Role of transportation in supply chain

Transportation in a supply chain refers to the movement of products from

one location to another, which begins at the start of the supply chain as
materials make their way to the warehouse and continues all the way to the
end user with the customer's order delivered at the doorstep.
Transportation is the metal link that holds the supply chain together. Every step of the process
is connected together through transportation, since raw materials are moved from the dealers
or where they are purchased from, to the place where they are manufactured, and finally to the
end customer. If you don’t have an economical and stable shipping plan in place, you end up
losing a lot of money, and that can be a competitive difference. Let’s understand further how the
role of transportation is important in a supply chain.

Reduce Costs

Operating a business is a costly affair already. With meticulous planning and plotting, one can
save a lot of money with a good transportation strategy in place. Transportation can involve a
number of different modes (air, water, or land), fuel costs, and weight. To keep the cost of such
logistics to a minimum, it is suggested to conduct a full-scale freight audit.

Enhanced Customer Service

The customer should be the top-most priority of a business and by proxy, also the supply chain.
Tightening up your transportation lines is one way to ensure that shipments reach your
customer on time and in good condition. For a large-scale operation, this tiny little detail is even
more important.

Segmenting Shipments Based on Priority

A business must understand the varying degrees of priority that shipments might have.
Sometimes getting some packages quicker might be more important than getting all the
packages at a moderate regular time. This is why, segmenting shipments based on factors such
as different customers, type of products, suppliers etc. is highly essential.

Using a Transportation Management System

TMS or Transportation Management System is software that allows for regular and efficient
tracking of your transportation network. This helps you a great deal when it comes to analyzing
and making informed decisions. With a TMS, you can track route planning, fleet management,
fuel costing, cargo handling, and customer communications, all using one platform.
Various Modes of Transportation

One way for businesses to grow is by expanding their reach globally. For that to happen, they
would need to figure out ways to transport shipments everywhere in the world. This means
adopting a combination of various modes of transportation and figuring out the fastest
combined way to get the product available worldwide.

Transportation to Dissolve Geographical Limitations

This is an extension of the previous point. Trucks have been the preferred mode of transporting
shipments in every country. They are tangible and on the land level, can go beyond what the
railway lines allow. A fleet of trucks is the best way for local businesses to manage their
transportation needs.

Helping Better the Economy

With transportation methods getting flexible and stretching across borders, global trade is at an
all-time healthiest. Businesses in every country, with some meticulous planning, can not only
expand their reach but also help their country’s economy while doing so. Global trade, due to the
possibilities of various modes of transportation, has made the world smaller in the best way.

Different types of goods call for different types of transportation. Selecting a

suitable mode of transportation is crucial for any business. Network design is
being used in supply chains for effective use of transportation equipment that
reduces shipping and logistics costs for the organization. The primary methods of
transport are Railways, Roadways, Airways, Waterways, and Pipelines. These
should be used in a way where they can help in reducing lead time and costs of
transportation.

Choosing the right transportation mode depends on many factors such as the
type of consignment, the budget, and the speed at which the delivery needs to be
made. Each of these methods comes with its own advantages and
disadvantages.

Key factors to be considered in selecting a mode of transportation are:-

1. Cost/Budget

The budget should always be one of the most important factors to consider while
shipping goods. Costs vary based on the type and volume of goods that need to
be transported. It is important to keep in mind that the cost of transport can in
turn influence the cost of goods.

Businesses need to consider the cost of transportation, keeping other costs such
as insurance premiums and finance charges in consideration.

2. Characteristics of goods

The size and weight of the cargo play a crucial role. Land and air transport
primarily cater to fragile and smaller shipments. Rail and sea transport are more
suitable options for high-volume shipments. For fragile, high-value products, air,
and land transport are the best options.

3. Reliability

The reliability parameters of different modes differ from each other. The urgency
by which the cargo needs to be delivered influences the decision. All modes of
transport, land, ocean, and air, can be affected by natural hurdles like bad
weather, which may cause delays.

3. Safety

Another crucial factor influencing the selection of a mode of transport to use is

the security of goods that are in transit. Land transport mode is more preferred to
railway transport as the losses are relatively less.

Shipping via sea mode is the riskiest, as it is often more exposed. Transportation
through roads can be considered safer than railways in comparison. The safest
method of shipping mode is considered to be air transport. Some goods also
require special facilities such as refrigeration or special security measures that
need to be considered.

4. Characteristics of goods

The size and weight of the cargo play a crucial role. Land and air transport
primarily cater to fragile and smaller shipments. Rail and sea transport are more
suitable options for high-volume shipments. For fragile, high-value products, air,
and land transport are the best options.

5. Flexibility

Road transport is the most flexible mode, as it is not dependent on factors such
as flight times, shipping routes, or pre-scheduled timetables. Motor transport can
operate day and night, at one’s convenience, and has the added advantage of
last-mile delivery.

Different modes of transportation play different roles when it comes to moving

goods. Each of them offers benefits that the other might not be able to offer. It is
up to the businesses to make a well-informed decision considering all the factors.

What is Transportation Mode?

Transportation mode refers to different ways by which goods
or people are transported from one place to the other through
land, air or sea. The other modes are via pipelines (for gas/oil
transfer), cable (internet, energy supply), and space (satellite).
Transport mode refers to the way in which passengers and/or goods can be transported.
Transport modes for both passengers and goods may include:

• rail;
• maritime (sea);
• road;
• inland waterways
• air.

Transport modes for passengers only may include:

• passenger car;
• powered two-wheelers;
• bus;
• coach;
• tram;
• metro.

Transport modes for goods only include:

• pipelines.

The modal split of transport describes the relative share of each mode of transport, for example by
road, rail or sea. It is based on passenger-kilometres (p-km) for passenger transport and tonne-
kilometres (t-km) for freight or goods transport. The modal split is usually defined for a specific
geographic area and/or time period.

What are Fleet Vehicles?

Fleet vehicles comprise of all the transport vehicles owned by a
company, government agency or other business. Sometimes,
the vehicles are leased to the transport companies for the
movement of goods to customer. In other case, the vehicles are
leased to get a company’s employees (particularly the sales
representatives) to their clients location.

If the vehicles are owned by private employees and they are

primarily used for work related activities, this type of fleet is
called the “grey fleet“.

Channel Structures
While channels can be very complex, there is a common set of channel structures that
can be identified in most transactions. Each channel structure includes different
organizations. Generally, the organizations that collectively support the distribution
channel are referred to as channel partners.
The direct channel is the simplest channel. In this case, the producer sells directly to
the consumer. The most straightforward examples are producers who sell in small
quantities. If you visit a farmer’s market, you can purchase goods directly from the
farmer or craftsman. There are also examples of very large corporations who use the
direct channel effectively, especially for B2B transactions. Services may also be sold
through direct channels, and the same principle applies: an individual buys a service
directly from the provider who delivers the service.

Examples of the direct channel include:

• Etsy.com online marketplace

• Farmer’s markets
• Oracle personal sales team
• A bake sale

Retailers are companies in the channel that focuses on selling directly to

consumers. You are likely to participate in the retail channel almost every day. The
retail channel is different from the direct channel in that the retailer doesn’t produce the
product. The retailer markets and sells the goods on behalf of the producer. For
consumers, retailers provide tremendous contact efficiency by creating one location
where many products can be purchased. Retailers may sell products in a store, online,
in a kiosk, or on your doorstep. The emphasis is not the specific location but on selling
directly to the consumer.

Examples of retailers include:

• Walmart discount stores

• Amazon online store
• Nordstrom department store
• Dairy Queen restaurant

From a consumer’s perspective, the wholesale channel looks very similar to the retail
channel, but it also involves a wholesaler. A wholesaler is primarily engaged in buying
and usually storing and physically handling goods in large quantities, which are
then resold (usually in smaller quantities) to retailers or to industrial or business
users. The vast majority of goods produced in an advanced economy have wholesaling
involved in their distribution. Wholesale channels also include manufacturers
who operate sales offices to perform wholesale functions, and retailers who operate
warehouses or otherwise engage in wholesale activities.

Examples of wholesalers include:

• Christmas-tree wholesalers who buy from growers and sell to retail outlets
 • Restaurant food suppliers
• Clothing wholesalers who sell to retailers

The agent or broker channel includes one additional intermediary. Agents and brokers
are different from wholesalers in that they do not take title to the merchandise. In other
words, they do not own the merchandise because they neither buy nor sell. Instead,
brokers bring buyers and sellers together and negotiate the terms of the transaction:
agents represent either the buyer or seller, usually on a permanent basis; brokers bring
parties together on a temporary basis. Think about a real-estate agent. They do not buy
your home and sell it to someone else; they market and arrange the sale of the home.
Agents and brokers match up buyers and sellers, or add expertise to create a more
efficient channel.

Examples of brokers include:

• An insurance broker, who sells insurance products from many companies to

businesses and individuals
• A literary agent, who represents writers and their written works to publishers,
theatrical producers, and film producers
• An export broker, who negotiates and manages transportation requirements,
shipping, and customs clearance on behalf of a purchaser or producer

It’s important to note that the larger and more complex the flow of materials from the
initial design through purchase, the more likely it is that multiple channel partners may
be involved, because each channel partner will bring unique expertise that increases
the efficiency of the process. If an intermediary is not adding value, they will likely be
removed over time, because the cost of managing and coordinating with each
intermediary is significant.

Vehicle Routing Problem

In the Vehicle Routing Problem (VRP), the goal is to find optimal routes for multiple
vehicles visiting a set of locations. (When there's only one vehicle, it reduces to the
Traveling Salesperson Problem.)

But what do we mean by "optimal routes" for a VRP? One answer is the routes with the
least total distance. However, if there are no other constraints, the optimal solution is to
assign just one vehicle to visit all locations, and find the shortest route for that vehicle.
This is essentially the same problem as the TSP.

The Vehicle Routing Problem (VRP) is everywhere, and solving it is

critical in helping to facilitate the movement of goods and services from
one place to another.
We see examples of VRP every day:

▪ Meal prep companies delivering food from central kitchens to

hungry homes
▪ Delivery vans that bring you groceries from local stores
▪ Couriers who deliver packages to your office

Most people have a baseline understanding of what the Vehicle Routing

Problem is. Essentially, you have a fleet of vehicles and a collection of
stops. You’re trying to figure out:

1. Which vehicle should I assign to each stop?

2. What order should the vehicles visit those stops to minimize
distance and travel time (while satisfying any other constraints you
might have)

Solution Methods for VRP

Here, the most commonly used techniques for solving Vehicle Routing Problems are listed. Near all
of them are heuristics and metaheuristics because no exact algorithm can be guaranteed to find
optimal tours within reasonable computing time when the number of cities is large. This is due to the
NP-Hardness of the problem. Next we can find a classification of the solution techniques we have
considered:

Exact Approaches

As the name suggests, this approach proposes to compute every possible solution until one of the
bests is reached.

▪ Branch and bound

▪ Branch and cut
Heuristics

Heuristic methods perform a relatively limited exploration of the search space and typically produce
good quality solutions within modest computing times.

Constructive Methods
Gradually build a feasible solution while keeping an eye on solution cost, but do not contain an
improvement phase per se.

▪ Savings: Clark and Wright

▪ Matching Based
▪ Multi-route Improvement Heuristics
 ▪ Thompson and Psaraftis
▪ Van Breedam
▪ Kinderwater and Savelsbergh

Facility Decisions: Network Design in the Supply

Chain
The role of facility decisions in a supply chain

During supply chain network design facility related decisions are made. The decisions are:

1. What is the role of the facility?

What processes are done at the facility.

2. Location Where should facilities be located?

3. Capacity decision How much capacity is to be created

4. Market and supply allocation - What markets should each facility serve? Which supply
sources should feed each facility?

Supply chain facilities are manufacturing, storage and transportation-related facilities. We

may need to think of adding information processing facilities also to them to have a wider
view of the facilities used in supply chains. Location of these facilities, capacity of these
facilities, capacity allocated to them in an period and role given to them etc. are facility
related supply chain decisions. Facility decisions are referred to as supply chain network
decision decisions.

Decision regarding role become important in providing flexibility. If facilities can serve
demand in a region globally there is more flexibility. Similarly in a multi-product firm, if
facilities can produce large number of products, there is flexibility.

Factors Influencing Facility Decisions

Strategic Factors

Strategic Focus of the Company

Cost leadership or Responsiveness
 Strategic Role of Each Facility

1. Off shore facility

2. Source facility
3. Server facility
4. Contributor facility
5. Outpost facility
6. Lead facility

Technological Factors

If available production technology displays significant economies of scale, a few high-

capacity location are most effective and accordingly supply chain will have less number of
facilities.

Instead, if fixed costs are low, many local facilities are preferred.

Economic Incentives - Macroeconomic Factors

These include taxes, tariffs, exchange rates and other economic factors that are not internal
to an individual firm.

Political Factors

The political stability of the country is an important criterion for locating facilities.

Infrastructure

Key infrastructure elements that effects costs of sourcing, making and distributing are
availability land and buildings, labor availability, proximity to transport terminals, rail
service, proximity to airports and sea ports, highway access, ease of goods traffic and local
utilities.

Competition

• Capacity Planning
o ForecastingURL
 Forecasting and the various methods used by organizations. Pay attention to the
approaches used to improve the accuracy of a forecast, and consider the different
methods that could be applied to various industries. Take the time to answer the
questions at the end of the chapter to apply your new knowledge.

o Forecasting DemandURL

Forecasting is difficult in the best of circumstances. However, there are standard

questions you can ask that can help you make good forecasting decisions. Pay close
attention to the discussion surrounding published industry data. Look for sources
that would provide you with industry data specific to your current workplace.
Complete the exercise at the end of the section. This is a self-graded activity.

o Strategic Capacity Planning for Products and ServicesPage

Pay attention to the inputs to capacity planning and the determinants and steps in
the capacity planning process. This is important to understanding how to use this
information to increase the quality of your forecasts. In addition, this helps you
understand your organization's capability to meet the forecast needs.

Facility Location and Layout

o Location Choice and Site PlanningPage

Many factors can determine where an organization will locate its facilities. Why is it
important to choose a location to match an organization's requirements?

o Facilities LayoutPage

There are three types of workflow layouts that managers can choose from and how
office and factory facilities are approached differently. What are the criteria of
creating an effective and efficient workflow and building a high standard of
production?

o Location Planning and AnalysisPage

Location Cost-Volume-Profit Analysis, which should help you to understand the
financial aspects of choosing a location. In addition consider the factors that
influences the location of a new facility. This is important because a poor choice can
make it very difficult to meet demand and manage costs effectively.

Line Balancing and how to minimize workstations and cycle time, while maximizing a
smooth operation. Pay attention to the sections about the different types of
assembly lines and the benefits of assembly line balancing.