Strategy
Transportation Planning and Strategy
Framework of Transportation Management Planning Activities
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Source: Figure 11.3
Transportation Planning and Strategy Functional Control of Transportation
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Often, this decision-making structure leads to missed opportunities to generate transportation efficiencies and service improvements.
In most organizations, responsibility for transportation decisions falls to one or more of the following departments: logistics, procurement, and marketing.
Inbound transportation typically controlled by the purchasing department
Outbound transportation typically controlled by marketing or logistics
Transportation Planning and Strategy Terms of Sale: Freight Control & Payment Terms
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Source: Table 11.4
Terms of sale clarify the delivery and payment terms agreed upon by a seller and buyer. Wise selection of these terms is critical as the decision determines where the buyer’s responsibilities begin and where the seller’s responsibilities end.
Transportation Planning and Strategy Terms of Sale: Incoterms
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Images courtesy of NDF Freight Forwarding Ltd
Transportation Planning and Strategy Decision to Outsource Transportation
The organization with FOB freight control and procurement responsibility must analyze and choose between using a private fleet (the “make” option) and using external service providers to move freight (the “buy” option).
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Account for nearly half of all U.S. freight transportation spending & more than half of miles traveled.
A well-run private fleet can operate at costs competitive with for-hire carriers while providing greater scheduling flexibility and control over transit time.
Intangible benefits: Promotional impact and prestige of having highly visible company trucks on the road
Private Fleet
External Service Providers
For-hire carriers. Using for-hire carriers avoids large capital cost of starting a private fleet, time needed to build transportation expertise, and challenges inherent in operating a private fleet.
3PLs. Provide a wide array of transportation services: (1) dedicated contract carriage, (2) traffic management, (3) specialized international freight 3PLs, notably International Freight Forwarders (IFF), Non Vessel-owning Common Carriers (NVOCC), and Customs Brokers
Transportation Planning and Strategy Modal Selection: Capabilities, Product Characteristics & Pricing
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Source: Table 11.5
Transportation Planning and Strategy Modal Selection: Performance Ratings of Modes
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Source: Table 11.6
*1 = Best to 5 = Worst
**1 = Lowest cost to 5 = Highest cost
| Mode of Transportation | |||||
| Truck | Air | Rail | Water | Pipeline | |
| Accessibility* | 1 | 3 | 2 | 4 | 5 |
| Transit time* | 2 | 1 | 3 | 4 | 5 |
| Reliability* | 2 | 3 | 4 | 5 | 1 |
| Security* | 3 | 2 | 4 | 5 | 1 |
| Cost** | 4 | 5 | 3 | 2 | 1 |
Transportation Planning and Strategy Carrier Selection
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Modal selection
More options
Carrier selection
Fewer options
Number of options available
Frequency of the decision
Modal selection
More long-range
Carrier selection
More active & frequent
Modal Selection vs. Carrier Selection
Carrier Selection Factors:
Geographic coverage
Transit time average and reliability
Freight rates
Equipment availability and capacity
Product protection
Transportation Planning and Strategy Carrier Selection (continued)
Core carrier strategy. Carrier selection strategy commonly focuses on concentrating the transportation buy with a limited number of quality carriers, while striving to be carrier-friendly shippers.
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Advantages
Helps the organization leverage its purchasing dollars for lower overall rates.
Allows the company to focus its attention on other supply chain issues.
Promotes strong relationships with the carriers that produce mutual understanding of requirements, coordination of processes, and service improvement.
Give a company priority access to the carriers’ limited capacity.
Transportation Planning and Strategy Rate Negotiations
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BUYERS
Key negotiation issues: Equipment availability, freight rates, and service levels
CARRIERS
Key negotiation issues: Volume commitments, shipment frequencies, origin–destination combinations, freight characteristics, and related cost issues
Negotiation Approaches
Adversarial Approach
Seeks to minimize transportation cost regardless of the impact on carrier financial performance or long-term viability.
Collaborative Approach
Focuses on developing contracts with carriers for a tailored set of transportation services at rates that fairly compensate the carriers.
Transportation Execution & Control
Transportation Execution and Control
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Shipment Preparation
Freight Documentation
Maintain In-Transit Visibility
Transportation Metrics
Monitor Service Quality
Transportation Execution and Control Common Transportation Metrics
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| Metric | Formula | Typical Target |
| On-time Delivery | Total on-time deliveries / Total deliveries | > 95% |
| Transit Time Average | Sum of transit times / Total deliveries | Low variation around goal |
| Damage Rate | Total units damaged / Total units shipped | < 1% |
| Shortage Rate | Total units lost or stolen / Total units shipped | < 1% |
| Billing accuracy | Total accurate freight bills / Total freight bills | > 99% |
| Perfect Delivery Index | On-Time % × Damage-Free % × Billing Accuracy % | > 95% |
Source: Table 11.7
Transportation Execution and Control Performance Scorecard
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Source: Table 11.8
Transportation Technology
Transportation Technology
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Transportation buyers and managers leverage a variety of tools and technologies to support supply chain success. The carrier community relies on technology to coordinate the flow of customer freight.
Individual applications e.g. load planning optimization, freight rating, and load tendering
Integrated supply chain tools e.g. global trade management software, and transportation management systems (TMS)
Buyers
Carriers
Routing and load planning tools promoting optimization of pickup, linehaul, and delivery
Dispatching software facilitating management of drivers, in-transit visibility, & regulatory compliance.
Brokerage solutions helping to match loads with available capacity and transaction financial manage
Tracking and communication technology supporting visibility and control of freight
Others e.g. pricing strategy, documentation
Transportation Technology Transportation Management System (TMS)
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Images courtesy of S2B Group
Summary
Transportation is the largest logistics cost in most supply chains that directly impacts fulfillment speed and service quality.
Fulfillment of supply chain demand can be accomplished through five modal options or the intermodal use of these options.
Most commercial freight moves under contractual rates that are negotiated directly between freight buyers and transportation companies.
Organizations must continue to manage freight after it has been tendered to carriers by maintaining in-transit visibility of shipments and monitoring carrier performance.
Transportation management systems and related tools are widely used to support effective planning, execution, and analysis of transportation processes.
