Supply Chain Management

Transportation

Coyle 9th edition / chapter 10

1
Learning Objectives
• Explain the role transportation plays in the supply
chain.
• Discuss the service and cost characteristics of the
primary transportation modes.
• Discuss the key activities involved in transportation
planning and execution.
• Explain current transportation management strategies
used to improve supply chain performance.
• Use service and cost metrics to analyze transportation
performance.
• Describe how information technology supports
transportation planning and execution.

2
Introduction
• Transportation involves the physical movement of
goods between origin and destination points.
• The transportation system links geographically
separated partners and facilities in a company’s
supply.
• Transportation facilitates the creation of time and
place utility in the supply chain.
• Transportation also has a major economic impact
on the financial performance of businesses.

3
Role of Transportation in SCM
• Transportation provides the critical links
between these organizations, permitting goods
to flow between their facilities.
• Transportation service availability is critical to
demand fulfillment in the supply chain.
• Transportation efficiency promotes the
competitiveness of a supply chain

4
Challenges to Carrying out this Role
• Supply chain complexity
• Competing goals among supply chain partners
• Changing customer requirements
• Limited information availability
• Synchronizing transportation with other supply chain
activities
• Transportation capacity constraints pose a challenge.
• Rising transportation rates present another major
concern for organizations.
• The transportation industry is impacted by
governmental requirements that affect cost
structures and service capabilities.
• Regulation is growing in areas where the
transportation industry has the potential to impact
the quality of life, the safety of citizens, and the
growth of commerce.
5
Modes of Transportation
• Motor Carriers
• Widely used mode of transportation in the domestic
supply chain
• Economic structure of the motor carrier industry
contributes to the vast number of carriers in the
industry
• Comprised of for-hire and private fleet operations
• Truckload carriers.
• Less-than-truckload (LTL)
• Small package carriers
• Low fixed cost, high variable

6
Motor Carrier Options

Source: American Trucking Trends 2003 p 60

7
U.S. Domestic Freight Shipments 2007

Source: Bureau of Transportation Statistics, Pocket Guide to Transportation (2011) 32

8
 Modes of Transportation, continued
• Railroads
• 7 Class I railroads revenues in excess of $379 million.
• Activity levels have been achieved despite a lack of direct
accessibility to all parts of the supply chain.
• Railroads are “natural monopolies”.
• Two carrier types:
• Linehaul
• Shortline carriers
• High fixed, low variable
• Air Carriers
• Water Carriers

9
 Modes of Transportation, continued
• Air Carriers
• 88 air cargo carriers
• Combination carriers
• Air cargo carriers
• Integrated carriers
• Nonintegrated carriers
• High variable and low fixed cost
• Water Carriers
• Major facilitator of international trade
• 81% international freight movement
• 19% coastal, inland, and Great Lakes traffic
• High variable and low fixed cost

10
 Modes of Transportation, continued
• Water Carriers, continued
• Two primary carrier types
• Liner
• Charter
• Options include
• Container ships
• Bulk carriers
• Tankers
• General cargo ships
• Roll-on, roll-off (RO–RO) vessels
• Pipelines
• Unique mode of transportation as the equipment is fixed in
place and the product moves through it in high volume

11
 Modes of Transportation, continued
• Pipelines, continued
• Three primary types
• Gathering lines (2 to 8 inches)
• Trunk lines ( 8 to 24 inches)
• Refined product pipelines
• High fixed versus low variable
• Intermodal
• Use of two or more different modes in movement
• Greater accessibility
• Overall cost efficiency
• Facilitates global trade
• Development of standardized containers that are
compatible with multiple modes.

12
 Modes of Transportation, continued
• Intermodal, continued
• Product-handling characteristics
• Containerized freight
• Transload freight

13
Widely Used Intermodal Combinations

Source: Brian J. Gibson, Ph.D.

14
Transport Management Planning Activities

Source: Brian J. Gibson, Ph.D.

15
Transportation Planning and Strategy
• Functional Control of Transportation
• Which department will be responsible for
transportation?
• logistics
• procurement
• Marketing
• Terms of Sale
• Free-on-board (FOB) Origin
• FOB destination

16
Responsibilities Under FOB and Payment Terms

Source: Adapted from Bruce J. Riggs, “The Traffic Manager in Physical Distribution Management”, Transportation and
Distribution Management, 1968 p. 45
17
Transportation Planning and Strategy,
continued
• Decision to Outsource Transportation
• Firms choose between “make” or “buy”
• Commercial carriers “buy”
• Private fleets “make”
• External experts move the freight and/or manage the
transportation process “buy”
• Third-party logistics (3PL) “buy”
• Modal Selection
• Accessibility
• Accessibility advantage: Motor carriage
• Accessibility disadvantage: Air, rail, and water
• Transit Time
• Transit time advantage: Air and motor carriage
• Transit time disadvantage: Rail, water, and pipeline
18
Transportation Planning and Strategy,
continued
• Modal Selection, continued
• Reliability
• Reliability advantage: Motor carriers and air carriers
• Reliability disadvantage: Water carriers and rail carriers
• Product Safety
• Safety advantage: Air transportation and motor carriage
• Safety disadvantage: Rail and water
• Cost
• Cost advantage: The cost of transportation service varies greatly
between and within the modes
• Cost disadvantage: Motor carriage and air transportation

19
Comparison of Modal Capabilities

Source: Brian J. Gibson, Ph.D.

20
Performance Ratings of Modes

Source: Edward J. Bardi, Ph.D.

21
Transportation Planning and Strategy, cont.
• Carrier Selection
• Selecting the individual transportation service providers
within the mode.
• Major difference between modal and carrier selection is
the number of options and decision frequency.
• Type of service provided within a mode impacts carrier
selection.
• Most carriers have the capabilities to provide a similar level
of service.
• Core carrier
• limited number of carriers
• leverage its purchasing dollars
• Rate Negotiations
• Centralized freight rate negotiations.
• Developing contracts with carriers for a tailored set of
transportation services at a specific price.
• Leveraging volume with a small set of carriers. 22
Transportation Execution and Control
• Shipment Preparation
• Corporate transportation routing guide
• Last-minute, cost-saving decisions
• consolidate freight
• coordinate shipment deliveries
• take full advantage of container capacity
• an accurate freight count should be taken

23
Transportation Execution and Control, cont.
• Freight Documentation
• Bill of lading
• originates the shipment
• provides all the information the carrier needs
• stipulates the contract terms, including carrier’s liability for loss
and damage
• acts as a receipt for the goods the shipper tenders to the carrier
• in some cases, shows certificate of title to the goods
• Freight bill
• carrier’s invoice for carrier charges listing:
• shipment
• origin and destination
• consignee
• items
• total weight
• total charges

24
Transportation Execution and Control, cont.
• Maintain In-Transit Visibility
• Manage key events as product moves across the supply
chain.
• Technology facilitates the ability to monitor product.
• Visibility tools must be linked to other capabilities and
processes to have an impact on supply chain event
management.
• Monitor Service Quality
• Analyze the outcome of all their transportation strategy,
planning, and decision-making.
• Key requirement for service quality monitoring is
information.

25
Transportation Execution and Control, cont.
• Transportation Metrics
• Key performance indicators (KPIs)
• can be used to evaluate
• current performance versus historical results
• internal goals
• carrier commitments
• challenge lies in narrowing down metrics available to monitor
performance to a manageable number of KPIs
• primary categories of transportation KPIs include service quality
and efficiency

26
Transportation Execution and Control, cont.
• Transportation Management Systems (TMS)
• Critical applications include the following:
• Routing and scheduling
• proper planning of delivery routes has a major impact on customer
satisfaction, supply chain performance, and organizational success
• Load planning
• effective preparation of safe, efficient deliveries
• Load tendering
• Status tracking
• Appointment scheduling

27
Transportation Performance Scorecard

Source: Brian J. Gibson, Ph.D.

28
Summary
• Transportation is a very dynamic activity and a critical supply
chain process. Not only is it the largest logistics cost
component in most supply chains, but it also directly impacts
fulfillment speed and service quality. By providing the physical
links between key participants across domestic and global
supply chains, transportation facilitates the creation of time
and place utilities.
• Managing the transportation process for maximum supply
chain impact requires considerable knowledge of
transportation options, planning, decision making, analytical
skills, and information sharing capabilities.

29
Summary, continued
• Transportation is a key supply chain process and must be
included in supply chain strategy development, network
design, and total cost management.
• Numerous obstacles—global expansion of supply chains, rising
costs, limited capacity, and government regulation—must be
overcome to synchronize transportation with other supply
chain processes.
• Fulfillment of supply chain demand can be accomplished
through five modal options or the intermodal use of truck, rail,
air, water, and pipeline transportation.

30
Summary, continued
• Multiple planning activities occur prior to carrier and mode
selection: who will be responsible for managing the
transportation function within the organization, what terms of
sale and payment will be used, and how will goods be
transported must all be determined with a strategic supply
chain focus.
• Mode selection is based on the relative strengths of each
modal/intermodal option in terms of accessibility, transit time,
reliability, safety and security, transportation cost, and the
nature of the product being transported.
• Carrier selection focuses on the type of service required (direct
or indirect), geographic coverage, service levels, and carrier
willingness to negotiate reasonable rates.

31
Summary, continued
• Most commercial freight moves under contractual rates that
are negotiated directly between freight buyers and
transportation companies for specific volumes of tailored
services at mutually agreed-upon prices.
• Shipment routing guides help organizations ensure internal
compliance with service contracts and maintain centralized
control over freight tendering decisions.
• Freight documentation provides the details of each shipment,
sharing critical information that promotes uninterrupted flows
of goods through the supply chain.
• Organizations must continue to manage freight after it has
been tendered to carriers by maintaining in-transit visibility of
shipments and monitoring carrier performance.

32
Summary, continued
• Numerous metrics are available to evaluate transportation
service quality in terms of carrier timeliness, freight protection,
accuracy, and perfect deliveries. Service efficiency measures
focus on spending proficiency, asset utilization, and labor
productivity.
• Transportation management systems are widely used
information technologies that support the effective planning,
execution, and analysis of transportation processes.

33