TRANSPORTATION IN A

SUPPLY CHAIN

UNIT III
 Learning Objectives

1. Understand the role of transportation in a supply chain.

2. Evaluate the strengths and weaknesses of different
modes of transportation.
3. Discuss the role of infrastructure and policies in
transportation.
4. Identify the relative strengths and weaknesses of
various transportation network design options.
5. Identify trade-offs that shippers must consider when
designing a transportation network.
 THE ROLE OF TRANSPORTATION IN SC
• Transportation is a process which engages in movement of
people & goods through the chain from the beginning of a
supply chain to the end consumer
• Transportation is an important supply chain driver because
products are rarely produced and consumed in the same
location.
• The importance of transportation has grown with the
increasing globalization in SCs and the growth in
e-commerce because both trends increase the distance
products travel.
• Transportation is a significant component of the costs
incurred by most supply chains.
• Transportation decisions impact SC profitability,
competitiveness & influence both inventory & facility
decisions within a SC.
 Factors (&Parties) Affecting Transportation Decisions
Key Players involved in Transportation:
1Carrier : party that moves or transports the product.
2Shipper: party that requires the movement of product between two
points in SC.
Factors affecting Carrier Decisions:
Vehicle-related costs:This is the cost a carrier incurs for the
purchase or lease of the vehicle used to transport goods.
Fixed operating costs:This includes any cost associated with
terminal, airport gates, and labour that are incurred whether
vehicles are in operation or not.
Trip-related costs: This cost includes price of labour & fuel
incurred for each trip independent of quantity transported.
Quantity-related cost: This includes loading /unloading costs &a
portion of fuel cost that varies with quantity being transported.
Overhead cost: This includes the cost of planning & scheduling a
transportation network & any investment in IT
 Factors affecting Shipper Decisions:

Transportation cost: It is the amount paid to various

carriers for transporting products to customers.
Inventory cost: It is the cost of holding inventory
incurred by the shipper’s SCN.
Facility cost: This is the cost of various facilities in the
shipper’s SCN.
Processing cost: This is cost of loading/unloading orders
& other processing costs associated with transportation.
Service level cost: This is the cost of not being able to
meet delivery commitments.
 Transportation Modes

• Road
• Rail
• Air
• Package Carriers (still using trucks, but the
focus is on delivery of a few packages)
• Water
• Pipeline (highly limited by geography and
product)
 Road
• Trucking industry is divided into two parts i.e.
• TL: Truck Load and LTL: Less than Truck load.
• TL: TL pricing display the economy of scale with
respect to the distance travel. TL shipping suited for
transportation between manufacturing facilities and
warehouses.
• LTL: LTL operations are priced to encourage
shipments in small lots, usually less than half a TL.
LTL shipping suites for shipments that are large to be
mailed as small packages.
 Road
Advantages:
• Direct door-to-door service
• Ideal for lower volume shipments involving multiple
shippers and consignees, i.e., LTL shipments
• Good speed and reliability, especially for truckload
shipments
Disadvantages:
• Relatively higher cost on a volume basis
• Limited ability to transport bulk commodities
• Higher variable costs
• Subject to seasonal weather and infrastructure
conditions
 Rail
Advantages:
• Capable of hauling a wide range of goods
• Most suitable for large quantities of bulk commodities
• Low variable cost
• Excellent economies of scale
Disadvantages:
• Comparatively high fixed costs
• Limited accessibility without using motor carrier for pickup
and delivery
• Limited door-to-door service
• Long in-transit and handling times (at pickup and delivery
end)
 Air

Advantages :
• Quickly satisfy emergency requirements
• Can support JIT inventory
• High level of competition helps hold down prices
Disadvantages:
• High cost per kg.
• Limited amounts and types of freight
• Fuselage shape limits container size and shape
• High variable-to-fixed cost ratio
• Requires combination with motor carrier for pickup and
delivery for direct door-to-door movements
 Package Carriers

Advantages :
• 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)
Disadvantages:
• Expensive
 Water

Advantages :
• Can handle very large quantities of bulk commodities and
raw materials
• Very low cost per kg.
Disadvantages:
• Limited shipping and receiving points
• Seasonal limitations on inland waterways
• Slow speed
• Potential for natural disasters
• Typically requires motor or rail carrier for pickup and
delivery
 Pipeline
Advantages :
• Primarily for crude petroleum, refined petroleum
products, natural gas
• Best for large and predictable demand
• Low cost transportation
• Highly reliable
• Not affected by weather conditions
Disadvantages:
• Extremely slow
• High fixed cost
• Fixed routes and rights-of-way
 Intermodal
Advantages :
• Utilizes inherent advantages of different
modes of transportation for a single shipment
• Most common example: rail/truck,
water/rail/truck or water/truck
• Often uses containers
• Increased global trade has also increased use
of intermodal transportation
Disadvantages:
Can be complex with different carriers involved
Intermodal
Intermodal
 Comparison of Performance Characteristics
Capability
Accessibility
ability of the
Reliability picking up
Speed carrier to
ability to the shipment
Time for move special
deliver on and
shipment materials,
time delivering it
hazardous
door-to-door
materials
Air Fast High Low Moderate
Rail Slow Moderate Moderate Moderate
Pipeline Slow High Low Low
Motor Moderate High High High
Inland Low-Mod
Slow Low Low
water erate
 Comparison of Economic Characteristics
Average Capacity in
Lowest
Length of tonnes
per-unit cost Market
Haul (1-highest,
Cost for Coverage
(1-highest, 5-lowest)
shipment
5-lowest)
Terminal to
Air High 2 4
Terminal
Terminal to
Rail Low 3 3
Terminal
Terminal to
Pipeline Low 5 1
Terminal
Motor Moderate Point to Point 4 5

Inland Terminal to
Low 1 2
water Terminal
 Design Options for a Transportation Network
• Direct shipping network: All shipments come directly from suppliers
to retail stores as shown in Figure.
• The routing of each shipment is specified & the supply chain
manager only needs to decide on the quantity to ship and the mode
of transportation to use.
• Advantages: 1.Elimination of intermediate warehouses. 2. Simplicity
in operation and coordination. 3. The transportation time from
supplier to retail store will be short.

Supplier/P Retailer/
lant Base
 Design Options for a Transportation Network
Direct shipping with milk runs: A milk run is a route in which a truck
either delivers product from a single supplier to multiple retailers or
goes from multiple suppliers to a single retailer. In this network, a
supplier delivers directly to multiple retail stores on a truck or a truck
picks up deliveries from many suppliers destined for same retail store.
Here, SC manager has to decide on routing of each milk run.
Adv: Lower transportation cost by consolidating shipments to multiple
stores on a single truck.

Supplier/Pla Retailer/Ba Supplier/Pla Retailer/Ba

nt se nt se
 Design Options for a Transportation Network
Direct shipping with milk runs: A milk run is a route in which a truck
either delivers product from a single supplier to multiple retailers or
goes from multiple suppliers to a single retailer. In this network, a
supplier delivers directly to multiple retail stores on a truck or a truck
picks up deliveries from many suppliers destined for same retail store.
Here, SC manager has to decide on routing of each milk run.
Adv: Lower transportation cost by consolidating shipments to multiple
stores on a single truck.

Supplier/Pla Retailer/Ba Supplier/Pla Retailer/Ba

nt se nt se
 Design Options for a Transportation Network
All shipments via central DC: In this option, suppliers do not send
shipments directly to retail stores. The retail chain divides stores by
geographical region and a DC is built for each region. Suppliers send
their shipments to the DC and the DC then forwards appropriate
shipments to each retail store as shown in Fig. Adv: Reduce supply
chain costs when suppliers are located far from the retail stores and
transportation costs are high.

D
C

Supplier/Pl Retailer/B
ant ase
 Design Options for a Transportation Network
Shipping via DC using milk runs: As shown in Figure, Milk runs can be
used from a DC if lot sizes to be delivered to each retail store are small.
Milk runs reduce outbound transportation costs by consolidating small
shipments.
 Design Options for a Transportation Network
• Tailored network: Here transportation uses a
combination of cross-docking, milk runs, and TL
and LTL carriers, along with package carriers.
• Advantage: Improves responsiveness of the SC.
• Disadvantage: 1.The complexity is high because
different shipping procedures are used for each
product and retail outlet. 2. Operating a tailored
network requires significant investment in
information infrastructure to facilitate the
coordination.
Pros and Cons of Different Transportation Networks
 Trade-offs in Transportation Design
Trade-offs to consider when making transportation
decisions:
1. Transportation and inventory cost trade-off
– Choice of transportation mode
– Inventory aggregation
2. Transportation cost and responsiveness trade-off
Choice of Transportation Mode:
•A manager must account for inventory costs when
selecting a mode of transportation
•A mode with higher transportation costs can be justified
if it results in significantly lower inventories
Inventory Aggregation: Inventory vs. Transportation Cost
● Firms significantly reduce safety inventory by physically
aggregating inventories in one location.
● As a result of physical aggregation
– Inventory costs decrease
– Inbound transportation cost decreases
– Outbound transportation cost increases
● Inventory aggregation decreases supply chain costs if the
product has a high value to weight ratio, high demand
uncertainty, or customer orders are large
● Inventory aggregation may increase supply chain costs if
the product has a low value to weight ratio, low demand
uncertainty, or customer orders are small
 Trade-offs Between Transportation Cost
and Customer Responsiveness

● Temporal aggregation is the process of combining orders

across time
● Temporal aggregation reduces transportation cost because
it results in larger shipments & reduces variation in
shipment sizes
● However, temporal aggregation reduces customer
responsiveness because of shipping delay
● Thus, a firm must consider the trade-off between
responsiveness and transportation cost when designing its
transportation network.
 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
– Example: –Keeco, LLC supplies home furnishings. They
primarily use trucking to deliver goods from their
warehouse to retail stores, but occasionally they will use
parcel delivery for small replenishment orders instead of
sending out a mostly empty truck.
Customer distance and density
 Based on Customer Size
• Option 1: Charge a higher delivery cost for smaller
customers.
• Option 2: Tailor milk runs so that they visit larger
customers with a higher frequency than smaller
customers.
✔ Firms can partition customers into large (L) medium (M)
and small (S) based on the demand at each. The optimal
frequency of visits can be evaluated based on the
transportation and delivery costs. If large customers are
to be visited every milk run, medium customers every
other milk run, and low-demand customers every three
milk runs, suitable milk runs can he designed by
combining large, medium, and small customers on each
run.
Product demand and value
 Role of IT in Transportation
● The complexity of transportation decisions demands
to use of IT systems
Especially crucial with intermodal transportation, need for
cross-enterprise collaboration
● IT software can assist in:
– Identification of optimal routes by minimizing costs subject
to delivery constraints
– Optimal fleet utilization
– GPS applications
 ROUTING AND SCHEDULING IN TRANSPORTATION
• In routing and scheduling managers must decide on the
customers to be visited by a particular vehicle and the
sequence in which they will be visited.
• The DC manager must first assign customers to be served
by each vehicle and then decide on each vehicle's route.
• After the initial assignment, route sequencing and
route improvement procedures are used to decide on the
route for each vehicle.
• Two Methods are used:
• The savings matrix method
• The generalized assignment method
 The savings matrix method
• This method is simple to implement and can be used to
assign customers to vehicles even when delivery time
constraints exist. The major steps in the savings matrix
method are
1. Identify the distance matrix
2. Identify the savings matrix
3. Assign customers to vehicles or routes
4. Sequence customers within routes
• The first three steps are used to assign customers to
vehicles and the fourth step is used to route each vehicle
to minimize the distance traveled.
 Distance matrix

•
 Savings matrix

•
 Savings matrix
•

C-X C-Y
C-X
DC
DC

C-Y
DC
 Assign customers to vehicles or routes

• When assigning customers to vehicles, the manager

attempts to maximize savings.
• An iterative procedure is used to make this assignment.
• Initially each customer is assigned to a separate route.
• Two routes can be combined into a feasible route if the
total deliveries across both routes do not exceed the
vehicle's capacity.
 Sequence Customers within Routes
• At this stage the manager's goal is to sequence customer visits so as to
minimize distance each vehicle must travel. Changing sequence in which
deliveries are made can have a significant impact on the distance
traveled by vehicles.
• Route Sequencing Procedures: 1. Farthest insert: Given a vehicle trip,
for each remaining customer, customer farthest from the current trip is
inserted. The process is continued until all remaining customers to be
visited by the vehicle are included in a trip.
• 2. Nearest insert. Given a vehicle trip for each remaining customer, the
customer closest to current trip is inserted. The process is continued
until all remaining customers, vehicle will visit are included in a trip.
• 3. Nearest neighbor. Starting at the DC this procedure adds the
customer closest to the point last visited by the vehicle until all
customers have been visited.
• 4. Sweep. Any point on the grid is selected (generally DC) & a line is
swept either clockwise or counterclockwise from that point. The trip is
constructed by sequencing customers in order they are encountered
during the sweep.
 Savings matrix method - Problem
• The manager at Grocery Chain also selling online has 6 orders that are to
be delivered to customers. The location and order size for each customer
is given below:

X Co-ordinate Y Co-ordinate Order Size

Warehouse, Dc 0 0 -
Customer 1 -12 0 74
Customer 2 -5 6 55
Customer 3 -15 7 68
Customer 4 -12 9 109
Customer 5 -3 15 81
Customer 6 0 20 41

• The grocery chain has 3 trucks, each capable of carrying upto 200 units.
Use savings matrix method to device suitable delivery schedule.
 Savings matrix method - Problem
•

X Co-ordinate Y Co-ordinate Order Size

Warehouse, Dc 0 0 -
Customer 1 -12 0 74
Customer 2 -5 6 55
Customer 3 -15 7 68
Customer 4 -12 9 109
Customer 5 -3 15 81
Customer 6 0 20 41
 Distance matrix method
DC C1 C2 C3 C4 C5 C6
DC 0 - - - - - -
C1 12 0 - - - - -
C2 8 9 0 - - - -
C3 17 8 10 0 - - -
C4 15 9 8 4 0 - -
C5 15 17 9 14 11 0 -
C6 20 23 15 20 16 6 0
 Savings matrix
Step2: Identify the savings matrix:
S(x,y)= Dist (DC, x)+ Dist (DC, y) – Dist (x, y)
Ex: S(C1, C2)= Dist (DC, C1)+ Dist (DC, C2) – Dist (C1, C2)
= 12+8-9=11 units
S(C1, C3)= Dist (DC, C1)+ Dist (DC, C3) – Dist (C1, C3)
= 12+17-8=21 units
 Savings matrix
C1 C2 C3 C4 C5 C6 Order size
C1 0 - - - - - 74
C2 11 0 - - - - 55
C3 21 15 0 - - - 68
C4 18 15 28 0 - - 109
C5 10 14 18 19 0 - 81
C6 9 13 17 19 29 0 41

Rank Savings Pair Rank Savings Pair

1 29 (5,6) 5 19 (4,6)
2 28 (4,3) 6 18 (1,4)
3 21 (1,3) 7 18 (3,5)
4 19 (4,5) 8 17 (3,6)
 Assigning customers to routes
Step 3: Assign customers to routes
• Goal is to maximize the savings
• An iterative procedure is adopted
• Two routes can be combined into a feasible route if the
total deliveries across the both routes do not exceed the
vehicle’s capacity.
• Iterative procedure : No. of trucks=3. Capacity of each=200
• Rank the savings s(i, j) and list them in descending order of
magnitude. This creates the "savings list." Process the savings list
beginning with the topmost entry in the list (the largest s(i, j)).
Rank Savings Pair Rank Savings Pair
1 29 (5,6) 5 19 (4,6)
2 28 (4,3) 6 18 (1,4)
3 21 (1,3) 7 18 (3,5)
4 19 (4,5) 8 17 (3,6)
 Step3 : Assigning customers to routes

•Iterative procedure : No. of trucks=3. Capacity of each=200

✔ Step 1: Route 1(Truck1):
✔ Highest savings in savings matrix = 29.
✔ Corresponding customers 5 and 6. Check the capacity
constraint. Order size of C5+C6=81+41=122. Compare
with capacity constraint, 122<200. √
✔ Remaining capacity=200-122=78. ∴Route 1🡪C5 & C6.
✔ Next highest savings in savings matrix = 28.
✔ Corresponding customers 3 and 4. Check the capacity
constraint. Order size of C3+C4=68+109=177. Compare
with capacity constraint, 122+177>200. × Can’t include
as capacity exceeds. ∴Route 1🡪5&6 & Remaining
capacity=200-122=78.
 Step3 : Assigning customers to routes

• Iterative procedure : No. of trucks=3. Capacity of each=200

✔ Step 1: Route 1(Truck1): Already Route 1🡪C5 & C6 &
Remaining capacity=200-122=78.
✔ Next highest savings in savings matrix = 21.
✔ Corresponding customers 3 and 1. Check the capacity
constraint. Order size of C3+C1=68+74=142. Not feasible
due to capacity constraint, 122+142>200. × Can’t
include as capacity exceeds. ∴Route 1🡪C5 & C6 &
Remaining capacity=200-122=78.
 Step3 : Assigning customers to routes

• Iterative procedure : No. of trucks=3. Capacity of each=200

✔ Step 1: Route 1(Truck1): ∴Route 1🡪C5 & C6 & Remaining
capacity=200-122=78.
✔ Next highest savings in savings matrix = 19.
✔ Corresponding customers 5 and 4. Check the capacity
constraint. C5 is already included to Route1. Order size
of C4=109. Not feasible due to capacity constraint,
122+109>200. × Can’t include as capacity exceeds.
∴Route 1🡪C5 & C6 & Remaining capacity=200-122=78.
 Step3 : Assigning customers to routes

• Iterative procedure : No. of trucks=3. Capacity of each=200

✔ Step 1: Route 1(Truck1): Already Route 1🡪C5&C6 &
Remaining capacity=200-122=78.
✔ Next highest savings in savings matrix = 19.
✔ Corresponding customers 6 and 4. Check the capacity constraint.
C6 is already included to Route1. Order size of C4=109. Not
feasible due to capacity constraint, 122+109>200. × Can’t include
as capacity exceeds. ∴Route 1🡪C5 & C6 & Remaining
capacity=200-122=78.
✔ Next highest savings in savings matrix = 18.
✔ Corresponding customers 5 and 3. Check the capacity constraint.
C5 is already included to Route1. Order size of C3=68. Feasible
due to capacity constraint, 122+68=190>200. √ Include C3 to
route1. ∴Customers assigned to Route 1🡪 C5,C6 & C3.
Remaining capacity=200-190=10. No order size <=10. So route 1
completed.
 Step3 : Assigning customers to routes

• Iterative procedure : No. of trucks=3. Capacity of each=200

Customers assigned to Route 1🡪 C5,C6 & C3.
✔ Step 2: Route 2(Truck2):
✔ Highest savings in savings matrix = 29 (Got over).
✔ Next highest savings in savings matrix = 28.
✔ Corresponding customers 4 and 3. But C3 is already
over. So go for next highest savings.
✔ Next highest savings in savings matrix = 21.
✔ Corresponding customers 1 and 3. But C3 is already
over. So go for next highest savings.
 Step3 : Assigning customers to routes

• Iterative procedure : No. of trucks=3. Capacity of each=200

Customers assigned to Route 1🡪 C5,C6 & C3.
✔ Step 2: Route 2(Truck2):
✔ Next highest savings in savings matrix = 19.
✔ Corresponding customers 4 and 5. But C5 is already
over. So go for next highest savings.
✔ Next highest savings in savings matrix = 19.
✔ Corresponding customers 4 and 6. But C6 is already
over. So go for next highest savings.
 Step3 : Assigning customers to routes

• Iterative procedure : No. of trucks=3. Capacity of each=200

Customers assigned to Route 1🡪 C5,C6 & C3.
✔ Step 2: Route 2(Truck2):
✔ Next highest savings in savings matrix = 18.
✔ Corresponding customers 4 and 1. Check the capacity
constraint. Order size of C4+C1=74+109=183. Feasible
due to capacity constraint, 183<200. √ Include C4 and
C1 in Route 2. ∴Route 2🡪C4&C1 & Remaining
capacity=200-183=17. No order size <=17. So route 2
completed.
 Step3 : Assigning customers to routes

• Iterative procedure : No. of trucks=3. Capacity of each=200

Customers assigned to Route 1🡪C5,C6 & C3. Route 2🡪C4&C1
✔ Step 3: Route 3(Truck3):
No need to do any iterative procedure as only customer
left out =C2. ∴Route 3🡪C2.
Final Feasible Routes:
Route 1🡪C5,C6 & C3.
Route 2🡪C4&C1
Route 3🡪C2.
 Savings matrix method – Problem2

Assume that the capacity of each vehicle is equal to i. 23 units ii. 16 units
Savings matrix method – Problem2
 Savings matrix method – Problem2

Route 1: {1, 7, 6, 10, 9, 8, 1}

Route 2: {1, 2, 3, 4, 5, 1}
 Route Sequencing Procedure– Problem1
Route 1🡪C5,C6 & C3. Route 2🡪C4&C1 Route 3🡪C2.

Route 1: DC-5=15; DC-6= 20; DC- 3 =17 select min. DC-5

5- 6 =6; 5 – 3 =14. select 5 – 6. DC-5 -6
Optimal Route1:DC-5 -6 -3 –DC = 15+6+20+17=58 units

Route 2: DC-1=12; DC-4= 15; select min. DC-1

Optimal Route2: DC-1 -4 –DC = 12+9+15 = 36 units
DC C1 C2 C3 C4 C5 C6
DC 0 - - - - - -
C1 12 0 - - - - -
C2 8 9 0 - - - -
C3 17 8 10 0 - - -
C4 15 9 8 4 0 - -
C5 15 17 9 14 11 0 -
C6 20 23 15 20 16 6 0
 Generalized Assignment Method
This method is more sophisticated than savings matrix
method and results in better solutions. The procedure for
routing and sequencing of vehicles consists of the following
steps:
1. Assign seed points tor each route
2. Evaluate insertion cost for each customer
3. Assign customers to routes
4. Sequence customers within routes
The first three steps assign customers to vehicles and the fourth
step identifies a route for each vehicle to minimize the distance
traveled.
 International Transportation
Definition: International logistics is the design and management
of a system that controls the forward and reverse flow of
materials, services, and information into, through, and out of
the international corporation.
•Through the implementation of international logistics, the firm
can implement cost-saving programs such as just-in-time (JIT),
electronic data interchange (EDI), and early supplier
involvement (ESI).
•The two phases of the movement of materials include: the
timely movement of materials, parts, and supplies and the
movement of the firm’s physical product to its customers.
 International Transportation
Each way of transportation has advantages: a) Air: very fast
and very expensive; it’s suitable only for small and worthy
merchandise b) Sea: very cheap but slow: it’s the only way
when shipment has a very far destination, and it’s the best
solution for bulk loads (i.e. commodities), or merchandise
in containers c) Land: • rail: it has characteristics similar to
sea transport, even if it’s faster than sea transport, and it’s
useful for medium distances • truck: it’s faster but costlier
than rail
 International Transportation
Export Documentation: A bill of lading is a contract
between the exporter and the carrier indicating that the
carrier has accepted responsibility for the goods and will
provide transportation in return for payment.
A commercial invoice is a bill for the goods stating basic
information about the transaction, including a description
of the merchandise, total cost of the goods sold, addresses
of the shipper and seller, and delivery and payment terms.
A freight forwarder specializes in handling export
documentation.
 International Transportation
International Inventory Issues: Inventories tie up a major portion of
corporate funds, therefore proper inventory policies should be a
major concern to the international logistician. Just-in-time inventory
policies minimize the volume of inventory by making it available only
when needed.
International Packaging Issues: Packaging is instrumental in getting
the merchandise to the destination in a safe, presentable condition.
Because of the added stress of international shipping, packaging that
is adequate for domestic shipping may be inadequate for
international shipping. Packaging considerations that should be taken
into account are environmental conditions and weight. One solution
to the packaging problem has been the development of inter-modal
containers. Cost attention must be paid to international packaging.
 International Transportation
Storage Facilities : A stationary period is involved when
merchandise becomes inventory stored in warehouses. The
location decision addresses how many distribution centers
to have and where to locate them. Storage facilities abroad
can differ in availability and quality. The logistician should
analyze international product sales and then rank order
products according to warehousing needs.
 International Transportation
Special Trade Zones : Foreign trade zones are areas where foreign
goods may be held or processed and then re-exported without
incurring duties. Trade zones can be useful as transshipment points
to reduce logistics cost and redesign marketing approaches.
Governments and firms benefit from foreign trade zones.
Export Processing Zones and Economic Zones: In export processing
zones, special rules apply that are different in other regions of the
country. These zones usually provide tax-free and duty-free
treatment for production facilities whose output is destined abroad.
The maquiladoras of Mexico are one example of a program that
permits firms to take advantage of sharp differentials in labor costs.
Through the creation of special economic zones, the Chinese
government has attracted many foreign investors bringing in millions
of dollars.
 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?