Logistics Operations Management April 22

Logistics Operations
Management
Dr. Karim M. Soliman
Associate Professor of Logistics and Supply Chain Management
Vice Dean for Education Affairs
Graduate School of Business - Smart Village Campus
Arab Academy for Science, Technology, and Maritime Transport

Transport Operations
Decisions

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Logistics Operations Management April 22

Fundamental Principles of Transportation

As the volume and weight of the load
Economy of Scale increases, the unit cost of
Three critical factors of transportation:
transportation decreases
• Load volume and weight
The transportation cost per unit of
• Distance
Economy of the load is to
weight be transported
decreases as the distance from
• The speed by which the load is to be point
Distance shipping point to delivery
transported increases
As the speed of the movement of the
Cost of Velocity load increases, the cost of the
transportation increases

April 22 Reference: David F. Ross, Distribution Planning and Control, 2nd ed. Norwell, MA: 3
Kluwer Academic, 2004.

Principles of Transportation Operations

Continuous Provide for the uninterrupted flow of goods
Flow through the supply chain

Optimize Unit Ensure cargo fully optimizes transportation

of Cargo vehicle capacities

Maximum Match vehicle size to load weight and volume

Vehicle Unit

Match Vehicle Match vehicle transport characteristics and

to Nature of capacities with the nature of the transit
Transit
environment
Environment
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Principles of Transportation Operations

(cont.)
Use standard transport vehicles and materials
Standardization handling equipment whenever possible

Materials handling equipment should minimize

Unit-load cargo damage and reduce load shift during
Compatibility transport
Minimizing vehicle deadweight (the vehicle
Minimization of
itself, containers, and materials handling
Deadweight
equipment)

Maximize Maximize the percentage of time

Capital, transportation and materials handling
Equipment, & equipment and personnel are in use
April 22
Personnel 5

Transportation Principles – Exercise

Principle Example
A Continuous flow Use of 40-ft containers that can be reused for
backhaul.
B Optimize unit of cargo
Use of plastic pallets in place of wood pallets for trailer
C Maximum vehicle unit loading and transport.

D Adaption of vehicle unit to Use of intermodal transport where containers are

volume and nature of the moved from rail to motor transport.
transit environment Use of a tanker motor vehicle to transport gasoline.
E Standardization Implementing a transportation management system
(TMS) to enhance shipper delivery scheduling.
F Compatibility of unit-load
equipment
Consolidating deliveries so that full truckloads are
G Minimization of created for shipping.
deadweight to total weight Increasing container size from 20 ft to 40 ft so that a
shipment can be stored in one container.
H Maximum utilization of
capital, equipment, and Proper stacking of pallets in a motor transport trailer.
April 22 personnel
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Transportation Participants

Consignor
Government
(Shipper)

Carriers and Consignee

Agents Transportation (Receiver)

Internet
Services Public

Source: Donald J. Bowersox, David J. Closs, and M. Bixby Cooper, Supply Chain Logistics
April 22 Management. 3rdedition.New York, McGraw-Hill Irwin, 2010. 7

Relationship of Transportation to Other Business

Functions (Section) Strategic Planning

Traffic Management

Warehouse Management

Purchasing
Transportation
Customer Service

Product Pricing

Channel Network Locations

Inventory Planning
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Third-Party Logistics (3PL) – Functions

Financial settlement, global trade, logistics
Logistics consulting, logistics management, reverse logistics

Alignment of warehousing with transportation

Warehousing requirements
Freight movement, intermediary services, freight
Transportation management, track and trace, leasing of
transportation equipment and drivers
Dedicated contract carriage, merge in transit, direct
Special Services delivery, import/export/customs

Leased services and equipment for EDI, Web-

Networking enablement, and warehouse (WMS) and
Technologies transportation (TMS) systems management
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Transportation Challenges
Infrastructure Repair and modernization of the
transportation infrastructure
Need for global logistics coverage in an age
Globalization of growing global trade and outsourcing

Enhanced Logistics Creation of new value-added services to

meet growing channel complexities
Synchronization of Web-based
Technology technologies and logistics management
systems
Transportation as a Migration of logistics from transaction to
Key Strategy strategic management
Need to secure transport vehicles and
Security cargos from the threat of global terrorism

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Role of Transportation Administration

Daily
Logistical Operations Load
Integration Management

Auditing and Transportation Equipment

Claims Administration Scheduling

Tracing and
Documentation
Expediting

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The Transportation Management Process

Logistics Plan

Establish Costs, Modal and

Routing and
Prices, and Carrier
Scheduling
Rates Selection
Costs OK? Mode/Carrier OK? Delivery OK?

Post-Shipment OK? Documentation,

Audit & Claims

Shipment Plan
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Transportation Cost
Cost for components of transportation, such as
Fixed vehicles, terminals, and rights-of-way that are
not subject to shipment volume.

Cost to operate transportation, such as fuel,

Variable labor, and maintenance. This cost is significantly
impacted by shipment volume.

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Transportation Cost
Total costs

Fixed costs
Cost

Variable costs

0 US$
Distance, point of origin to destination

Example:
• Fixed costs/year = US$8,500,000.00
• Variable cost per motor transport trailer = US$350.00
• Number of trailers used = 110,000
Answer:
a. US$8,500,000 + (US$350 x 110,000 trailers) = US$47,000,000
b. US$47,000,000 / 110,000 = US$427.27
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Detailed Transportation Cost Components

The basic cost (distance) to move a trailer,
Line haul container, railcar, or other vehicle regardless of
whether it is full or not

The basic cost (time spent) to load or unload a

Pickup and trailer, container, railcar, or other vehicle
delivery regardless of whether it is full or not

Terminal The number of times a shipment must be

handling loaded, handled, and unloaded

Billing and After each shipment documentation must be

collecting completed and invoices generated

Reference: Arnold, J.R. Tony, Stephen N. Chapman, and Lloyd M. Clive. Introduction to Materials
April 22 Management, 7th ed. Upper Saddle River, NJ:Logistics
PrenticeOperations
Hall – Pearson, 2011. p. 291. 15
Management

Detailed Transportation Cost Exercise

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Detailed Transportation Cost Exercise cont’d

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Detailed Transportation Cost Exercise cont’d

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Transportation Rates and Pricing

Transportation Rates
A rate is an established charge found in a rate tariff book indicating
the payment to a carrier for performing a given transportation
service. Rates are established by using the cost as a base to which
are applied various factors to attain the final rate.

Transportation Pricing
Charges are based on cost plus a value or level determined by
prevailing market forces. Pricing centers on two approaches: the
cost incurred by the carrier to provide the service and the value of
service provided to the consignor.
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Transportation Rates and Pricing Exercise

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Questions ? ? ?

Answers
!

Take home some answers!

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