Module 3: Transportation Network Design and

Aligning Supply Chains

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Transportation Modes and their Role in a
Supply Chain
• Movement of product from one location to another
• Products rarely produced and consumed in the same
location
• Significant cost component
• Shipper requires the movement of the product
• Carrier moves or transports the product

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Modes of Transportation and Their Performance Characteristics
Value
1. Air Freight Freight Freight Added to
Value Tons Ton-Miles GNP
2. Package carriers Mode ($ billions) (millions) (billions) ($ billions)
Air
3. Truck (includes
4. Rail truck and
air) 394 6 11 61.9
5. Water Truck 12,181 11,924 2,337 113.1
6. Pipeline Rail 588 2,053 1,518 30.8
7. Intermodal Water 201 645 434 14.3
Pipeline 889 1,912 1,018 12.0
Multimodal 1,985 583 489 Blank

Table: Transportation Facts

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1. Air
• Cost components
1. Fixed infrastructure and equipment
2. Labor and fuel
3. Variable depending on passenger/cargo

• Key issues
• Location/number of hubs
• Fleet assignment
• Maintenance schedules
• Crew scheduling
• Prices and availability

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2.Package Carriers 3. Truck
• Small packages up to about Significant fraction of the goods
150 pounds moved
• Expensive Truckload (T L)
• Rapid and reliable delivery Low fixed cost
Imbalance between flows
• Small and time-sensitive
shipments
Less than truckload (L T L)
Small lots
• Provide other value-added Hub and spoke system
services May take longer than T L
• Consolidation of shipments a Fatigue-related accidents
key factor

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4. Rail
• Move commodities over large
5. Water
distances • Limited to certain geographic areas
• High fixed costs in equipment • Ocean, inland waterway system, coastal
and facilities waters
• Scheduled to maximize • Very large loads at very low cost
utilization • Slowest
• Transportation time can be • Dominant in global trade
long
• Containers
• Trains ‘built’ not
scheduled

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6. Pipeline 7. Intermodal
• High fixed cost • Use of more than one mode of
• Primarily for crude petroleum, transportation to move a shipment
refined petroleum products, • Grown considerably with increased use
natural gas of containers
• May be the only option for global trade
• Best for large and stable flows
• More convenient for shippers – one
• Pricing structure encourages entity
use for predicable component
• Key issue – exchange of information to
of demand
facilitate transfer between different
modes

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 Transportation decisions
• Transportation decisions affect supply chain profitability and influence both inventory
and facility decisions within a supply chain.
• The various modes of transportation include water, rail, truck, air, pipeline, intermodal,
and package carriers.
• Water is typically the least expensive mode but is also the slowest, whereas air and
package carriers are the most expensive and the fastest.
• Rail and water are best suited for low-value, large shipments that do not need to be
moved in a hurry.
• Air and package carriers are best suited for small, high-value, emergency shipments.
• Intermodal and TL carriers are faster than rail and water but are somewhat more
expensive. LTL carriers are best suited for small shipments that are too large for
package carriers but much smaller than needed for a TL.
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Transportation Infrastructure and Policies
• Governments generally take full responsibility or play a significant role in building
and managing infrastructure elements
• Pricing should reflect the marginal impact on the cost to society
• Infrastructure such as ports, roads, and airports has a significant impact on
transportation. Given its inherent monopolistic nature, most transportation
infrastructure requires public ownership or regulation.
• In the case of public ownership, pricing based on average cost leads to
overutilization and congestion. It is important to use some form of congestion pricing
under which users are forced to internalize the increase they cause in network cost.

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1.Direct Shipment Network to Single Destination
• With the direct shipment network to a single destination
option, the buyer structures the transportation network so
that all shipments come directly from each supplier to each
buyer location.
• The routing of each shipment is specified, and the supply
chain manager needs to decide only the quantity to ship and
the mode of transportation to use. This decision involves a
trade-off between transportation and inventory costs.
• The major advantage of a direct shipment transportation
network is the elimination of intermediate warehouses and
its simplicity of operation and coordination. The shipment
decision is completely local, and the decision made for one
shipment does not influence others. The transportation time
from supplier to buyer location is short because each
Figure Direct Shipment Network shipment goes direct.
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2.Direct Shipping with Milk Runs
• A milk run is a route on which a truck either delivers
product from a single supplier to multiple retailers or
goes from multiple suppliers to a single buyer location.
• In direct shipping with milk runs, a supplier delivers
directly to multiple buyer locations on a truck or a truck
picks up deliveries destined for the same buyer location
from many suppliers. When using this option, a supply
chain manager has to decide on the routing of each milk
run.
• In Japan, Toyota has many assembly plants located
close together and thus uses milk runs from a single
supplier to many plants. In the United States, however,
Toyota uses milk runs from many suppliers to each
assembly plant given the large distance between
assembly plants.
Figure: Milk Runs from Multiple Suppliers or to Multiple Buyer Locations

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 3.All Shipments Via Intermediate Distribution Center(DC) with Storage

Under this option, product is shipped from suppliers to a

central distribution center where it is stored until needed
by buyers.

Storing product at an intermediate location is justified if

transportation economies require large shipments on the
inbound side or shipments on the outbound side cannot
be coordinated.

In such a situation, product comes into a DC in large

quantities where it is held in inventory and sent to buyer
locations in smaller replenishment lots when needed.
Figure : All Shipments via DC
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4. All Shipments Via Intermediate Transit Point with
Storage

• Suppliers send their shipments to a central distribution center

• Stored until needed by buyers
• Shipped to each buyer location
• Suppliers send their shipments to an intermediate transit point
• They are cross-docked and sent to buyer locations without storing them
• Wal-Mart has used cross-docking successfully to decrease inventories in the supply chain without
incurring excessive transportation costs. Wal-Mart builds many large stores in a geographic area
supported by a DC. As a result, the total lot size to all stores from each supplier fills trucks on the
inbound side to achieve economies of scale. On the outbound side, the sum of the lot sizes from
all suppliers to each retail store fills up the truck to achieve economies of scale
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5. Shipping Via DC Using Milk Runs
• Milk runs can be used from a DC if lot sizes to be delivered to
each buyer location are small.
• Milk runs reduce outbound transportation costs by
consolidating small shipments.
• For example, Seven-Eleven Japan cross-docks deliveries from
its fresh-food suppliers at its DCs and sends out milk runs to
the retail outlets because the total shipment to a store from
all suppliers does not fill a truck. The use of cross-docking and
milk runs allows Seven-Eleven Japan to lower its
transportation cost while sending small replenishment lots to
each store. The use of cross-docking with milk runs requires a
significant degree of coordination and suitable routing and
scheduling

Figure : Milk Runs from DC

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Tailored Network
Table : Pros and Cons of Different Transportation Networks
Network Structure Pros Cons
Direct shipping No intermediate warehouse High inventories (due to
Simple to coordinate large lot size)
Direct shipping with Lower transportation costs for small Increased coordination
milk runs lots Lower inventories complexity
All shipments via Lower inbound transportation cost Increased inventory
central DC with through consolidation cost Increased handling
inventory storage at DC
All shipments via Low inventory requirement Increased coordination
central DC with Lower transportation cost through complexity
cross-dock consolidation
Shipping via D C using Lower outbound transportation cost Further increase in
milk runs for small lots coordination complexity
Tailored network Transportation choice best matches Highest coordination
needs of individual product and store complexity
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Good Relationships Are The Key To Effective Supply Chain
Integration

An integrated supply chain is made up of manufacturers, customers and suppliers that

work together to create, sell and support a product.
To improve supply chain integration, all participants must cooperate for the success
of the whole.
The following worldwide trends are also driving companies toward better supply chain
integration:
•Increased cost competitiveness
•Shorter product life cycles
•Quicker product development cycles
•More global and customized products
•Improved overall quality bschool.cms.ac.in
What is third party logistics (3PL) ?
A 3PL logistics provider can store your stock on your behalf. Your things will be picked, packaged, and shipped.
Between your production processes and your consumers, 3PL is a crucial link. Your business will expand, and
your clients will be delighted when your order fulfilment procedures are successful.
Choosing a right 3PL –
The terms fulfilment center and fulfilment warehouse are interchangeable when referring to third-party logistics,
or 3PL. Many of the services offered by 3PL providers are also provided by order fulfilment businesses. Among
these services are:
•Inventory management
• Warehousing
•Shipping
•FTL and LTL freight shipping
•Picking and packing
•Kitting and customization
• Reverse logistics (returns)

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Role of Third-Party Logistics –
For a range of sectors, third-party logistics providers offer supply chain solutions. These businesses can tailor
their services to match the demands of each customer and are experts in functions related to procurement,
transportation, and distribution. Third-party logistics providers utilize their expertise in logistics to relieve their
clients of the responsibility of inventory management so that they may concentrate on providing their own
goods and services.
You may delegate these activities to a 3PL so that you don’t have to worry about the labour, storage, and
technological costs associated with receiving and delivering orders

Importance of 3PL –
Since 3PL establishes the connection between the brand you have developed and the investments you have
made in goods and services, the supply chain may easily be regarded as the most crucial component of your
company. A component of supply chain management called logistics completes the transfer of goods,
services, data, and money from the point of origin to the final consumer.

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 Benefits of 3PL:
1.By providing people to handle inventory and shipping, a 3PL may save you time and money. Additionally, they
often provide better costs owing to volume reductions on packaging and other logistical requirements.
2.To relieve their clients of this effort, 3PL businesses employ their expertise in supply chain operations and
procedures as well as their network of connections in the warehouse and s
3.hipping industry. The following are the major services that most 3PL logistics providers provide:
1. Receiving: Your goods and stock will be delivered to the 3PL’s warehouse. They will handle all the logistics
of handling and organizing your belongings while storing the products for you.
2. Picking – The third-party logistics provider will gather, or “pick,” the items for the order and arrange them for
each client when you have an order.
3. Packing – The 3PL will safely package the items for dispatch when an order has been “picked.” You won’t
have to worry about anything because the logistics business will provide all of the boxes, packaging tape,
and bubble wrap!
4. Shipping – Your orders will be shipped to your customers by a third-party logistics provider. Your orders will
be carefully branded and sent to your customers using a selection of carriers based on their preferences.
5. Returns – A lot of 3PLs provide services for managing returns. The third-party logistics provider manages
the procedure if a consumer needs to return an item, adding the items to inventory or, if you’d prefer,
discarding them.

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Difference between Freight forwarder, 2PL, 3PL, and
4PL?

•2PL: Couriers collect parcels from your warehouse and deliver them to an end
customer.
•3PL: Inventory is stored, picked, packed, and shipped by a third-party company.
•4PL: Providers manage the fulfillment partners (3PLs) you’re working with. Their
team negotiates the contract with a partner, resolves any issues, and communicates
between your internal team and the distributor.
•Freight brokers: Act as intermediaries between brands and drivers. Freight
forwarders are different from 3PLs in that they’re specifically dedicated to matching up
brands with drivers or carriers. bschool.cms.ac.in
Types of 3PL Providers
1. Transportation-based; Transportation-based services focused on the transportation of
products from one location to another, though they can also extend to offer a
comprehensive set of logistics services. These providers will be either leveraged or
non-leveraged.
•Leveraged providers use assets of other firms
• Non-leveraged providers use assets belonging solely to the parent firm
2. Warehouse/distribution-based services
Some providers offer warehousing and distribution services, including storage,
inventory management, stock rotation, return services, fulfillment and reverse
logistics.
3. Forwarder-based services
Freight forwarders are intermediaries — typically non-asset owners — that oversee
the transportation of products from the initial shipping location to the final destination.
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Types of 3PL Providers
4. Managed transportation services: offer end-to-end logistics
management services. Shippers are able to choose the level of support
they need, whether it’s a full logistics outsource or just a segment of their
transportation needs.
5.Financial-based services
Financial-based services provide freight payment and auditing as well as
cost accounting and control. They also offer access to tools for
monitoring, booking, tracking, tracing and managing inventory.
Information-based services
These are internet-based providers are primarily focused on
business-to-business (B2B) operations. They use electronic markets for
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transportation and logistics services.
 Role of IT in 3PL
• A tech-enabled 3PL provides software to give the customer a
complete real-time visibility into the order lifecycle.
• A vast network of warehouses empowered by technology is the
perfect combination to deliver a professional end-to-end supply
chain solution for eCommerce order fulfillment.

https://dclcorp.com/blog/technology/benefits-of-technology-focused-3pl-
order-fulfillment/

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Software Options
Commercial software

In-house solutions -choose between single vendor suites, applications from

multiple vendors, consider licensing versus on-demand purchases

Solutions Packages- determine what types of applications are needed and

how they should be purchased

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Radio-Frequency Identification (RFID)
RFID is an automatic identification method. RFID tags consist of a microchip and a
printed antenna that can be packaged into many forms, such as a label, or imbedded in
between the cardboard layers in a carton or product packaging.

Unique product identification information, in the form of a universal electronic product

code (EPC) identifying the manufacturer, product category, and individual item, is
stored on these 96-bit tags.

RFID technology costs must continue to decline to make product tagging economically
feasible; equipment issues such as reader range, sensitivity, and durability must
improve; the case for supplier return on investment of RFID mandates must be made;
and consumer privacy issues must be resolved.

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https://www.youtube.com/watch?v=BP1JHr5B328&t=17s

https://www.youtube.com/watch?v=jnIhLh7GREc&t=197s

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Top 10 3PL (3rd Party Logistics) Companies for eCommerce businesses [2024 List]

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