Supply Chain Management

(3rd Edition)

Chapter 13
Transportation in the Supply Chain

© 2007 Pearson Education 14-1

 Outline
● The role of transportation in the supply chain
● Factors affecting transportation decisions
● Modes of transportation and their performance
characteristics
● Design options for a transportation network
● Trade-offs in transportation design
● Tailored transportation
● Routing and scheduling in transportation
● Making transportation decisions in practice

© 2007 Pearson Education 14-2

 Factors Affecting
Transportation Decisions
● Carrier (party that moves or transports the product)
– Vehicle-related cost
– Fixed operating cost
– Trip-related cost
● Shipper (party that requires the movement of the
product between two points in the supply chain)
– Transportation cost
– Inventory cost
– Facility cost

© 2007 Pearson Education 14-3

 Transportation Modes
● Trucks
– TL
– LTL
● Rail
● Air
● Package Carriers
● Water
● Pipeline

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 Truck
● Trucking – More expensive than the rails,but offers advt. of Door to Door
shipment and shorter delivery time mostly
No transfer between pick up and delivery
● TRUCK LOAD (TL)
1. to schedule shipments while minimizing both truck’s idle time and empty
travel time
2. by exact sizing of trucks economics of scale can be obtained
● Best suited between Manu. and warehousing , WH to customer.
● Less than Truck Load(LTL):Trucking companies that consolidate and
transport smaller (less than truckload) shipments of freight by utilizing a
network of terminals and relay points.
1.Always less than the half truck loads, where our loads are very small in
batches.
to reduce cost degree of consolidation is the key.
© 2007 Pearson Education 14-5
 Rail
● Average revenue / ton-mile (1996) = 2.5 cents
● Average haul = 720 miles
● Average load = 80 tons
● Key issues:
– Scheduling to minimize delays / improve service
– Off-track delays (at pickup and delivery end)
– Yard operations
– Variability of delivery times

© 2007 Pearson Education 14-6

 Air
● Key issues:
– Location/number of hubs
– Location of fleet bases/crew bases
– Schedule optimization
– Fleet assignment
– Crew scheduling
– Yield management

© 2007 Pearson Education 14-7

 Package Carriers
● Companies like FedEx, UPS, USPS, that carry small
packages ranging from letters to shipments of about 150
pounds
● Expensive
● Rapid and reliable delivery
● Small and time-sensitive shipments
● Preferred mode for e-businesses (e.g., Amazon, Dell,
McMaster-Carr)
● Consolidation of shipments (especially important for
package carriers that use air as a primary method of
transport)
© 2007 Pearson Education 14-8
 Water
● Limited to certain geographic areas
● Ocean, inland waterway system, coastal waters
● Very large loads at very low cost
● Slowest
● Dominant in global trade (autos, grain, apparel, etc.)

© 2007 Pearson Education 14-9

 Pipeline
● High fixed cost
● Primarily for crude petroleum, refined petroleum
products, natural gas
● Best for large and predictable demand
● Would be used for getting crude oil to a port or
refinery, but not for getting refined gasoline to a
gasoline station (why?)

© 2007 Pearson Education 14-10

 Intermodal
● Use of more than one mode of transportation to move a
shipment to its destination
● Most common example: rail/truck
● Also water/rail/truck or water/truck
● Grown considerably with increased use of containers
● Increased global trade has also increased use of
intermodal transportation
● More convenient for shippers (one entity provides the
complete service)
● Key issue involves the exchange of information to
facilitate transfer between different transport modes
© 2007 Pearson Education 14-11
 Design Options for a
Transportation Network
● What are the transportation options? Which one to
select? On what basis?
● Direct shipping network
● Direct shipping with milk runs
● All shipments via central DC
● Shipping via DC using milk runs
● Tailored network

© 2007 Pearson Education 14-12

 Direct shipping network

● Buyer directly getting goods from the suppliers

● Trade – off between inventory cost and transportation
costs
● Elimination of intermediate ware housing and related
costs
● One shipment’s plan does not affects other shipments
● It is best when optimal replinishment iot size is =truck
load
● Receiving cost is always high in this mode

© 2007 Pearson Education 14-13

 Direct shipping with milk runs

● Milk run is a route on which a truck either delivers

product from single supplier to multiple retailers or
goes from multiple supplier to a single buyer
● Consolidation of route gives the advantage
● Instead of multiple direct LTL , Single milk run is
advantageous
● Limited to time bound for drivers
● Cannot be operated for very long distances
● Toyota used it for JIT system in plants of Japan and
USA
© 2007 Pearson Education 14-14
 All shipments via central DC

● No direct supply to customers

● Each region has a DC
● Role of DC
Store the inventory and serve as a transfer location . It reduces the huge
transport costs if it is handled directly.
It reduces over all supply chain cost ,because when all suppliers sends large
amount of goods to various suppliers which can be sorted out at the DC for
each buyer.
Also the size of the lot can be changed as per the buyer needs.( wal-mart)
● Cross – docking is used for best results
it needs lot of co- ordination to keep the inventory level low and faster flow
of goods.

© 2007 Pearson Education 14-15

 Shipping via DC using milk runs

● All operations are same but the supplies are from DC

to the buyers

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 Tailored Transportation
● The use of different transportation networks and modes
based on customer and product characteristics
● Factors affecting tailoring:
– Customer distance and density
– Customer size
– Product demand and value
• W.W.GRAINGER is a MRO firm

© 2007 Pearson Education 14-17

 ● CUSTOMER DENSITY
high, medium, low
● DISTANCE
short ,medium, long

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 Role of IT in Transportation
● The complexity of transportation decisions demands to
use of IT systems
● IT software can assist in:
– Identification of optimal routes by minimizing costs subject
to delivery constraints
– Optimal fleet utilization
– GPS applications

© 2007 Pearson Education 14-19

 Risk Management in Transportation
● Three main risks to be considered in transportation are:
– Risk that the shipment is delayed
– Risk of disruptions
– Risk of hazardous material
● Risk mitigation strategies:
– Decrease the probability of disruptions
– Alternative routings
– In case of hazardous materials the use of modified
containers, low-risk transportation models, modification of
physical and chemical properties can prove to be effective

© 2007 Pearson Education 14-20

 Summary of Learning Objectives
● What is the role of transportation in a supply chain?
● What are the strengths and weaknesses of different
transport modes?
● What are the different network design options and
what are their strengths and weaknesses?
● What are the trade-offs in transportation network
design?

© 2007 Pearson Education 14-21