Transcript Document

Chapter 10
Carrier Strategies
CARRIER OPERATING
CONDITIONS
Operating Network
• With assets spread over vast geographic
territories, managers face difficult
management control issues.
1. First, assets and equipment must be deployed to
the shippers’ location, which requires
continuous monitoring of equipment location
and customer demand. Dilemma of operating the
vehicle empty to a shipper’s location, incurring
operating cost without revenue.
Management control issues :
2. Second, a high proportion of operating tasks is
performed beyond the scope of supervisors.
Truck drivers, pilots, engineers, and the like
perform their duties in the absence of
immediate supervision. The supervisors of
equipment operators are typically hundreds or
thousands of miles away. Technology is the link
that enables the supervision of geographically
separated operators.
management control issues :
3. Third, the vast geographic operating
network is interrelated and interdependent.
That is, the origin terminal, pickup vehicles,
consolidation terminals, and so on, all must
work together to accomplish the delivery
of the shipper’s freight.
Information technology connects
management control issues :
4. Fourth, the carrier’s operations and
equipment are continually exposed to
weather conditions and other hazards
beyond the control of management.
5. Other hazards beyond management control
include traffic congestion and calamities.
management control issues :
6. operating equipment is located throughout a
widespread area, making it difficult for
carriers to protect equipment against
vandalism, pilferage, and sabotage
Operations
• Transportation operations come into direct
contact with the general public, making
safety a critical factor.
• Because of these interactions with the
general public, transportation accidents
have the potential for doing great harm to
many people.
Operations
• The need for safety, coupled with the high
proportion of tasks performed without
immediate supervision, necessitates
extensive operating rules.
• consequences of accidents resulting from
unsafe operations are so excessive that the
cost of rigidity is miniscule in comparison.
Operations
• Gorvernment safety regulations:
transporting hazardous materials.
• carriers are concerned with the safe delivery
of the cargo. That is, the carriers desire
delivery of cargo and passengers without
damage or undue delay.
Labour
• transportation is a service, and one of the
characteristics of a service is that it cannot
be inventoried.
• If a labor strike occurs in a transportation
company the operation is stopped and no
service is provided.
Labour
• The carrier cannot produce the service in
anticipation of the strike, inventory the
service, and then sell it during the strike.
• This inability to provide service during a
strike causes considerable disruption to
society in the form of canceled travel, plant
closings, and product shortages.
Performance Measures
• The service performance measurements
include time, consistency, and damage.
• Time – Delivery time
• Consistency - Consistently producing a
desired transit time, free of damage, is a
value to a carrier because it provides a value
to the shipper in the form of reduced
inventory and stockout costs
Performance Measures
• Damage - damage to cargo negatively
impacts the shipper and/or receiver by
rendering the delivered item useless,
thereby setting the stage for the shipper
and/or receiver to incur stockout costs.
Financial performance measures
• By monitoring financial performance, carrier
management attempts to efficiently use resources
(capital and human) employed in the business.
• financial performance measurements consider the
short- and long-term financial performance of a
carrier and the efficient use of resources.
• NOTES
OPERATING STRATEGIES
• The rule of efficiency states that it is most
efficient to move in a continuous, straight
line whenever possible. This rule describes
the most efficient movement for goods and
people.
• Intermediate handlings should be
minimized.
OPERATING STRATEGIES
• The full capacity of the transportation vehicle
should be maximized on each run. (fixed costs)
(plane capacity = 50 passengers)
OPERATING STRATEGIES
• Consolidation and break-bulk activities
should be used to achieve full capacity for
long-haul moves.
• One means of attaining full equipment use
is to use a pickup and delivery network to
accumulate freight for the line-haul
efficiency.
OPERATING STRATEGIES
• Empty mileage should be minimized. The
cost of moving an empty vehicle is almost
that of moving a loaded one without the
offset of revenue.
• Empty kilometres represent wasted fuel,
labor, capital costs, and lost revenue.
OPERATING STRATEGIES
• Movements should be scheduled and
dispatched so as to fully use labor and
equipment in line with the market.
• Transportation service cannot be stored.
Because the service must be in place for the
market, this rule calls for the optimal
equipment levels to be in place with the
required personnel.
TECHNOLOGY AND
EQUIPMENT
• The more expensive the long-haul vehicle,
the greater the required investment in fast
load/unload and other support equipment.
TECHNOLOGY AND
EQUIPMENT
• The economies of high capital investment
call for high utilization of the equipment
throughout the day, week, month, or year
• Because these expensive investments are
only earning revenue when they are
running, firms strive to operate with a
minimum of down time or loading and
unloading time
TECHNOLOGY AND
EQUIPMENT
• Generally, the larger the vehicle, or the
more freight or passengers that can be
moved in it, the less each unit will cost to
move.
• Carriers may dedicate vehicles to particular
routes based on power, speed, and
maneuverability. Example?
TECHNOLOGY AND
EQUIPMENT
• the size of vehicle used on a particular route
is determined in part by the demand on the
route.
• Carriers attempt to match the vehicle
carrying capacity with the demand on the
route
TECHNOLOGY AND
EQUIPMENT
• The fastest possible speed is not always
the most efficient for economical
operations. The cost of fuel
consumption in relation to speed for
most transportation vehicles is shown in
Figure 10.1.
TECHNOLOGY AND
EQUIPMENT
• Carriers attempt to maximize the length,
width, and height of vehicles so as to
increase cubic carrying capacity and
loadability.
TECHNOLOGY AND
EQUIPMENT
• Larger vehicle dimension strategy is particularly
important to carriers moving low- density freight.
• A larger vehicle permits the shipper to increase the
shipment size that in turn lowers the cost per unit
shipped.
• The longer the trailer, the greater the cubic
capacity, the higher the shipment weight, and the
lower the cost per Rand transported.
• Shippers of low-density freight desire carriers to
have high cubic capacity vehicles permitting
larger loads and lower freight costs.
TECHNOLOGY AND
EQUIPMENT
• Equipment should be standardized as much
as possible.
• Standardized equipment simplifies
planning, purchasing, crew training,
maintenance, and spare parts inventories.
THE HUB-AND-SPOKE ROUTE
SYSTEM
• The hub-and-spoke system concentrates
the flow of passengers and freight along a
fewer number of routes with a main
mixing point (hub) at a center.
• It expands the number of points the carrier
can offer travelers with good schedules, and
it concentrates more business into a fewer
number of runs.
MARKETING
• Transportation firms are faced with the
challenge of developing and marketing
something that cannot be felt, inventoried,
or tested.
• This makes the marketing of carrier services
extremely important to the profitability of
the firm, and a knowledge of marketing
concepts is critical to this success.
MARKETING
•
Service marketing is different from
product marketing because of the
differences between products and services.
1. First, services are intangible. The inability
to see, feel, and try a service before it is
produced makes it more difficult to sell
and more difficult for buyers to make
purchase decisions.
Service marketing characteristics
2. Second, there is a focus on the service
provider.
• For example, flight satisfaction influenced
by flight attendant .
• truck drivers who make customer
deliveries can reinforce the positive image
of a carrier or change a customer’s
perception of that image.
Service marketing characteristics
3. service providers are usually highly laborintensive.
• This can make service quality subject to
more variability.
• Although carriers have high investments
in equipment, people actually provide the
service.
Service marketing characteristics
4. there is a simultaneous production and
consumption of services; that is, there is no
inventory.
• Transportation services cannot be produced
before demand occurs to take advantage of
production economies.
• Equipment, in the form of capacity, can be put
into place in anticipation of demand, but
production of transportation service occurs at the
same time as demand.
Service marketing characteristics
5. services are perishable.
• A move by rail has no shelf life.
• Likewise, empty seats on an airplane are
lost forever immediately after takeoff.
MARKETING
• Carriers that stress operations are more
likely to optimize their existing system at
the expense of customer satisfaction.
• They tend to be inflexible and are very
inwardly focused.
MARKETING
• On the contrary, marketing-oriented
carriers stress customer satisfaction by
tailoring their system and services to meet
customer needs.
• These carriers are outwardly focused, are
very flexible, and perceive themselves to be
supportive of a buyer or receiver’s logistics
and business needs.
• The logical extension of this marketing orientation
is the establishment of carrier outsourcing, thirdparty operations.
• Most of the major trucking companies and air
cargo carriers have outsourcing subsidiaries that
offer a wide variety of value-added services to
their customers.
• These outsourcing subsidiaries enable the carrier
to differentiate its services from its competitors
and gain customer business
COORDINATION
• A hallmark of successful carrier firms is
that a close coordination exists between
marketing and operations departments.
• A close link ensures that marketing efforts
are conducted with operational costs in
mind and that an operating department does
not allow marketing efforts to be wasted on
poor service.
CHALLENGES AFFECTING
CARRIER MANAGEMENT
• geographically dispersed - By their very
nature, carrier operations take place over
vast distances.
• This causes carriers to rely upon tight
controls, often with decentralized structures
and close communications.
• he dispersion problem is compounded by
the fact that the firm’s product availability
is constantly in motion.
CHALLENGES AFFECTING
CARRIER MANAGEMENT
• The carrier employee who came in contact
with the customer traditionally had been
given relatively low status and training
within the carrier organization.
• Today’s carriers, however, have realized the
importance these customer-contact
personnel play in shaping customer
perceptions concerning service quality.
CHALLENGES AFFECTING
CARRIER MANAGEMENT
• Transportation operating employees are
often minimally supervised.
• carrier crews often come into contact with
their supervisors for only minutes per day
and often only by phone or radio.
• Without supervision, a driver has the
potential opportunity for low performance
and little accountability to the terminal
managers.
CHALLENGES AFFECTING
CARRIER MANAGEMENT
• This has caused many carriers to implement
strong communication and performance
measurement systems.
• Satellite communication technology also
permits carrier management to track the
progress of operating equipment and
personnel
CHALLENGES AFFECTING
CARRIER MANAGEMENT
• Single accountability for the transportation
service “product” is often minimal
(geographic dispersion).
• Although transportation service standards
can be established, without effective
discipline and accountability, reliable
service is difficult to maintain.
CHALLENGES AFFECTING
CARRIER MANAGEMENT
• It is often very difficult to determine the
exact cost of transportation.
• Transportation is an activity in which the
total cost consists of large amounts of fixed,
overhead, and joint costs.
THE TERMINAL: THE BASIC
TRANSPORTATION SYSTEM
COMPONENT
• General Nature of Terminals
• A terminal is any point in a carrier’s
network where the movement of freight or
passengers is stopped so some type of
value-adding activity can be performed.
General Nature of Terminals
• One of the basic tenets of logistics is to
keep an item moving at a constant speed
through the system.
• Once this item is stopped, costs are
incurred, so a delay at a terminal must add
more value than it incurs costs.
• An overview of the terminal’s role in
the transportation process is given in
Figure 10.3.
Various value-adding activities or
services that terminals provide:
 concentration or consolidation.
 This activity takes small shipments or
groups of passengers and combines them to
make larger units.
Various value-adding activities or
services that terminals provide:
 dispersion or break-bulk.
 The opposite of consolidation, this activity
involves separating larger units of freight or
passengers into smaller units, normally for
delivery to final destination.
 Consolidation and dispersion are usually
performed simultaneously at most types of
terminals.
Various value-adding activities or
services that terminals provide:
• Shipment services are also performed at
terminals.
• These involve the storage of freight or
accommodating passengers in transit, the
protection of freight or passengers from the
elements, and routing and billing.
Various value-adding activities or
services that terminals provide:
 Many types of terminals are used to provide
vehicle services, which could include
equipment maintenance and the storage of
equipment until it is needed.
 In LTL networks, break-bulks serve as
major maintenance facilities for line-haul
equipment and also temporarily store
equipment that is not needed during periods
of slow business.
Various value-adding activities or
services that terminals provide:
 Finally, terminals can provide shipment
process services such as weighing services,
customs inspections, claims processing, and
interchange operations.
Terminal Ownership
• If the terminal is owned by the carrier, it
will incur fixed costs, such as interest,
depreciation, and taxes that will not vary in
total with the volume of freight.
• As volume increases through these
terminals, however, the fixed-cost
allocation per unit will decrease, which can
be an indicator of economies of increased
utilization.
Terminal Ownership
• The other method of terminal financing is through
government ownership.
• In this case, the government (state, local, or
federal) owns the terminal facility and charges
carriers a user fee based on their activity level at
the facility.
• This still results in the burden of high fixed costs.
• However, the government bears this burden and
passes it along to users as a variable cost.
• This variable cost can affect the carrier’s cost
structure and, ultimately, its pricing structure.
Types of Terminals
MOTOR CARRIER (TRUCKLOAD)
• Truckload movements consist of one
shipment between one consignor and one or
more consignees i.e. no intermediate
handlings – no consolidation etc
• These terminals are designed primarily to
accommodate drivers and equipment, but
not freight
MOTOR CARRIER (TRUCKLOAD)
• these facilities normally provide
dispatching, maintenance, and fuel and
maintenance services
MOTOR CARRIER (LTL) Terminal
• The most common type of terminal found in
the LTL system is the pickup and delivery
(PUD) terminal, also called a satellite or
end-of-the-line (EOL) terminal. The PUD
terminal serves a local area and provides
direct contact with both shippers and
receivers.
MOTOR CARRIER (LTL) Terminal
• During and after the deliveries, freight will
be picked up from customers and returned
with the driver to the terminal at the end of
the day.
• When all the drivers return at the end of
their shifts, the terminal will have freight to
be consolidated and moved outbound to
customers in other areas of the country.
MOTOR CARRIER (LTL) Terminal
• The basic terminal services performed at
these facilities are consolidation and
dispersion / break-bulk.
Terminal Management Decisions
NUMBER OF TERMINALS
• The degree of market penetration and customer
service desired by the carrier will help determine
the number of terminals to establish
• The decision as to the number of terminals in a
carrier’s network is ultimately based on total cost.
• The carrier will examine the fixed and variable
costs of operating different numbers of terminals
in a system and select the number that minimizes
total costs.
Terminal Management Decisions
LOCATIONS OF TERMINALS
• Market penetration and potential will help
determine terminal location.
Terminal Management Decisions
EQUIPMENT SELECTION AND
DEVELOPMENT
• Truckload and LTL carriers need to
make two types of decisions: what type of
tractor (power) and what type of trailer.
EQUIPMENT SELECTION AND
DEVELOPMENT
• Power must be specified to be able to
handle the size and length of the load along
with the terrain over which it travels.
• Decisions regarding trailers include length
and trailer type (dry van, refrigerated,
ragtop, container, flatbed).
• END