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Tailored Transportation by Customer Density and Distance
Tailored Transportation by Customer Density and Distance
Tailored transportation is the use of different transportation network & modes based on customer
and product characteristics. Most firms sell a verity of products and serve many different customer
segments. For example, w.w. Grainger sells over 200,000 MRO supply products to both small contractors
and very large firms. Products vary in size and value and customers vary in quantity purchased,
responsiveness required, uncertainty of the orders, and tance from W.W. Grainger branches and DCs. Given
these differences, a firm such as W.W. Grainger should not design a common transportation network to
meet all needs. A firm can meet customer needs at a lower cost by using tailored transportation to provide
the appropriate transportation choice based on customer and product characteristics. In the following
sections we describe various forms of tailored transportation in supply chains.
Firms must consider customer size and location when designing transportation networks. Very large
customers can be supplied using a TL carrier, whereas smaller customers will require an LTL carrier or
milk runs. When using milk runs, a shipper incurs two types of costs:
The degree of inventory aggregation and the modes of transportation used in a supply chain
network should vary with the demand and value of a product, as shown in Table. The cycle inventory for
high-value products with high demand is disaggregated to save on transportation costs because this allows:
replenishment orders to be transported less expensively. Safety inventory foal such products can be
aggregated to reduce inventories and a fast mode of transportation can be used if the safety inventory is
required to meet customer demand. For high-demand products with low value, all inventories should be
disaggregated and held close to the customer to reduce transportation costs for low-demand, high-value
products, all inventories should be aggregated to save on inventory costs. For low-demand, low-value
products, cycle inventories can be held close to the customer and safety inventories aggregated to reduce
transportation costs while taking some advantage of aggregation. Cycle inventories are replenished using an
inexpensive mode of transportation to save costs.
ASSIGNMENT
ON
SUPPLY CHAIN MANAGEMENT
Submitted on : 25-04-2011