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Role of Transportation in Supply Chain: Session 14

The document discusses the role of transportation in the supply chain. It covers key factors that influence transportation decisions such as cost, inventory, facilities, and processing costs. It also discusses transportation modes, performance characteristics, costs, and how to select the optimal mode. Vehicle scheduling, routing, inventory aggregation, and milk runs are also covered as ways to reduce transportation costs.

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Aritra Banerjee
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294 views27 pages

Role of Transportation in Supply Chain: Session 14

The document discusses the role of transportation in the supply chain. It covers key factors that influence transportation decisions such as cost, inventory, facilities, and processing costs. It also discusses transportation modes, performance characteristics, costs, and how to select the optimal mode. Vehicle scheduling, routing, inventory aggregation, and milk runs are also covered as ways to reduce transportation costs.

Uploaded by

Aritra Banerjee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Role of Transportation in

Supply Chain
Session 14
Learning objectives
• Role of transportation in the supply chain
• Key role players and factors that influence transport
decision
• Transportation Modes, performance characteristics and
selection
• Transportation performance, costs and value measures
• Transportation mode selection and speed of delivery
and choice of mode
• Inventory aggregation and transportation cost
management
• Vehicle scheduling and routing
Introduction
• Transportation interacts closely with facilities
and inventory
• Key to the success for businesses especially
where responsiveness and product availability
are prime competitive factors
• Transportation decisions would have strategic
impact through network decisions
Key Role Players
Transport Decisions
For Shipper
• Transportation Cost: This is calculated as the total cost paid to
the transporters for inbound and outbound transportation
• Inventory cost: These costs are towards holding inventory in
various stages of the supply
• Facility cost: considered as fixed for making transportation
decisions.
• Processing cost: costs associated with loading, unloading and
handling of goods.
Transport Decisions
For Transporter
• Vehicle related costs: costs towards the purchase or lease of a
vehicle. Considered fixed for the short term and for the
medium or long term these costs are considered as variable.
• Fixed operating expenses: Costs associated with maintaining
transportation assets like insurance, taxes, labour etc.
• Operations related expenses: Include labour, fuel and depend
on the duration of the trip
• Quantity related costs: costs in loading, unloading and
handling.
• Overhead costs: Costs are incurred for planning, coordination,
scheduling and any investment in IT tools and applications.
Transportation Principle
• The principle of Economy of Scale - as the size
of the shipment increases, the cost of weight
transported per unit decreases
• The principle of Economy of Distance - the
transportation cost per unit weight decreases
as the transportation distance increases
• Goal - maximize the shipment size and the
ship for longer distance by offering the desired
service level to the customer.
Intermodal Transportation
An appropriate mix of various modes to lower cost
• Piggybacking or TOFC (trailer on flatcar) - a
combination of convenience and flexibility of
trucking with long haul economy of rail.
• Fishyback - a system of transportation requiring the
transfer of containers from truck to ship.
• Birdyback - a system of transportation requiring the
transfer of containers from truck to airplane.
Comparison of various modes
Factors driving costs
critical factors that drive transportation costs are :
distance
Volume
density
handling
Relative Ranking* of Transportation
Mode by Performance Measures

*1 is most favourable & 5 is least favourable from shipper point of views


* * Delivery time variability in absolute terms
Cost relationships
Carrier pricing strategies
• Cost-of-service - a cost plus approach where the transporter
adds a margin on base costs.
• Value-of-service - based on the value as perceived by the
shipper.
• Combination Pricing - an intermediate level between the cost-
of-service and the value-of-service
• Rate contracts - the shipper assures of specific volumes in a
period of time in return for committed rates for that period
with a clause for escalation in this period in case of increase in
inputs like fuel.
Value added service
• COD – Collect payment on delivery
• Inside delivery
• Marking or tagging
• Notify before delivery
• Reconsignment of delivery
• Redelivery
• Residential delivery
• Sorting and segregation
• Storage
Transportation Mode Selection
Goal : minimize costs and max the service levels
The general principles for mode of
transportation are:
• Match the shipment characteristic with the
appropriate mode of transportation.
• Evaluate on the basis of cost
• Developing selection criteria is the final step
and the modes should be evaluated on the
basis of these.
Speed of delivery and choice of mode

• A selected mode for continued support for


business under strategic decision framework.
• The decision would be based on:
– Total inventory holding cost which is a function of
cycle inventory, safety inventory, in-transit
inventory and annual cost of holding inventory
that result from using each of alternative modes
of transportation
– Cost of transportation using each of mode
Inventory aggregation
• Aggregation would result in reduction in facility costs
and inventory management cost.
• Increases transportation cost mainly because out
bound transportation to each customer would be
small and expensive mode like express cargo carrier.
• Works when inventory and facility form a large part
of supply chain costs.
• Useful for products with high value to weight ratio
and for products of with high demand uncertainty
Responsiveness
• Temporal aggregation refers to aggregating of
stock dispatches over time buckets
• Depends on arriving at a balance between
transportation cost and responsiveness.
• Helps to reduce transportation costs for a
given nature of fixed and variable costs of
transportation and distribution of demand
pattern
Vehicle Scheduling and routing
Decisions situations involve:
– Number of nodes to be serviced
– Vehicle capacity
– Time window of service
Savings Matrix
The methodology of arriving at allocation of
customers in a route and vehicles for all nodes
to be serviced.
Approach - heuristic rather than optimality.
Steps are:
– Identify the distance matrix
– Identify the savings matrix
– Assign customers to vehicles or routes
– Sequence customers within routes
Milkrun
• Milk run is a transportation model for the
collection and transportation of goods from
suppliers with a defined delivery route, in
which various stops are planned and executed
in terms of quantities and timing. The same
concept is applied in forward linkages for
distribution of goods.
Milkrun
• Multiple pick-up / delivery points in a time
window for a production schedule.
• Route optimization by LSP especially when
load is less than the capacity of vehicle and
there is scope for multiple pick – up or drop
• Effective deployment of JIT, VMI or any
integrated service.
Milkrun – Variable that influence
• Distance to be covered
• Cost of running a route and adding any
particular point in a route
• Priority of delivery / pick-up - regular
schedules and non-regular
• Frequency depends on fixed versus variable
demand / supply from each node.
• Cycle-time or longevity of a product.
Cross Docking
• A practice in transportation of unloading
materials from an in-bound vehicle and
loading these materials directly into outbound
trucks, trailers, or rail cars.
• Little or no storage in between.
• Purpose - to combine small loads from
different points and redistribute saving on
dwell time, storage and costs.
Advantages
• Effective utilisation of vehicle space
• Provides responsiveness
• Reduces costs of storage and inventory and
optimises transportation cost for a given
service level
• In retail situation, helps for better handling of
backroom storage space which stocks safety
inventory

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