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Transportation refers to the movement of product from one location to another as it makes its way
from the beginning of a supply chain to the customer. Transportation is an important supply chain
driver because products are rarely produced and consumed in the same l9cation. Transportation is a
significant component of the costs incurred by most supply chains.
The shipper is the party that requires the movement of the product between two points in the
supply chain. The carrier is the party that moves or transports the product. A carrier makes
investment decisions regarding the transportation equipment (locomotives, trucks, airplanes, etc.)
and in some cases infrastructure (rail), and then makes operating decisions to try to maximize the
return from these assets. A shipper, in contrast, uses transportation to minimize the total cost
(transportation, inventory, information, sourcing, and facility) while providing an appropriate level of
responsiveness to the customer.
Package Carriers: Package carriers are transportation companies such as FedEx, UPS, and the U.S.
Postal Service, which carry small packages ranging from letters to shipments weighing about 150
pounds.
Expensive and cannot compete with LTL carriers on price for large shipments. T
Rapid and reliable delivery- used for time sensitive products
Provide other value-added services, allow shippers to speed inventory flow and track order
status.
Package carriers are the preferred mode of transport for e-businesses
Key issues in this industry include the location and capacity of transfer points as well as information
capability to facilitate and track package flow.
More expensive than rail but offers the advantage of door-to-door shipment and a shorter
delivery time.
Requires no transfer between pickup and-delivery and have low relatively low fixed costs
LTL shipments take longer than TL shipments because of other loads that need to be picked
up and dropped off.
A key to reducing LTL costs is the degree of consolidation
Key issues for the LTL industry include location of consolidation centres, assigning of loads to
trucks, and scheduling and routing of pickup and delivery.
Rail:
Incur a high fixed cost in terms of rails, locomotives, cars, and yards.
Significant trip-related labour and fuel cost, independent of the number of cars but does
vary with the distance travelled and the time taken.
The price structure and the heavy load capability makes rail an ideal mode for carrying large,
heavy, or high-density products over long distances
Transportation time by rail can be long. Ideal for very heavy, low-value shipments that are
not very time sensitive.
Water:
Water transport is ideally suited for carrying very large loads at low cost.
Difficult to operate for short-haul trips.
Delays at ports, customs, security, and the management of containers used are major issues
in global shipping
Intermodal: Intermodal transportation is the use of more than one mode of transport to move a
shipment to its destination. On land, the rail/truck intermodal system offers the benefit of lower
cost than TL and delivery times that are better than rail, thereby bringing together different modes
of transport to create a price/service offering that cannot be matched by any single mode.
Key issues involve the exchange of information to facilitate shipment transfers between
different modes because these transfers often involve considerable delays, hurting delivery
time performance.
Advantage:
Advantage:
Advantage:
DCs can help reduce supply chain costs when suppliers are located far from the buyer
locations and transportation costs are high.
Allows a supply chain to achieve economies of scale for inbound transportation to a point
close to the final destination, because each supplier sends a large shipment to the DC that
contains product for all locations the DC serves.
Because DCs serve locations nearby, the outbound transportation cost is not very large.
Cross docking at DCs help to reduce inventory and saves handling costs. (Used for products
with large, predictable demands)
Tailored Network
Here transportation uses a combination of cross-docking, milk runs, and TL and LTL carriers, along
with package carriers in some cases.
All shipments via central DC Very low inventory requirement Increased coordination
with cross-dock Lower transportation cost through complexity
Consolidation
Shipping via DC using Lower outbound transportation cost Further increase in coordination
milk runs for small lots Complexity
Inventory Aggregation
If inventories are highly disaggregated, some aggregation can also lower transportation costs.
Transportation cost, however, generally increases when inventory is aggregated. Inventory
aggregation is a good idea when inventory and facility costs form a large fraction of a supply chain's
total costs. Inventory aggregation is useful for products with a large value-to-weight ratio and for
products with high demand uncertainty. Inventory aggregation is also a good idea if customer orders
are large enough to ensure sufficient economies of scale on outbound transportation.
Inventory aggregation decreases supply chain costs if the product has high value to weight ratio,
high demand uncertainty and customer orders are large. If the product has low value to weight ratio,
low demand uncertainty or customer orders are small, inventory aggregation may increase supply
chain costs.
Trade-Off between Transportation Cost and Customer Responsiveness
If a firm has high responsiveness and ships all orders within a day of receipt from the customer, it
will have small outbound shipments resulting in a high transportation cost. If it decreases its
responsiveness and aggregates orders over a longer time horizon before shipping them out, it will be
able to exploit economies of scale and incur a lower transportation cost because of larger shipments.
Response time is the amount of time it takes for a customer to receive an order. A decrease in the
response time customers desire increases the number of facilities required in the network.
Product variety is the number of different products/configurations that are offered by the
distribution network.
Product availability is the probability of having a product in stock when a customer order arrives.
Customer experience includes the ease with which customers can place and receive orders as well
as the extent to which this experience is customized. It also includes purely experiential aspects.
Time to market is the time it takes to bring a new product to the market.
Order visibility is the ability of customers to track their orders from placement to delivery.
Returnability is the ease with which a customer can return unsatisfactory merchandise and the
ability of the network to handle such returns.
Decrease in the response time customers desire increases the number of facilities required
in the network.
As the number of facilities in a supply chain increases, the inventory and resulting inventory
costs also increase
If the number of facilities is increased to a point where inbound lot sizes are also very small
and result in a significant loss of economies of scale in inbound transportation, increasing
the number of facilities increases total transportation cost.
Facility costs decrease as the number of facilities is reduced
As the number of facilities increases, total logistics costs first decrease and then increase
Manufacturer Storage With Direct Shipping Network
In this option, product is shipped directly from the manufacturer to the end customer, bypassing the
retailer (who takes the order and initiates the delivery request). This option is also referred to as
drop-shipping, with product delivered directly from the manufacturer to the customer.
Unlike pure drop-shipping, under which each product in the order is sent directly from its
manufacturer to the end customer, in-transit merge combines pieces of the order coming from
different locations so that the customer gets a single delivery.
Suitable for medium- to fast moving items and when customers want delivery faster than is
offered by manufacturer storage but do not need it immediately.
Can only be justified if there is a large customer segment willing to pay for this convenience.
Hence, used if customer orders are large enough to provide economies of scale.
Such a network is likely to be most effective if existing locations such as coffee shops,
convenience stores, or grocery stores are used as pickup sites, because this type of network
improves the economies from existing infrastructure.
Cost Factor Performance
Inventory Can match any other option, depending on the location of inventory
Transportation Lower than the use of package carriers, especially if using an existing delivery network.
Facilities and Facility costs can be very high if new facilities have to be built. Costs are lower if existing
handling facilities are used. The increase in handling cost at the pickup site can be significant.
Information Significant investment in infrastructure required
Suitable for fast-moving items or items for which customers value rapid response.