Supply Chain Logistics Management
Chapter 12: Transportation Management
Logistical Management Chapter 5
Integrated Transportation Decisions
Supplier
Manufacturer
Customer
Inbound
Outbound
Decision Flow
Strategic
Operational
Macro
Micro
Decision Scope
Total network and lane design decisions
Dock level decisions
Lane operation decisions
Mode/carrier selection decisions
Rate negotiations
12-*
McGraw-Hill/Irwin
Supply Chain Logistics Management, First Edition. Bowersox, Closs, and Cooper.
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Logistical Management Chapter 5
Network Freight Flows
(S=supplier, P=plant, W=warehouse, C=customer)
S
S
S
S
P
P
P
P
W
W
W
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
S
C
C
C
12-*
McGraw-Hill/Irwin
Supply Chain Logistics Management, First Edition. Bowersox, Closs, and Cooper.
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Logistical Management Chapter 5
Lane Operation Decisions
Analyze lane densities/frequencies to understand what opportunities emerge for:
Inbound/outbound consolidation
Vehicle consolidation
Temporal consolidation
Network consolidation
Carrier consolidation
Logistical Management Chapter 5
Example
12-*
McGraw-Hill/Irwin
Supply Chain Logistics Management, First Edition. Bowersox, Closs, and Cooper.
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Logistical Management Chapter 5
North Carolina TL Van Freight Distribution
CARRIER WT (k#) %OF MARKET
COTTON
WARD’S
PIQUA
N & P
TRANSDYN
KBT
ITCO
WRIGHT
TELEDYNE
TOP TEN TOTAL %
29 CARRIERS REMAINING %
Carrier Consolidation
Logistical Management Chapter 5
Transportation Costs
Product related
Density
Stowability
Ease/difficulty of handling
Liability
Market related
Competition level
Location of markets
Nature and extent of regulation
Balance of freight traffic
Seasonality of product movements
Domestic vs. International
Logistical Management Chapter 5
Other Transportation Fees
Transit services or “Stop-off charges”
Diversion/Reconsignment fees
Demurrage (rail) or Detention (motor) fees
Accessorial services fees
Surcharges
Logistical Management Chapter 5
Dock Level Decisions
Tactical planning and control activities concerned with making and receiving shipments and loading and unloading freight
Order picking
Receiving
Unloading
Loading
Load
Planning
Routing &
Scheduling
Benefits include:
Greater vehicle utilization
Improved and more responsive customer service
Reduced transportation expenses
Reduced capital investment in equipment
Logistical Management Chapter 5
Dock Level Decisions
Tactical planning and control activities concerned with making and receiving shipments and supervision of loading and unloading freight
Load Planning
Routing and Scheduling
Logistical Management Chapter 5
Load Planning
Proper packing, marking, blocking, bracing, and stowage of freight
Importance:
Legal/safety implications
Product protection
Cost/service performance
Logistical Management Chapter 5
Routing and Scheduling
Finding best path a vehicle should follow through networks of roads, rail lines, shipping lanes, and air routes
Determining best pattern for stops, multi-vehicle use, driver layovers, time of day restrictions
Logistical Management Chapter 5
Principles for Dock Level Operations
Load trucks with deliveries for customers closest to each other
Stops on individual days arranged together
Start routes with farthest stops first
Circular routes - don’t cross paths
Use largest vehicles first if can be filled
Mix pickups in with deliveries, not at end
If one stop far from other, use another truck
Avoid narrow stop time windows, or handle separately
Logistical Management Chapter 5
Benefits of Good Dock Level Operations
Greater vehicle utilization
Improved and more responsive customer service
Reduced transportation expenses
Reduced capital investment in equipment
Logistical Management Chapter 5
Transportation decision making must be integrated into the greater supply chain management scheme to ensure seamless movement of goods and information to maximize value to end customers.
5 decision areas defined
Network and lane design - designing transportation network such that it meets or exceeds supply chain objectives at the lowest total cost
Lane operations - integrating information such that operational planning and execution eliminates redundancy and waste to improve cost and service performance
Mode/carrier assignment - understanding modal and carrier capabilities to find the right fit for the firms strategic emphasis
Pricing negotiations - utilizing cost and demand information to negotiate transportation pricing
Dock-level operations - supporting higher-level transportation decisions with efficient/effective tactical dock-level operations
View the overall supplier network to understand freight movements - often involves shipments from multiple suppliers in one geographic area or frequent interplant shipments of Work in process or multiple shipments from plants in geographic proximity to the same customer.
Before transportation managers can begin to implement efficient operational processes, they must know overall freight flows in order to plan lanes and negotiate with carriers.
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Lane density/frequency analysis: Know the following about each freight lane-
freight volume on a weekly basis to determine overall levels
Consistency of volume to determine seasonality of freight
Volume + Consistency = Rate bargaining power when negotiating rates
Types of freight consolidation
Inbound-Outbound flow consolidation: look for opportunities to combine inbound/outbound freight - carriers will give better rates if you can give them revenue miles in both directions. Otherwise, the carrier must find a load for the backhaul run or run empty (deadhead) in which case you will be billed for the roundtrip variable costs.
Vehicle consolidation: use one vehicle with multiple stops for small volume shipments vs. one LTL vehicle for each shipment - pay stopoff charges, but cheaper than multiple LTL shipments
Temporal consolidation: hold multiple shipments until one large volume shipment possible
Network consolidation: looking for consolidation opportunities between multiple facilities of one division or multiple divisions of the same corporation. ., an electronics firm has 5 plants from 5 different divisions located in the same industrial complex and discovered that each facility was ordering frequent, small volume (high cost) shipments from the same electrical fasteners supplier
Given this freight transaction information from a health care supplier facility in the southwestern US, identify potential consolidation opportunities.
NOTES:
Note 1: Cut-point for outbound shipment designation of LTL/TL is 15,000 pounds (ie., shipments under 15,000 pounds are shipped LTL which is more expensive)
Note 2: Service standards for customer deliveries are 5 days
Sample answers (there are many more the class will come up with - these are just examples):
Inbound/Outbound: Philadelphia 2/13 shipment outbound and pickup Wilmington 2/15 inbound shipment on the backhaul
Vehicle: combine Atlanta and Savannah outbound shipment on 2/12 with vehicle first stopping in Atlanta and then continuing to Savannah; Baltimore and Arlington outbound 2/13 shipments;
Temporal: combine Raleigh 2/13 inbound and Charlotte 2/12 and 2/14 inbound - may delay the 2/12 by 2 days but you will pick it up by shipping TL rather than going through LTL terminal system
Network: combine Atlanta 2/12 shipments from 2 different suppliers
This is one firm’s outbound freight movements from one plant to customers in North Carolina in one year.
Note how fragmented the usage pattern is. The top ten carriers only carried % of the total freight with 29 other carriers carrying the balance of freight
Why? This points out opportunity for mode/carrier consolidation
Given similar service, are rates better on one mode/carrier than another?
Does any mode/carrier have relative strengths in a particular lane?
Are the any backhaul opportunities?
Transportation prices are determined by 2 components: product characteristics and market characteristics
Product characteristics are related to the physical cost of handling and moving products. This includes:
Density
Stowability
Ease/difficulty of handling
Liability - related to product value and how easily it can be damaged
Market characteristics are related to the demand features of the market and include:
Level of competition both within and between modes - more competition = lower rates
Location of markets - how far from origin
Nature and extent of regulation - more regulation = higher rates
Balance/imbalance of freight traffic - how much traffic flowing into/out of the market - if unbalanced will be more expensive to ship there because likelihood of non-revenue leg of the trip is higher
Seasonality of product movements - cheaper to ship off-peak
Domestic vs. International - international much more complex hence more expensive
Fees in addition to “line-haul” charges (those associated directly with moving product from point to point)
Transit services or “Stop-off charges”: fee for dropping off or picking up at an intermediate point (may be a split delivery)
Diversion/Reconsignment: fee for a change in route, destination or consignee while in-transit
Demurrage (rail) or Detention (motor): fee for extended use of transportation vehicle
Accessorial services: fee for the use of special equipment or labor (. cleaning, liftgates, blocking and bracing, tracing)
Surcharges: any additional charge added to a transportation bill (. fuel, city delivery)
Tactical planning and control activities concerned with making and receiving shipments and supervision of loading and unloading freight
Proper packing, marking, blocking, bracing, and stowage of freight
Many attempts at consolidation have failed because of operational problems associated with load planning that did not support the higher-level plans
Importance:
Legal/safety implications - ensure load is within weight and size limits as well as other issues such as proper hazard materials handling specifications and issues with products such as food that cannot be moved in same unit that hauls, say, chemicals
Product protection - nothing damages product like toppling pallets in the back of a truck or in a railroad car
Cost/service performance - efficiency of transportation depends in large part on efficient loading; also, effectiveness of consolidation efforts will depend on dock-level support of plan so that, for example, if the vehicle is going to stop off first at customer A then at customer B, customer A’s product is loaded on the trailer last so it can be offloaded first. Otherwise customer B product must be unloaded then reloaded which may take several hours and increases chance for loss and damage
Routing and Scheduling-Once loading complete, must maintain efficiencies as vehicle travels through network from node to node. Least distance traveled = most efficient, lowest cost. This must be subject to meeting with customer service requirements, however. For example, one food distribution company was very happy at the cost savings it realized upon implementing a sophisticated routing and sked process. It lost customers, however, because the most efficient route often required that deliveries be made at times when customers did not want them, ., at noon time at a fast food restaurant.
Some principles of good routing and scheduling:
Load trucks with deliveries for customers closest to each other
Stops on individual days arranged together
Start routes with farthest stops first
Circular routes - don’t cross paths
Use largest vehicles first if can be filled
Mix pickups in with deliveries, not at end
If one stop far from other, use other truck
Avoid narrow stop time windows, or handle separately
Critical to ensuring that implementation of higher level transportation planning is consistent with goals and objectives
Tactical planning and control activities concerned with making and receiving shipments and supervision of loading and unloading freight
Load Planning
Routing and Scheduling
Critical to ensuring that implementation of higher level transportation planning is consistent with goals and objectives
Proper packing, marking, blocking, bracing, and stowage of freight
Many attempts at consolidation have failed because of operational problems associated with load planning that did not support the higher-level plans
Importance:
Legal/safety implications - ensure load is within weight and size limits as well as other issues such as proper hazard materials handling specifications and issues with products such as food that cannot be moved in same unit that hauls, say, chemicals
Product protection - nothing damages product like toppling pallets in the back of a truck or in a railroad car
Cost/service performance - efficiency of transportation depends in large part on efficient loading; also, effectiveness of consolidation efforts will depend on dock-level support of plan so that, for example, if the vehicle is going to stop off first at customer A then at customer B, customer A’s product is loaded on the trailer last so it can be offloaded first. Otherwise customer B product must be unloaded then reloaded which may take several hours and increases chance for loss and damage
41
Once loading complete, must maintain efficiencies as vehicle travels through network from node to node. Least distance traveled = most efficient, lowest cost. This must be subject to meeting with customer service requirements, however. For example, one food distribution company was very happy at the cost savings it realized upon implementing a sophisticated routing and sked process. It lost customers, however, because the most efficient route often required that deliveries be made at times when customers did not want them, ., at noon time at a fast food restaurant.
Some principles of good routing and scheduling:
Load trucks with deliveries for customers closest to each other
Stops on individual days arranged together
Start routes with farthest stops first
Circular routes - don’t cross paths
Use largest vehicles first if can be filled
Mix pickups in with deliveries, not at end
If one stop far from other, use other truck
Avoid narrow stop time windows, or handle separately
42
Load trucks with deliveries for customers closest to each other
Stops on individual days arranged together
Start routes with farthest stops first
Circular routes - don’t cross paths
Use largest vehicles first if can be filled
Mix pickups in with deliveries, not at end
If one stop far from other, use another truck
Avoid narrow stop time windows, or handle separately
Greater vehicle utilization
Improved and more responsive customer service
Reduced transportation expenses
Reduced capital investment in equipment
