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TRANSPORTATION
IN SUPPLY CHAIN
Package Carriers
Transportation companies like FedEx, UPS etc
Use air, truck and rail to transport
Also provide value added services like package tracking
Preferred mode for online businesses
Rail
Ideal mode for carrying large, heavy or high-density
products over
long distances
Low value shipments which are not time sensitive
Truck
Two major segments :Truckload (TL) >10000 pounds
Less than Truckload (LTL)
>150 pounds
Expensive than rail but offers advantage of door-to-
door shipment
Shorter delivery time compared to rail and water
Water
Slowest of all the modes
Ideally suited for carrying large loads at low cost
Pipeline
Used mainly to transport crude oil, petroleum and natural gas.
Intermodal
Use of more than one mode of transportation
Grown because of increase in global trade
INTERMODAL VS ROAD
FREIGHT
Transportation Infrastructure and Policies
Water 6 6 6 1 6 5
Trade-offs When Selecting Transportation Mode
Annual inventory
holding cost
for High Med = (average HighVal
inventory x $200
+ average LowVal inventory x $30) x
0.25
= (832.8 x $200 + 169.8 x $30) x 0.25
= $54,366 ($54,395 without rounding)
Tradeoffs When
Aggregating Inventory
Tradeoffs When
Aggregating Inventory
Trade-off Between Transportation
Cost and Responsiveness
The use of different transportation networks and modes based on customer and product characteristics. Example:
W.W. Grainger sells more than 200,000 MRO supply products to both small contractors and large firms
The firm should not design a common transportation network to meet all needs
o Customer size
High density Private fleet with milk Cross-dock with milk runs Cross-dock with milk runs
runs
Medium density Third-party milk runs LTL carrier LTL or package carrier
Low density Third-party milk runs or LTL or package carrier Package carrier
LTL carrier
Tailored Transportation
by Size of Customer
Large customers can be supplied using a TL carrier, whereas smaller customers will require an LTL carrier or milk runs
For small customers, the delivery cost per unit is higher than for large customers
Thus it is not optimal to deliver to small and large customers with the same frequency at the same price
Firms can charge higher delivery charge for small customers or tailor milk runs so that they visit large customers more
frequently
Firms can divide their customers into Large, Medium and Small based on demand and can determine optimum delivery
cost
Tailored Transportation by
Product Demand and Value
Product Type High Value Low Value
High demand Disaggregate cycle inventory. Disaggregate all inventories and use
Aggregate safety inventory. Inexpensive inexpensive mode of transportation for
mode of transportation for replenishing replenishment.
cycle inventory and fast mode when
using safety inventory.
Low demand Aggregate all inventories. If needed, use Aggregate only safety inventory. Use
fast mode of transportation for filling inexpensive mode of transportation for
customer orders. replenishing cycle inventory.
Role of IT
in Transportation
IT software can assist in:
include cross-enterprise collaboration and the narrow view taken by some transportation software
Software often ignores customer service and promised delivery dates
Risk Management In
Transportation
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
Delay can be avoided by moving inventories closer to the destination, using alternate lanes, building a
buffer into the lead time, avoiding congestion by changing routes in real time based on congestion,
owning transportation facilities and signing long term contracts with the logistics partner
Disruptions can be avoided by designing alternative routings, decreasing the probability of disruptions
etc.
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
Making Transportation Decisions in Practice
Outsource when shipment sizes are small, own logistics when the sizes are large and responsiveness is important
Identify the relative strengths and weaknesses of various transportation network design options
Identify trade offs that shippers need to consider when designing a transportation network