Transcript CHAPTER 1 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

CHAPTER 9- DOMESTIC AND
INTERNATIONAL TRANSPORTATION
Principles of Supply Chain Management:
A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD
Learning Objectives
You should be able to:
– Understand the strategic importance of transportation.
– Identify the various modes of transportation.
– Discuss the international aspects of transportation.
– Describe how transportation impacts supply chain management.
– Examine the interrelatedness of transportation, warehousing, &
material handling.
– Identify third-party transportation service providers.
– Summarize aspects of transportation regulation & deregulation.
– Discuss e-commerce issues in transportation mgmt.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Chapter Nine Outline
Impact of Transp. on SC Mgmt
Fundamentals of Transportation
Objectives of Transp.
Legal Forms of Transp.
Intermodal Transp.
Third-Party Logistics Services
Transp. Pricing
Transp. Regulation/Deregulation
Warehousing
Types of Warehouses
Risk & Warehouse Loc.
Just-in-Time Warehousing
International Transp. Issues
International Freight Security
International Intermediaries
Land Bridges
Foreign Trade Zones
NAFTA
Transportation Management
Transp. SBase Reduction
Mode & Carrier Selection
Contracting Transp. Svcs
Outsourcing Transp.
Measuring Transp. Performance
Creating Strategic Alliances
Performing Transp. Audits
E-Commerce & Transportation
Elec Invoice Payment
SC Visibility Technologies
3rd party Elec. Transaction
Offshore IT Outsourcing
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Introduction
Transportation is necessary to:
Move purchased goods from suppliers to buyers
Move finished goods to the customer.
– Products have little value to the customer until they are moved to
the customer’s point of consumption.
– Transportation is what creates the efficient flow of goods
between supply chain partners.
U.S. freight transportation amounts to 6 % of GDP.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Impact of Transportation on Supply
Chain Management
Time utility- products are delivered at the right
time.
Place utility- products are delivered to the desired
location.
Transportation & storage, getting through customs,
delivering to foreign locations
Firms are often use outside agents or third-party
transportation services to work in foreign
locations.
Poor transportation management can bring a
supply chain to its knees!!
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Fundamentals of Transportation
The Objective of Transportation- Satisfying customers while
minimizing costs & making a profit contribution.
Legal Forms of Transportation- Transportation service companies are
classified legally as either common, contract, exempt, or private carriers.
– Common carriers- offer transportation services to all shippers at
published rates between designated locations without
discrimination.
– Contract carriers- not bound to serve the general public.
Contract carriers serve specific customers under contractual
agreements.
– Exempt carriers- exempt from regulation of services & rates & if
they transport certain exempt products like produce, livestock,
coal, or newspapers.
– Private carrier- not subject to economic regulation & typically
transports goods for the company owning the carrier.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Fundamentals of Transportation- Cont.
The Modes of Transportation
Motor Carriers (trucks)- most flexible mode of transportation & account
for over 80 % of U.S. freight. Trucks compete w/rail & air for short-to
medium hauls. Weather is primary disadvantage.
•Less-than-truckload (LTL) carriers or truck-load (TL) carriers. LTL
carriers move small shipments & fees are higher.
•General freight carriers carry the majority of goods shipped & include
common carriers.
•Specialized carriers transport liquid petroleum, household goods,
building materials, & other specialized items.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Fundamentals of Transportation- Cont.
The Modes of Transportation
Rail Carriers- compete most favorably when the distance is long & the
shipments are heavy or bulky.
– Rail relatively slow & inflexible, rail roads have begun
purchasing motor carriers & can thus offer point-to-point pickup
& delivery service known as trailer-on-flatcar (TOFC) service.
– Rail companies use each other’s rail cars. Keeping track of rail
cars & getting them where they are needed can be problematic.
– Railroad infrastructure & aging equipment are also problems for
the railroads.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Fundamentals of Transportation- Cont.
The Modes of Transportation
Air Carriers- Very expensive relative to other modes but also
very fast. Air carriers transport about 5 % of the U.S. freight
bill.
– Airlines cannot carry extremely heavy or bulky cargo.
– For light, high value goods that need to travel long
distances quickly, most small cities & towns do not
have airports.
– Half of the goods transported by air are carried by
freight–only airlines, Fedex.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Fundamentals of Transportation- Cont.
The Modes of Transportation
Water Carriers- Inexpensive, slow & inflexible. Include
inland waterway, coastal & intercoastal, & deep-sea.
– Inland waterway transportation is used for heavy,
bulky, low-value materials (e.g., coal, grain).
Competes w/rail & pipeline.
– Water carriers are paired w/trucks to enable
door-to-door delivery.
– Supertankers are +1,500 ft long & 200 ft wide.
Pipeline Carriers- Limited in variety they can carry.
Little maintenance once pipeline is running.
Materials hauled in a liquid or gaseous state.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
10
Fundamentals of Transportation- Cont.
Intermodal Transportation- Combinations
of the various transportation modes, is
becoming an extremely popular method.
– Trailer-on-flatcar (TOFC), containeron-flatcar (COFC), piggy-back
service. The same containers can be
placed on board containerships &
airliners.
– ROROs or roll-on-roll-off
containerships truck trailers &
containers to be directly driven on &
off the ship, without the use of cranes.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Fundamentals of Transportation- Cont.
Third-Party Logistics Services- intermediaries facilitate use of the
transportation alternatives.
– Freight forwarders- consolidate shipments to fill trucks or rail
cars.
– Transportation brokers- handle transportation requirements of
shippers. legally authorized to act as agents on shippers behalf.
– Shipper’s Associations- non-profit orgs that move member’s
cargo. Consolidate members’ shipments to get volume discounts.
– Intermodal marketing companies (IMCs) act as intermediaries
between intermodal rail carriers & shippers.
– Integrated logistics service providers provide services for a
fee.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Fundamentals of Transportation- Cont.
Transportation Pricing
– Cost-of-service pricing- vary based on fixed & variable costs. As
volume increases, the fixed costs portion goes down.
– Value-of-Service Pricing- services priced at market bearing
competitive levels. A profit maximizing pricing approach.
– Terms of Sale- price includes transportation FOB destination free
on board to the shipment’s destination.
– Pricing Negotiation- Since the deregulation, negotiating prices is
more common.
– Rate Categories- rates can be classified a number of different
ways. Classified as class rates, exception rates, commodity rates,
& miscellaneous rates.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Fundamentals of Transportation- Cont.
Transportation Regulation & Deregulation
– Pro- Government regulation is good in that it tends to assure
adequate transportation service throughout the country while
protecting consumers in terms of monopoly pricing, safety, &
liability.
– Con- Transportation deregulation is good because it encourages
competition & allows prices to adjust as demand & negotiations
dictate.
– Today, U.S. transportation industry remains essentially
deregulated
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
14
Fundamentals of Transportation- Cont.
Transportation Regulation
– Granger laws of the 1870s broadly regulate the RRs.
– Interstate commerce Act of 1887- Created the Interstate
Commerce Commission (ICC).
– Transportation Act of 1920- Made changes to IC act of 1887.
– Motor Carrier Act of 1935 brought motor carriers under ICC
control.
– Transportation Act of 1940 establishing ICC control over
domestic water transportation.
– Federal Aviation Act of 1958 created to prescribe air traffic rules,
make safety regulations & plan the national airport system.
– Department of Transportation Act 1966 to coordinate the
executive functions of all transportation-related matters.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
15
Fundamentals of Transportation- Cont.
Transportation Deregulation
–
–
–
–
Railroad Revitalization & Regulatory Reform Act, passed in 1976.
Rail-roads could change rates w/o ICC approval.
Air freight was deregulated in 1977.
Motor carriers were deregulated in 1980 to promote competitive,
safe & efficient motor transportation.
– The shipping Act of 1984 allowed ocean carriers to pool or share
shipments, assign ports, publish rates, & enter into contracts with
shippers.
– ICC Termination Act of 1995 & the Ocean Shipping Reform Act of
1998 Interstate Commerce Commission was eliminated,
requirement for ocean carriers to file rates with the Federal
Maritime Commission also came to an end.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Warehousing
Crossdocking- to receive,
breakdown, repackage, &
distribute components to a
manufacturing location or finished
products to customers
warehouse. Today’s warehouses
are more correctly referred to as
distribution centers.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Warehousing- Cont.
The Importance & Types of Warehouses
– Warehouses support purchasing, production, & distribution.
– Consolidation warehouses collect large numbers of LTL shipments
then transported in TL or CL quantities.
Private Warehouses- Refers to warehouses that are owned by the firm
storing the goods.
– This arrangement reduces the cost of warehousing, offers greater
control, provides better workforce utilization, & can generate
income & tax advantages through leasing of excess capacity &/or
asset depreciation.
– Nonetheless, owning a private warehouse represents a financial
risk & loss of flexibility.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Warehousing- Cont.
Public Warehouses- owned by for profit organizations that contract their
services to other companies.
– Breakbulk: shipments are broken down & items are combined into
specific customer orders.
– Repackaging: items are repackaged for specific customer orders.
– Assembly: final assembly operations to satisfy customer requests.
– Quality inspections: perform incoming & outgoing quality
inspections.
– Material handling, equipment maintenance, & documentation
services.
– Storage.
•Pro- Provide the flexibility & investment cost saving.
•Con- Disadvantage lack of control.
•Reverse logistics services disposition of returned products
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
19
Warehousing- Cont.
Risk Pooling & Warehouse Location
– As the number of warehouses increases, the system becomes
more decentralized. Responsiveness & delivery service increase.
– However, warehousing operating & inventory costs also increase.
Trade-off between costs & customer service must be considered.
Risk Pooling
– Describes the relationship between the number of warehouses,
inventory, & customer service.
– Risk pooling is estimated by square-root rule
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Warehousing- Cont.
Risk Pooling & Warehouse Location
– square-root rule
√N2
S2 =
√N1
(S1)
Where:
S1 = Total system stock for the N1 warehouses
S2 = Total system stock for the N2 warehouses
N1 = Number of warehouses in the existing system, and
N2 = Number of warehouses in the proposed system
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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Warehousing- Cont.
Warehouse Location Strategies proposed by Edgar Hoover
– Market-positioned strategy- warehouses close to customers to
maximize distribution svcs & improve transp. economies of scale.
– Product positioned strategy- warehouses close to the sources
of supply to enable the firm to collect goods & consolidate these.
– Intermediately positioned strategy- warehouses midway
between the sources of supply & the customers when distribution
requirements are high & product assortments come from various
locations.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
22
Warehousing- Cont.
Warehouse Location- Theories
– Von Thunen - transportation costs should be minimized when
considering facility location. Market prices & production costs
would be identical regardless of the location of the warehouse.
– Greenhut- based on profit instead of transportation costs. The
optimum location would be the one that maximized profits,
which may not coincide with the minimum cost location.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
23
Warehousing- Cont.
Just-in-Time Warehousing
Emphasis on warehousing to support JIT operations:
– A commitment to customers & service quality
– Reduced lot sizes & shipping quantities
– Greater emphasis on cross docking
– Increased automation
– Increased assembly operations
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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International Transportation Issues
International Freight Security- Conflict between U.S. govt. & industry
toward more security & restrictions for inbound shipments.
International Intermediaries
– Customs Brokers- move shipments through customs & handle
documentation.
– International Freight Forwarders- move goods from production to
foreign destination w/ surface & air transportation.
– Trading Companies- Put foreign buyers & sellers together &
handle all of the export/import arrangements.
– Non-Vessel-Operating Common Carriers- operate like freight
forwarders but use scheduled ocean liners.
– Global Logistics Service Providers- Companies like DHL & UPS
offer total global logistics solution.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
25
International Transportation Issues- Cont.
Land Bridges- Intermodal movements between Europe & East Asia
utilize the United States as a land bridge.
Foreign Trade Zones (FTZs) secure sites in U.S. under supervision of
U.S. Customs. FTZs bring goods into the site & offer storage,
exporting, manufacturing, assembly, repacking, testing, & repairing
services.
North American Free Trade Agreement began on January 1, 1994, &
removes most barriers to trade & investment among U.S., Canada &
Mexico.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
26
Transportation Management
• Transportation Supply Base Reduction- Use fewer providers & pick
best-performing suppliers.
• Mode & Carrier Selection- Identify transportation modes & carriers
using a decision model, such as weighted factor analysis.
• Contracting Transportation ServicesBenefits for shipper- contract assures pkg of services & prices.
Benefits for carrier- ability to plan capacity and staffing
• Outsourcing Transportation- Firms increase service, decrease costs,
improve int. processes, & apply resources to core functions.
• Measuring Transportation Performance- Allows the firm to identify
problem areas & then make changes.
• Performing Transportation Audits- Study of constraints to determine
improvements.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
27
E-Commerce and Transportation
Electronic Invoice Presentment & Payment- A recent development
designed to create greater efficiency among companies.
Supply Chain Visibility Technologies- Time managed benefit.
Consisting of planned movement of freight; immediate rates & special
service fees; make orders; trace shipments; manage other elements of
shipments.
Third-Party Electronic Transaction Platforms- Allow shippers &
carriers to perform various transactions over the Web. These sites
provide freight matching services, auctions, & on–line communities or
marketplaces.
Offshore Information Technology Outsourcing- U.S. IT service
providers are contracting with offshore IT providers for software
development services.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing
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