Transportation in a

Supply Chain

Jamil Chowdhury, BBA, MBA,CSCM

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- Planning Manager-Leaf Operations 41-1
- Ex. Operations Manager-Warehouse
- Ex. Leaf Logistics Manager
- Ex. Regional Manager-Manikgonj& RDP
British American Tobacco Bangladesh
Jamil.u.a.chowdhury@gmail.com
 Transportation

Means of conveyance or travel (of goods and services)

from one place to another
Carrier (party that moves or transports the product)
• Vehicle-related cost, Fixed operating cost, Trip-related cost

Shipper (party that requires the movement of the product

between two points in the supply chain)

Related Costs Are

• Transportation cost,
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• Inventory cost
• Facility cost
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 Brainstorming

What types of products require transportation in

your organization?

How far are these products required to travel?

How important is the speed of delivery for these

products?
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 Choice of Transportation Mode

A manager must account for inventory costs when

selecting a mode of transportation.

A mode with higher transportation costs can be

justified if it results in significantly lower inventories.

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 Modes of Transportation
• Road
• Rail
• Water
• Air
• Pipeline
• Package Carriers
• Intermodal

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 Road

The most widely used mode of transport and is

used at least somewhere in almost all supply
chains.
• Road transport can normally carry loads up to,
say, 20–30 tonnes
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 Different types of road vehicle

Delivery vans

Flat-bed lorries

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 Box-bodied lorries

Trailer

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 Advantage of Road
Main benefit is flexibility (TL /LTL)
Able to visit almost any location
Use extensive road networks
Large number of carriers working in the same areas
Easy to monitor location of goods

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 Disadvantage of Road
Relatively expensive,so generally used for shorter
distances
Used for delivering finished goods than bulky raw
materials
Lorries are particularly vulnerable to traffic delays
Obvious limitation of only being used on land

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 Truckload (TL)
• Average revenue per ton mile (1996) = 9.13 cents
• Average Capacity = 42,000 - 50,000 lb.
• Low fixed and variable costs
• Major Issues
Utilization
Consistent service
Backhauls

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 Less Than Truckload (LTL)
• Average revenue per ton-mile (1996) = 25.08 cents
• Higher fixed costs (terminals) and low variable costs
• Major issues:
Location of consolidation facilities
Utilization
Vehicle routing
Customer service

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 Rail
Most commonly used for heavy and bulky loads over long
land journeys

They are almost invariably public carriers rather than

private carriers

The rail service is nationalised, it allows a monopoly

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 Advantage of Rail

Once the infrastructure is in place, it has very high

capacity and heavy load capacity.
Ideal for large, heavy & high density products over long
distance.
Suitable heavy but low value shipments which are not
time sensitive.
Unit transport cost is low
Railway is the safest form of transport
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 Disadvantage of Rail
High fixed cost
Trains can only travel along specified routes between fixed
terminals, and cannot stop at intermediary points
Obvious limitation of only being used on land
Rail transport cannot provide door to door service

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 Water
Most supply chains use shipping to cross the oceans,over
90% of world trade is moved by sea (UK, Australia,USA..)

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 Basically three types of water
transport

Coastal vessels

Ocean going vessels

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 Different types of vessel

General cargo ships

Bulk carriers

Tankers

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 Container ships

Ferries

Barges

Combination ships

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 Advantage of Water

Ideal for transporting heavy and bulky goods

Suitable for products with long lead times
Cheapest traffic means
Dominant in global trade (autos, grain, apparel, etc.)

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 Disadvantage of Water
Limited to certain geographic areas
Slowest of all the modes.
Difficult to operate short haul trips.
Transfers to ships take time
Difficult to monitor exact location of goods in transit
Its inflexibility in being limited to appropriate ports

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 Air

Three Cost Components

 Fixed cost of infrastructure & flight.
 Cost of labour & fuel independent of the passengers /cargo.
 Variable cost that dependent on passengers /cargo.

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 Advantage of Air

Faster movements suitable for time sensitive shipments.

Expensive and suitable for high value items.

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 Disavantage of Air
It is costly transport
Competition can also be fierce
Weight limits is prevent carrying amount of materials.
Location & number of hubs
Assigning planes to routes.
Scheduling crews deployment & aircraft maintenance.
Availability at different prices.

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 Pipeline
Primarily for crude petroleum, refined petroleum products,
natural gas
Used for getting crude oil to a port or refinery as well as
refined gasoline to a gasoline station.

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 Advantage of Pipeline
Best for large and predictable
demand

Moving large quantities over long

distances.

Cheapest way of moving liquids

For ex; oil and gas

Local networks can add flexibility by

delivering to a wide range of
locations
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 Disadvantage of Pipeline
Huge initial investment of building dedicated pipelines

Inflexible

Only carrying large volumes of certain types of fluid

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 Package Carriers
• Companies like FedEx, UPS, USPS, that carry small
packages ranging from letters to shipments of about 150
pounds
• Expensive
• Rapid and reliable delivery
• Small and time-sensitive shipments
• Preferred mode for e-businesses (e.g., Amazon, Dell,
McMaster-Carr)
• Consolidation of shipments (especially important for
package carriers that use air as a primary method of
transport)
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 Iintermodal

It refers to journeys that involve two or more different

modes of transport.

The aim of intermodal transport is to combine the

benefits of several separate modes.

Avoid disadvantages with combining the low cost of

shipping with the flexibility of road getting the speed of
air with the cost of road.
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 Other types of intermodal transport
A very wide range of materials can be put into containers, but there
are inevitably some that cannot, or are cheaper to transport by other
means.

Oil, might be put into container-sized tanks but tankers or pipelines

give cheaper alternatives.

Another types of containers is piggy-back transport, where a

lorry/trailer are driven onto a train or ship for this part of their
journey.

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 containerisation

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 Making Transportation
Decisions in Practice
Align transportation strategy with competitive strategy

• Firms choose between “make” or “buy”

• Commercial carriers “buy”

• Private fleets “make”

• External experts move the freight and/or manage the transportation

process “buy”

• Third-party logistics (3PL) “buy”

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 Tailored Transportation

The use of different transportation networks and modes based

on customer and product characteristics

Factors affecting tailoring:

• Customer distance and density
• Customer size
• Product demand and value

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 Which department will be responsible for transportation?
• Logistics

• Procurement

• Sales

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 • Point of origin: Ex Factory or Warehouse
• C&F: Cost & Freight
• FOB: Free On Board
• CIF: Cost, Insurance & Freight
• BEQ Duty Paid / Ex Doc Duty Paid: Cost, Insurance, Freight, Import duty & Customs
clearance.
• FCA: Free Carrier (delivery occurs at seller’s premises)

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 Risk transfer from the seller to the buyer when the
Cost transfer from the seller to the buyer when the
DAP Carriage to be arranged by the seller goods are delivered to named place ready for
goods are delivered at named place ready for unloading
unloading

Risk transfer from the seller to the buyer when the Cost transfer from the seller to the buyer when the
DDP Carriage to be arranged by the seller
goods are placed at the disposal of the buyer goods are placed at the disposal of the buyer

Risk transfer from the seller to the buyer when the Cost transfer from the seller to the buyer when the
FAS Carriage to be arranged by the buyer
goods have been placed alongside the ship goods have been placed alongside the ship

Risk transfer from the seller to the buyer when the Cost transfer from the seller to the buyer when the
FOB Carriage to be arranged by the buyer
goods pass the ship's rail goods pass the ship's rail

Cost transfer at port of destination, buyer paying such

Risk transfer from the seller to the buyer when the
CFR Carriage to be arranged by the seller costs as are not for the seller's account under the
goods pass the ship's rail
contract of carriage
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Cost transfer at port of destination, buyer paying such
Carriage and insurance to be arranged by the Risk transfer from the seller to the buyer when the
CIF costs as are not for the seller's account under the
seller goods pass the ship's rail
contract of carriage
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 INCOTERMS Carriage of Goods Risks Costs

Risk transfer from the seller to the buyer when the Cost transfer from the seller to the buyer when the
EXW Carriage to be arranged by the buyer
goods are at the disposal of the buyer goods are at the disposal of the buyer

Carriage to be arranged by the buyer or
FCA
the seller on the buyer's behalf
Risk transfer from the seller to the buyer when the Cost transfer from the seller to the buyer when the
goods have been delivered to the carrier at the goods have been delivered to the carrier at the
named place named place

Cost transfer at port of destination, buyer paying

Risk transfer from the seller to the buyer when the
CPT Carriage to be arranged by the seller such costs as are not for the seller's account under
goods have been delivered to the carrier
the contract of carriage

Cost transfer at port of destination, buyer paying

arriage and insurance to be arranged by Risk transfer from the seller to the buyer when the
CIP such costs as are not for the seller's account under
the seller goods have been delivered to the carrier
the contract of carriage
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Risk transfer from the seller to the buyer when the Cost transfer from the seller to the buyer when the
DAT Carriage to be arranged by the seller
goods are delivered and unloaded at terminal goods are delivered and unloaded at terminal
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 Modal Selection

• The nature of a product—size, durability, and value

• Durability

• Product value

• Shipment characteristics—size, route, and required speed

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 Modal Selection
• Accessibility
• Accessibility advantage: Motor carriage
• Accessibility disadvantage: Air, rail, and water
• Transit Time
• Transit time advantage: Air and motor carriage
• Transit time disadvantage: Rail, water, and pipeline
• Reliability
• Reliability advantage: Motor carriers and air carriers
• Reliability disadvantage: Water carriers and rail carriers

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 Modal Selection
• Product Safety
• Safety advantage: Air transportation and motor carriage
• Safety disadvantage: Rail and water
• Cost
• Cost advantage: The cost of transportation service varies greatly
between and within the modes
• Cost disadvantage: Motor carriage and air transportation

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 Carrier Selection
• selecting the individual transportation service providers within the mode

• major difference between modal and carrier selection is the number of

options

• difference is the frequency of the decision

• type of service provided within a mode impacts carrier selection

• most carriers have the capabilities to provide a similar level of service

• Core carrier
• limited number of carriers
• leverage its purchasing dollars

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 Rate Negotiations
• centralized freight rate negotiations

• developing contracts with carriers for a tailored set of transportation

services at a specific price

• leveraging volume with a small set of carriers

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 Shipment Preparation
• corporate transportation routing guide

• last-minute, cost-saving decisions

• consolidate freight

• coordinate shipment deliveries

• take full advantage of container capacity

• an accurate freight count should be taken

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 • Freight Documentation
• bill of lading
• originates the shipment

• provides all the information the carrier needs

• stipulates the contract terms, including carrier’s liability for loss

and damage

• acts as a receipt for the goods the shipper tenders to the carrier

• in some cases, shows certificate of title to the goods

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 • Freight bill
• carrier’s invoice for carrier charges
• lists:
• shipment
• origin and destination
• consignee
• items
• total weight
• total charges

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 Freight claims form
• Filed with the carrier to recoup monetary losses resulting if carrier
fails to protect the shipment.
• Carriers are not liable for freight claims if the damage is attributable
to:
• Natural disaster or some other “act of God”
• Military attack or similar “act of public enemy”
• Government seizure of freight or “act of public authority”
• Failure to adequately package the freight or other negligent “act of the
shipper”
• Extreme fragility, perishability, or similarly problematic “inherent nature
of the goods”

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 Maintain In-Transit Visibility

• manage key events as product moves across the supply chain

• technology facilitates the ability to monitor product

• visibility tools must be linked to other capabilities and processes to

have an impact on supply chain event management

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 Monitor Service Quality

• analyze the outcome of all their transportation strategy, planning,

and decision-making

• key requirement for service quality monitoring is information

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 • Transportation Metrics
• key performance indicators (KPIs)
• can be used to evaluate
• current performance versus historical results
• internal goals
• carrier commitments
• challenge lies in narrowing down metrics available to monitor
performance to a manageable number of KPIs
• primary categories of transportation KPIs include service quality and
efficiency

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 • Transportation Management Systems (TMS)
• Critical applications include the following:
• Routing and scheduling
• proper planning of delivery routes has a major impact on customer
satisfaction, supply chain performance, and organizational success
• Load planning
• effective preparation of safe, efficient deliveries
• Load tendering
• Status tracking
• Appointment scheduling

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 Trade-offs in Transportation Design

Transportation and inventory cost trade-off

- Choice of transportation mode
- Inventory aggregation

Transportation cost and responsiveness trade-off

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 Role of IT in Transportation

The complexity of transportation decisions demands to use of

IT systems

IT software can assist in:

- Identification of optimal routes by minimizing costs
subject to delivery constraints
- Optimal fleet utilization
- GPS applications

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 Risk Management in Transportation

Three main risks to be considered in transportation are:

- Risk of shipment delay
- Risk of disruptions
- Risk of hazardous material

Risk mitigation strategies:

- Decrease the probability of disruptions
- Alternative routings
- In case of hazardous materials the use of modified containers,
low-risk transportation models, modification of physical and
chemical properties can prove to be effective

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 Summary
• Without question, transportation is a very dynamic activity and a critical supply chain
process. Not only is it the largest logistics cost component in most supply chains, but
it also directly impacts fulfillment speed and service quality. By providing the physical
links between key participants across domestic and global supply chains,
transportation facilitates the creation of time and place utilities. Organizations with
highly efficient and effective transportation processes can differentiate their product
in the marketplace through lower landed costs and greater inventory availability.

• Managing the transportation process for maximum supply chain impact requires
considerable knowledge of transportation options, planning, decision making,
analytical skills, and information sharing capabilities.

• Transportation is a key supply chain process and must be included in supply chain
strategy development, network design, and total cost management.
• Numerous obstacles—global expansion of supply chains, rising costs, limited capacity,
and government regulation—must be overcome to synchronize transportation with
other supply chain processes.

• Fulfillment of supply chain demand can be accomplished through five modal options
or the intermodal use of truck, rail, air, water, and pipeline transportation.

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 Thank You for Listening

Any Question?

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