Supply Chain Management: Strategy, Planning, and Operation: Session 7

Supply Chain Management: Strategy,
Planning, and Operation

Seventh Edition, Global Edition
Session 7
Transportation in a Supply
Chain
Copyright © 2019 Pearson Education, Ltd.

Learning Objectives
14.1 Understand the role of different transportation modes

in a supply chain.
14.3 Identify the relative strengths and weaknesses of
various transportation network design options.
14.4 Understand some success factors in a responsive
network for same day delivery.
14.5 Evaluate trade-offs that shippers need to consider
when designing a transportation network.
14.6 Design tailored transportation networks in a supply
chain.
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

Modes of Transportation and Their
Performance Characteristics (1 of 2)
• Air
• Package carriers
• Truck
• Rail
• Water
• Pipeline
• Intermodal

Modes of Transportation and Their
Performance Characteristics (2 of 2)
Table 14-1 Transportation Facts
Freight Value Added

Freight Value Freight Tons Ton-Miles to GNP
($ billions) (millions) (billions) ($ billions)
Mode in 2011 in 2011 in 2011 in 2009
Air (includes
truck and air) 394 6 11 61.9
Truck 12,181 11,924 2,337 113.1
Rail 588 2,053 1,518 30.8
Water 201 645 434 14.3
Pipeline 889 1,912 1,018 12.0
Multimodal 1,985 583 489 Blank

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
Package Carriers
• Small packages up to about 150 pounds

• Expensive
• Rapid and reliable delivery
• Small and time-sensitive shipments
• Provide other value-added services
• Consolidation of shipments a key factor

Truck
• Significant fraction of the goods moved

• Truckload (TL)
– Low fixed cost
– Imbalance between flows
• Less than truckload (LTL)
– Small lots
– Hub and spoke system
– May take longer than TL
• Fatigue-related accidents

Rail
• Move commodities over large distances

• High fixed costs in equipment and facilities
• Scheduled to maximize utilization
• Transportation time can be long
– Trains ‘built’ not scheduled

Water
• Limited to certain geographic areas

• Ocean, inland waterway system, coastal waters
• Very large loads at very low cost
• Slowest
• Dominant in global trade
• Containers

Pipeline
• High fixed cost

• Primarily for crude petroleum, refined petroleum
products, natural gas
• Best for large and stable flows
• Pricing structure encourages use for predicable
component of demand

Intermodal
• Use of more than one mode of transportation to move a

shipment
• Grown considerably with increased use of containers
• May be the only option for global trade
• More convenient for shippers – one entity
• Key issue – exchange of information to facilitate transfer
between different modes

Design Options for a Transportation
Network
• When designing a transportation network

1. Should transportation be direct or through an
intermediate site?
2. Should the intermediate site stock product or only
serve as a cross-docking location?
3. Should each delivery route supply a single destination
or multiple destinations?

Direct Shipment Network to Single
Destination
Figure 14-2 Direct Shipment Network

Direct Shipping with Milk Runs
Figure 14-3 Milk Runs from Multiple Suppliers or to Multiple Buyer

Locations

All Shipments Via Intermediate Distribution
Center with Storage
Figure 14-4 All Shipments via DC

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

All Shipments Via Intermediate Transit
Point with Cross-Docking
• Suppliers send their shipments to an intermediate transit

point
• They are cross-docked and sent to buyer locations
without storing them

Shipping Via DC Using Milk Runs
Figure 14-5 Milk Runs from DC

Tailored Network
Table 14-2 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 cross- Lower transportation cost through complexity
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
Selecting a Transportation Network (1 of 9)
• Eight stores, four supply sources

• Truck capacity = 40,000 units
• Cost $1,000 per load, $100 per delivery
• Holding cost = $0.20 / year

Annual sales = 960,000 / store Direct shipping
Batch size shipped from each

supplier to each store = 40,000 units
Number of shipments / yr from

each supplier to each store = 960,000 / 40,000 = 24
Annual trucking cost for direct

network = 24  1,100  4  8 = $844,800

Average inventory at each

store for each product = 40,000 / 2 = 20,000 units
Annual inventory cost for

direct network = 20,000  0.2  4  8 = $128,000
Total annual cost of direct
network = $844,800  $128,000 = $972,800

Annual sales  960,000 / store Milk runs

supplier to each store = 40,000 / 2 = 20,000 units
Transportation cost per shipment

per store  two stores / truck  = 1,000 / 2  100 = $600
Annual trucking cost

for direct network = 48  600  4  8 = $921,600

Annual inventory cost

for direct network = 10,000  0.2  4  8 = $64,000
Total annual cost of

direct network = $921,600  $64,000 = $985,600

Annual sales = 120,000 / store Direct shipping

supplier to each store = 40,000 units
each supplier to each store = 120,000/ 40,000 = 3
Annual trucking cost

for direct network = 3  1,100  4  8 = $105,600


store for each product =40,000/2 =20,000 units
for direct network =20,000  0.2  4  8 = $128,000

direct network = $105,600  $128,000= $233,600

Annual sales = 120,000 / store Milk runs

supplier to each store = 40,000 / 4 = 10,000 units

Transportation cost per shipment

per store  four stores / truck  = 1,000 / 4  100 = $350

Annual trucking cost for

direct network =12  350  4  8 = $134,400


for direct network = 5,000  0.2  4  8 = $32,000
direct network = $134,400  $32,000 = $166,400

Case: Mumbai Dabbawalas
• Lunchbox delivery system

• Factors facilitating success
1. Low uncertainty of demand
2. Temporal aggregation of demand
3. Use of transportation resources when they are
underutilized
https://www.youtube.com/watch?v=dX-0el2wuEU

Trade-Offs in Transportation Design (1 of 2)
• Trade-offs
– Transportation and inventory cost
– Transportation cost and customer responsiveness
• Transportation and inventory cost trade-off
– Choice of transportation mode
– Inventory aggregation

Trade-Offs in Transportation Design (2 of 2)
Table 14-3 Ranking of Transportation Modes in Terms of Supply
Chain Performance (Read Vertically, 1 = Lowest, 6 = Highest)
Cycle Safety In-Transit Transportation Transportation

Mode Inventory Inventory Cost Cost Time
Package 1 1 1 6 1
Air 2 2 2 5 2
LTL 3 3 3 4 4
TL 4 4 4 3 3
Rail 5 5 5 2 5
Water 6 6 6 1 6

Inventory Aggregation
• Can significantly reduce safety inventories

• Transportation costs generally increase
• Use
– When inventory and facility costs form a large fraction
of a supply chain’s total costs
– For products with a large value-to-weight ratio
– For products with high demand uncertainty

Tradeoffs When Aggregating Inventory
Table 14-7 Conditions Favoring Aggregation or Disaggregation

of Inventory
Blank Aggregate Disaggregate

Transport cost Low High
Demand uncertainty High Low
Holding cost High Low
Customer order size Large Small

Trade-Off between Transportation Cost
and Customer Responsiveness
• Closely linked to degree of responsiveness

– High responsiveness, high transportation costs
– Decreased responsiveness, lower transportation
costs
• Temporal aggregation – combining orders across time

and Responsiveness (1 of 3)
Steel shipments LTL = $100 + 0.01x
Table 14-8 Daily Demand at Alloy Steel over Two-Week
Period
Blank Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Week 1 19,970 17,470 11,316 26,192 20,263 8,381 25,377
Week 2 39,171 2,158 20,633 23,370 24,100 19,603 18,442

Table 14-9 Quantity Shipped and Transportation Cost as a

Function of Response Time

Table 14-9 [continued]

Tailored Transportation (1 of 3)
• The use of different transportation networks and modes

based on customer and product characteristics
• Factors affecting tailoring
– Customer density and distance
– Customer size
 Transportation cost based on total route distance
 Delivery cost based on number of deliveries
– Product demand and value

Table 14-10 Transportation Options Based on Customer Density
and Distance
Blank Short Distance Medium Distance Long Distance
High density Private fleet with Cross-dock with milk Cross-dock with
milk runs runs milk runs
Medium Third-party milk LTL carrier LTL or package
density runs carrier
Low density Third-party milk LTL or package Package carrier
runs or LTL carrier carrier

Table 14-11 Aggregation Strategies Based on Value/Demand
Product Type High Value Low Value
High demand Disaggregate cycle inventory. Disaggregate all inventories

Aggregate safety inventory. and use inexpensive mode of
Inexpensive mode of transportation for
transportation for replenishment.
replenishing cycle inventory
and fast mode when using
safety inventory.
Low demand Aggregate all inventories. If Aggregate only safety
needed, use fast mode of inventory. Use inexpensive
transportation for filling mode of transportation for
customer orders. replenishing cycle inventory.

Ujian Tengah Semester
• Platform: Moodle
• Mode: sequential
• 60 multiple choice questions
• Duration: 100 minutes.
• Material: Session 1-7

THANK YOU
GOOD LUCK ON YOUR EXAM !

Supply Chain Management: Strategy, Planning, and Operation: Session 7

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Supply Chain Management: Strategy, Planning, and Operation: Session 7

Uploaded by

Copyright:

Available Formats

Supply Chain Management: Strategy,

Planning, and Operation

Copyright © 2019 Pearson Education, Ltd.

14.1 Understand the role of different transportation modes

• Movement of product from one location to another

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Table 14-1 Transportation Facts

Freight Value Added

Copyright © 2019 Pearson Education, Ltd.

• Small packages up to about 150 pounds

Copyright © 2019 Pearson Education, Ltd.

• Significant fraction of the goods moved

Copyright © 2019 Pearson Education, Ltd.

• Move commodities over large distances

Copyright © 2019 Pearson Education, Ltd.

• Limited to certain geographic areas

Copyright © 2019 Pearson Education, Ltd.

• High fixed cost

Copyright © 2019 Pearson Education, Ltd.

• Use of more than one mode of transportation to move a

Copyright © 2019 Pearson Education, Ltd.

• When designing a transportation network

Copyright © 2019 Pearson Education, Ltd.

Figure 14-2 Direct Shipment Network

Copyright © 2019 Pearson Education, Ltd.

Figure 14-3 Milk Runs from Multiple Suppliers or to Multiple Buyer

Copyright © 2019 Pearson Education, Ltd.

Figure 14-4 All Shipments via DC

Copyright © 2019 Pearson Education, Ltd.

• Suppliers send their shipments to a central distribution

Copyright © 2019 Pearson Education, Ltd.

• Suppliers send their shipments to an intermediate transit

Copyright © 2019 Pearson Education, Ltd.

Figure 14-5 Milk Runs from DC

Copyright © 2019 Pearson Education, Ltd.

• Eight stores, four supply sources

Copyright © 2019 Pearson Education, Ltd.

Annual sales = 960,000 / store Direct shipping

Batch size shipped from each

Number of shipments / yr from

Annual trucking cost for direct

Copyright © 2019 Pearson Education, Ltd.

Average inventory at each

Annual inventory cost for

Copyright © 2019 Pearson Education, Ltd.

Annual sales  960,000 / store Milk runs

Batch size shipped from each

Transportation cost per shipment

Annual trucking cost

Copyright © 2019 Pearson Education, Ltd.

Annual inventory cost

Total annual cost of

Copyright © 2019 Pearson Education, Ltd.

Annual sales = 120,000 / store Direct shipping

Annual trucking cost

Copyright © 2019 Pearson Education, Ltd.

Average inventory at each

Total annual cost of

Copyright © 2019 Pearson Education, Ltd.

Annual sales = 120,000 / store Milk runs

Batch size shipped from each

Number of shipments / yr from