Managing Supply Chains: A Logistics Approach

MANAGING SUPPLY CHAINS
A LOGISTICS APPROACH
COYLE | LANGLEY | NOVACK | GIBSON
Weeks 8-9
TRANSPORTATION MANAGEMENT
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Outcomes
The Learning Outcome for weeks 8-9 are:
• CLO2- Analyze logistics management approaches and
trade-offs to support cross-functional decision making
across a supply chain
• CLO4- Analyze logistics and supply chain management
issues that have an impact on business performance.
Learning Objectives
After reading this chapter, you should be able to do the following:
● Explain the role transportation plays in the supply chain.

● Discuss the service and cost characteristics of the
primary transportation modes.
● Explain current transportation management strategies
used to improve supply chain performance.
• Discuss the key activities involved in transportation planning and
execution.
Learning Objectives
● Explain the role transportation plays in

the supply chain.
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4
Introduction
● Transportation involves the physical movement of

goods between origin and destination points.
● The transportation system links geographically

separated partners and facilities in a company’s
supply.
● Transportation facilitates the creation of time and

place utility in the supply chain.
● Transportation also has a major economic impact

on the financial performance of businesses.
Role of Transportation in Supply Chain
Management
● Transportation provides the critical links
between these organizations, permitting
goods to flow between their facilities.
● Transportation service availability is critical

to demand fulfillment in the supply chain.
● Transportation efficiency promotes the

competitiveness of a supply chain
Challenges to Carrying out this Role
Transportation efficiency is depending on:

●Supply chain complexity;
●Competing goals among supply chain partners;
●Changes in customer requirements;
●Information availability – limited sometime;
●Synchronizing transportation with other supply
chain activities
Challenges to Carrying out this Role, continued
● Transportation capacity constraints pose a

challenge.
● Rising transportation rates present another
major concern for organizations.
● The transportation industry is impacted by
governmental requirements that affect cost
structures and service capabilities.
● Regulation is growing in areas where the
transportation industry has the potential to
impact the quality of life, the safety of
citizens, and the growth of commerce.
Learning Objectives
● Discuss the service and cost

characteristics of the primary transportation
modes.
Modes of Transportation
● Motor Carriers
• Widely used mode of transportation in the domestic

supply chain
• Economic structure of the motor carrier industry
contributes to the vast number of carriers in the industry
• Comprised of for-hire and private fleet operation
 Truckload carriers (full loads).
 Less-than-truckload (LTL – partial loads)
 Small package carriers (just packages)
• Low fixed cost, high variable.
Table 10.1
U.S. Domestic Freight Shipments 2010
Source: Bureau of Transportation Statistics, Pocket Guide to Transportation (2011) 32

Modes of Transportation, continued
● Railroads
• Activity levels have been achieved despite a lack of

direct accessibility to all parts of the supply chain.
• Railroads are “natural monopolies”.
• Two carrier types:
○ Linehaul (line of wagons – regular lines)
○ Shortline carriers (random no of wagons – irregular lines)
• High fixed, low variable
● Air Carriers
• Air cargo carriers

○ Combination carriers
○ Air cargo carriers
 Integratedcarriers
 Nonintegrated carriers
• High variable and low fixed cost
● Water Carriers
• Major facilitator of international trade

• High variable and low fixed cost
• Two primary carrier types
○ Liner
○ Charter
• Options include
○ Container ships
○ Bulk carriers
○ Tankers
○ General cargo ships
○ Roll-on, roll-off (RO–RO) vessels
● Pipelines
• Unique mode of transportation as the

equipment is fixed in place and the product
moves through it in high volume
• Three primary types
○ Gathering lines (collection pipes)
○ Trunk lines (main pipes)
○ Refined product pipelines (selective pipes)
• High fixed versus low variable
● Intermodal
• Use of two or more different modes in movement

• Greater accessibility
• Overall cost efficiency
• Facilitates global trade
• Development of standardized containers that are
compatible with multiple modes.
• Product-handling characteristics
○ Containerized freight
○ Transload freight
Figure 10.2
Widely Used Intermodal Combinations
Source: Brian J. Gibson, Ph.D.

Learning Objectives
● Explain current transportation management strategies
used to improve supply chain performance.
• Discuss the key activities involved in transportation planning and
execution
Figure 10.3
Transport Management Planning Activities

Transport Management Planning Activities
● Functional control of Transportation

● Terms of sale
● Decisions to Outsource Transportation
● Modal selection
● Carrier selection
● Rate negotiations
Transportation Planning and Strategy
● Functional Control of Transportation
• Which department will be responsible for
transportation?
○ logistics
○ procurement
○ marketing
● Terms of Sale
• Free-on-board (FOB) Origin (buyer)
• FOB destination (seller)
Freight = transportation costs
Table 10.2
Responsibilities Under FOB and Payment Terms
Source: Adapted from Bruce J. Riggs, “The Traffic Manager in Physical Distribution Management”, Transportation and Distribution Management, 1968
p. 45
Transportation Planning and Strategy, continued
● Decision to Outsource Transportation
• 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”
● 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
● 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
Table 10.3
Comparison of Modal Capabilities

Table 10.4
Performance Ratings of Modes
Source: Edward J. Bardi, Ph.D.

● Carrier Selection
• Selecting the individual transportation service providers within
the mode.
• Major difference between modal and carrier selection is the
number of options and decision frequency.
• 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
● 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.
Transportation Execution and Control
● 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
Transportation Execution and Control, continued
● 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
• Freight bill
○ carrier’s invoice for carrier charges listing:
 shipment
 origin and destination
 consignee
 items
 total weight
 total charges
● 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.
● Monitor Service Quality

• Analyze the outcome of all their transportation strategy,
planning, and decision-making.
• Key requirement for service quality monitoring is
information.
● 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
● 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
Table 10.5
Transportation Performance Scorecard

Summary
● 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.
● Managing the transportation process for maximum
supply chain impact requires considerable knowledge of
transportation options, planning, decision making,
analytical skills, and information sharing capabilities.
Summary, continued
● 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.
Summary, continued
● Multiple planning activities occur prior to carrier and

mode selection: who will be responsible for managing
the transportation function within the organization, what
terms of sale and payment will be used, and how will
goods be transported must all be determined with a
strategic supply chain focus.
● Mode selection is based on the relative strengths of each
modal/intermodal option in terms of accessibility, transit
time, reliability, safety and security, transportation cost,
and the nature of the product being transported.
● Carrier selection focuses on the type of service required
(direct or indirect), geographic coverage, service levels,
and carrier willingness to negotiate reasonable rates.
Summary, continued
● Most commercial freight moves under contractual rates

that are negotiated directly between freight buyers and
transportation companies for specific volumes of tailored
services at mutually agreed-upon prices.
● Shipment routing guides help organizations ensure
internal compliance with service contracts and maintain
centralized control over freight tendering decisions.
● Freight documentation provides the details of each
shipment, sharing critical information that promotes
uninterrupted flows of goods through the supply chain.
● Organizations must continue to manage freight after it
has been tendered to carriers by maintaining in-transit
visibility of shipments and monitoring carrier
performance.
Summary, continued
● Numerous metrics are available to evaluate

transportation service quality in terms of carrier
timeliness, freight protection, accuracy, and perfect
deliveries. Service efficiency measures focus on
spending proficiency, asset utilization, and labor
productivity.
● Transportation management systems are widely used
information technologies that support the effective
planning, execution, and analysis of transportation
processes.

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MANAGING SUPPLY CHAINS

● Explain the role transportation plays in the supply chain.

● Explain the role transportation plays in

● Transportation involves the physical movement of

● The transportation system links geographically

● Transportation facilitates the creation of time and

● Transportation also has a major economic impact

● Transportation service availability is critical

● Transportation efficiency promotes the

Transportation efficiency is depending on:

● Transportation capacity constraints pose a

● Discuss the service and cost

• Widely used mode of transportation in the domestic

 Small package carriers (just packages)

• Low fixed cost, high variable.

Source: Bureau of Transportation Statistics, Pocket Guide to Transportation (2011) 32

• Activity levels have been achieved despite a lack of

• High fixed, low variable

• Air cargo carriers

• High variable and low fixed cost

• Major facilitator of international trade

• Unique mode of transportation as the

• Use of two or more different modes in movement

Source: Brian J. Gibson, Ph.D.

Source: Brian J. Gibson, Ph.D.

● Functional control of Transportation

● Decision to Outsource Transportation

• Firms choose between “make” or “buy”

Source: Brian J. Gibson, Ph.D.

Source: Edward J. Bardi, Ph.D.

● Maintain In-Transit Visibility

● Monitor Service Quality

• Key performance indicators (KPIs)

● Transportation Management Systems (TMS)

• Critical applications include the following:

Source: Brian J. Gibson, Ph.D.

● Transportation is a key supply chain process and must

● Multiple planning activities occur prior to carrier and

● Most commercial freight moves under contractual rates

● Numerous metrics are available to evaluate

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