CHAPTER

T R A N S P O R TAT I O N A N D
PERFORMANCE MEASUREME
NT
 LEARNING OBJECTIVES
• Appreciate the importance of transport
• Compare different modes of transport
• Discuss the use of intermodal operations
• Compare alternative forms of transport ownership
• Discuss why managers need to assess the performance of their firms as well as
their supply chains.
• Discuss the merits of financial and nonfinancial performance measures.
• Describe how the balanced scorecard and the supply chain operations
reference models work.

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 MAIN CONTENT

1. Transportation

2. Performance Measurement

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1 . T R A N S P O R TAT I O N

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 INTRODUCTION
• Transport is responsible for the physical movement of materials
between points in the supply chain.
• If anorganization uses third-party transport, the price of moving a unit
of material between locations is the transport rate or transport tariff.
• Transport is one of the most expensive parts of logistics, but users
often
have little control over it.
• The main objective of transportation is to satisfy customer requirements
while minimizing costs and making a reasonable profit.
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TRANSPORTATION PARTICIPANTS

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 MODES OF TRANSPORTATION

1. Rail

2. Road/
Truck

3. Water

4. Air

5. Pipeline
 RAIL
• Rail transport is the most commonly used when the distance is long and
the shipments are heavy or bulky.
• Trains can maintain a consistent, reasonably high speed, and can
link with other modes to carry containers and bulk freight.
• Advantages of rail transport:
– once the infrastructure is in place, it has very high capacity and low unit costs.
– the unit transport cost is low, so it can be used to move large volumes of relatively
low-priced materials, such as coal and minerals.
• Main disadvantage of rail is slow and inflexible. All train services have to be
timetabled in advance, so that they can all fit onto the same tracks.
 ROAD/TRUCK
• Road transport is the most widely used mode in almost all supply chains.
• Its main benefit is flexibility and being able to visit almost any location.
• Road transport offer door-to-door service, local pickup and delivery,
and
small as well as large shipment hauling  very low fixed and variable costs
– can compete with rail and air carriers for short to-medium hauls,
– be competitive with other modes of transportation for long cross-country shipments,
particularly if there are multiple delivery locations.
• Advantage of road transport: being able to use extensive road networks.
• Disadvantage of road transport: weather and traffic problems.
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 WATER
• Water is the oldest mode of transport. Most supply chains use shipping to cross
the oceans at some point, over 90% of world trade is moved by sea.
• Three main types of water transport: inland waterways (rivers and canals),
coastal shipping (moving materials from one port to another along the coast) and
ocean transport (across the major seas).
• Advantage of water transport
– the capacity to transport extremely large shipments.
– Inexpensive.
• Disadvantage of water transport
– slow speed.
– inflexibility in being limited to appropriate ports.
 AIR
• The newest but least utilized mode of transportation is Airfreight.
• Three main types of operation: regular service (major airlines use the cargo
space in passenger aircraft that is not needed for baggage); cargo service (operators
run cargo planes on regular schedules); charter operations (whole aircraft is hired
for a particular delivery).
• Advantage of air transport
– very fast, particularly for long distances.
• Disadvantage of air transport
– capability is limited by load size, weight lift capacity, and aircraft availability.
– very expensive relative to other modes.
 PIPELINE
• Pipelines haul the main materials: oil, gas and coal together with water.
• The nature of a pipeline is unique comparing to other modes of transport.
• Pipelines operate on a 24-hour basis, 7 days per week, and are
limited only by commodity changeover and maintenance.
• Advantage of pipeline transport
– moving large quantities over long distances.
– cheapest way of moving liquids (oil and gas) over long distances.
• Disadvantage of pipeline transport
– being slow (typically moving at less than 10 km per hour).
– inflexible (only transporting between fixed points).
– only carrying large volumes of certain types of fluid.
 COST STRUCTURE FOR EACH MODE
Mode of transportation Fixed cost Variable cost
Rail High Low

Road/Truck Low Medium

Water Medium Low

Air Low High

Pipeline Highest Lowest

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 CHOICE OF MODE
• The choice of mode depends on a variety of factors:
– Main factors: the nature of materials to move, the volume and distance.
– Other factors: value of materials, transit times, security, cost, reliability.
• The modes are ranked in order with 1 being the best performance and
5 being the worst.
 INTERMODAL TRANSPORTATION (1/2)
• Intermodal transportation involves two or more different modes of transport.
• The aim of intermodal is to combine the benefits of several separate modes, but
avoid the disadvantages of each  Provide an integrated service at lower total
cost.
• The main problem is that each transfer between modes causes delays and
adds costs for extra handling  Intermodal transport only works if this transfer
can be done efficiently.

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 INTERMODAL TRANSPORTATION (2/2)
• The most common combinations are truck trailer-on-flatcar (TOFC) and container-
on flatcar (COFC), also called piggyback service  These combine the flexibility of
road transport with the economy of rail and/or water transports.
• The fishyback, trainship, and containership concept loads a truck trailer, railcar,
or container onto a barge or ship for the line-haul movement on inland navigable
waterways.
• The land bridge concept moves containers in a combination of sea and rail
transport.

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 OWNERSHIP OF TRANSPORT

Own Account Transport (In-

Third-party Transport

(Outsourcing) Choice of
 OWN ACCOUNT TRANSPORT
• An organization uses its own transport fleet to move its materials.
• Advantages: flexibility, greater control, closer integration of logistics
and
easier communications.
• Disadvantage: expensive.
• An organisation should only run its own fleet when it is cheaper
than using a specialist third-party carrier.
• Only larger organisations can afford the capital investment and costs
of running their own fleet.
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 THIRD-PARTY TRANSPORT
• Specialized transport companies offer a range of services to
other organizations.
• The advantage of this is that specialized companies run the transport, leaving the
organization to concentrate on its core operation.
• By using their skills and expertise the transport operators can give
better services, or lower costs than own account transport.

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 CHOICE OF OWNERSHIP
Several factors are considered when choosing the best type of ownership:
• Operating cost,
• Capital costs,
• Customer service,
• Control,
• Flexibility,
• Management skills,
• Recruitment and training.

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2.
PERFORMANCE
MEASUREMENT
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 INTRODUCTION
• Firms develop an entire system of performance measures to remain competitive,
particularly when managing supply chains is one of the imperative.
• Performance measurement systems vary from company to company.
– Many firms’ performance measures concentrate solely on the firm’s costs and profits
 managers design standards and then monitor activities or processes indirectly or directly
impacting financial performance  provide much better information for decision-making
purposes.
• With supply chains, performance measurement systems become much larger and are
complicated by varied relationships, trust, and interactions  must be visible and
communicated to all participating members of the supply chain

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 MEASUREMENT SYSTEM OBJECTIVES
• Effective measurement systems are constructed to accomplish
three objectives:
– Monitoring is accomplished by the establishment of appropriate metrics to track
system performance for reporting to management.
– Controlling is accomplished by having appropriate standards of
performance
relative to the established metrics to indicate when the logistics system requires
modification or attention.
– Directing logistical operations is related to employee motivation and reward for
performance.

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 THE BALANCED SCORECARD (1/2)
• The balanced scorecard (BSC) is a framework for performance
measurement developed by Kaplan and Norton (1992).
• The framework suggests that while improving shareholder value is critical, a
comprehensive system for assessing performance must represent a balance between
financial and nonfinancial metrics.
• The BSC allowed a firm to move away from reliance on merely financial
measures, which effectively improved managerial decision-making.

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 THE BALANCED SCORECARD (2/2)
• The BSC framework consists of four perspectives.
• These perspectives are all linked together using performance measures
within each of the four areas.

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 THE SCOR MODEL (1/3)
• Another method for integrating supply chains and measuring performance
is use of the supply chain operations reference (SCOR) model developed in
1996.
• The SCOR model helps to integrate the operations of supply chain members by
linking the delivery operations of a seller to the sourcing operations of a buyer.
• The SCOR model is used as a supply chain management diagnostic,
benchmarking, and process improvement tool.

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 THE SCOR MODEL (2/3)
• The SCOR model separates supply chain operations into six
process
categories: plan, source, make, deliver, return, and enable.

Figure: The SCOR Model Processes and Linkages

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 THE SCOR MODEL (3/3)
• The SCOR model also uses five categories of performance attributes.

Table: SCOR Performance Categories and Attributes

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