Transport Decisions

If you are planning for one year, grow rice. If you

are planning for 20 years, grow trees. If you are
planning for centuries, grow men.
A Chinese proverb

Chapter 7
CR (2004) Prentice Hall, Inc.
7-1
 Transport Decisions
in Transport Strategy

Inventory Strategy
• Forecasting Transport Strategy
• Inventory decisions • Transport fundamentals

CONTROLLING
ORGANIZING
• Purchasing and supply • Transport decisions
•Transport decisions

PLANNING
scheduling decisions Customer
• Storage fundamentals service goals
• Storage decisions • The product
• Logistics service
• Ord. proc. & info. sys.

Location Strategy
• Location decisions
• The network planning process

CR (2004) Prentice Hall, Inc.

7-2
 Typical Transport Decisions
 Mode/Service selection

 Private fleet planning

- Carrier routing
- Routing from multiple points
- Routing from coincident origin-destination
points
- Vehicle routing and scheduling

 Freight consolidation

Just a few of the many

problems in transportation
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 Mode/Service Selection
The problem
Define the available choices
Balance performance effects on inventory against
the cost of transport

Methods for selection

Indirectly through network configuration
Directly through channel simulation
Directly through a spreadsheet approach as follows:
Alternatives
Cost types Air Truck Rail
Transportation
In-transit inventory
Source inventory
Destination inventory

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 Mode/Service Selection (Cont’d)
Mode/Service Selection Example
The CarryAll Luggage Company produces a line of luggage
goods. The typical distribution plan is to produce finished goods
inventories to be kept at the plant site. Goods are then shipped
to company-owned field warehouses by way of common
carriers.
Rail is currently used to ship between the East Coast plant
and a West Coast warehouse. The average transit time for rail
shipments is T = 21 days. At each stocking point, there is an
average of 100,000 units of luggage having an average cost of
C = $30 per unit. Inventory carrying cost is i = 30 percent per
unit cost per year.
The company wishes to select the mode of transportation that
will minimize the total costs. It is estimated that for every day
that transit time can be reduced from the current 21 days,
average inventory levels can be reduced by 1 percent.
CR (2004) Prentice Hall, Inc.
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Mode/Service Selection Example

The demand is D = 700,000 units sold per year out of the

West Coast warehouse.
The company can use the following transportation
services:

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 Competitive considerations on mode/service selection

- Customer Patronage
- Joint decision

Example:

An appliance manufacturer purchases 3000 cases of plastic parts valued at

$100 per case from two suppliers, which is currently divided equally
between two suppliers. Both suppliers are using rail transport and achieves
the same average delivery time. If one suppliers can improve the average
delivery time, the appliance manufacturer will shift 5 percent of its total
purchase or 150 cases to that supplier. Supplier earns a margin of 20
percent on each case before transportation charges.

Supplier A would like to consider whether it would be beneficial to switch

from rail to air or truck modes.

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 Competitive considerations on mode/service selection

Transport mode Transport rate Delivery rate

Rail $ 2.50/case 7 days
Truck 6.00 4
Air 10.35 2

Transport Case Sold Gross Transport Net profit

mode Profit cost

Rail 1500 $ 30,000 $ 3,750 $ 26,250

Truck 1950 39,000 11,700 27,300

Air 2250 45,000 23,287 21,712

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 Appraisal of Selection Methods

1. Effective cooperation between supplier and buyer is

encouraged if a reasonable knowledge of each party’s cost
is available.

2. In competing channel, buyer and supplier should act

rationally to gain optimum cost-transport service trade-offs.

3. The price effect on transportation choice.

4. Transportation rate changes in product mix.

5. Indirect effect of transportation costs on inventories and

other drivers.

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 Carrier Routing
 Determine the best path between origin and destination points over a
network of routes
 Shortest route method is efficient for finding the minimal cost route
 Consider a time network between Amarillo and Fort Worth. Find the
minimum travel time.
 The procedure can be paraphrased as:
 Find the closest unsolved node to a solved node
 Calculate the cost to the unsolved node by adding the accumulated
cost to the solved node to the cost from the solved node to the
unsolved node.
 Select the unsolved node with the minimum time as the new solved
node. Identify the link.
 When the destination node is solved, the computations stop. The
solution is found by backtracking through the connections made.

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 Carrier Routing (Cont’d)
Origin Oklahoma
Amarillo E City
90 minutes B 84 84 I
A

138
66 120 132
C 126
90
F 60
348 H
126
156
Can be a 132
48
weighted index of
J
time and distance
Destination
48 150 Fort Worth
D G
Note: All link times are in minutes

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 Solved
Nodes
Directly Its Closest
Connected Connected nth Its
Step to Unsolved Unsolved Total Cost Nearest Minimu Its Last

Shortest Route Method

Nodes Node Involved Node m Cost Connection a
1 A B 90 B 90 AB *
2 A C 138 C 138 AC
B C 90+66=156
3 A D 348
B E 90+84=174 E 174 BE *
C F 138+90=228
4 A D 348
C F 138+90=228 F 228 CF
E I 174+84=258
5 A D 348
C D 138+156=294
E I 174+84=258 I 258 EI*
F H 228+60=288
6 A D 348
C D 138+156=294
F H 228+60= 288 H 288 FH
I J 258+126=384
7 A D 348
C D 138+156=294 D 294 CD
F G 288+132=360
H G 288+48=336
I J 258+126=384
8 H J 288+126=414
I J 258+126=384 J 384 IJ*
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 MAPQUEST SOLUTION

Mapquest at www.mapquest.com
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 Routing from Multiple Points
This problem is solved by the traditional transportation
method of linear programming

4a

Supplier A
7 Plant 1
Supply  400
6 Requirements = 600

5
5

Supplier B 5 Plant 2
Supply  700 Requirements = 500
9
5

8
Plant 3
Supplier C
Requirements = 300
Supply  500
a .
The transportation rate in $ per ton for an optimal routing between supplier A and plant 1 7-17
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 TRANLP problem setup

Solution

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Routing with a Coincident Origin/Destination Point
 Typical of many single truck routing problems from a
single depot.
 Mathematically, a complex problem to solve efficiently.
However, good routes can be found by forming a route
pattern where the paths do not cross  a "tear drop"
pattern.

D D
Depot Depot
(a) Poor routing-- (b) Good routing--
paths cross no paths cross 7-19
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 Single Route Developed by
ROUTESEQ in LOGWARE
Y coordinates Y coordinates
8 8
7 4 9 13 16 7 4 9 13 16

6 10 19 6 10 19

5 6 15 20 5 6 15 20

42 8 18 42 8 18
3 5 D 12 17 3 5 D 12 17
2 3 2 3
1 7 11 14 1 7 11 14

01 01
0 1 2 3 4 5 6 7 8 0 1 2 3 4 5 6 7 8
X coordinates X coordinates
(a) Location of beverage accounts (b) Suggested routing pattern
and distribution center (D) with
grid overlay 7-14
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 Multi-Vehicle Routing and
Scheduling
 A problem similar to the single-vehicle routing
problem except that a number of restrictions are
placed on the problem. Chief among these are:

- A mixture of vehicles with different capacities

- Time windows on the stops
- Pickups combined with deliveries
- Total travel time for a vehicle

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 Practical Guidelines for Good
Routing and Scheduling
1. Load trucks with stop volumes that are in
closest proximity to each other

Stops

D D
Depot Depot

(a) Weak clustering (b) Better clustering

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 Guidelines (Cont’d)
2. Stops on different days should be arranged to
produce tight clusters

F T F T
F T T T F F T T
F F
F T T T
F T F F
F T
Stop T T
F F
D D
Depot May need to Depot
(a) Weak clustering-- coordinate with (b) Better clustering
routes cross sales to achieve
clusters

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 Guidelines (Cont’d)
3. Build routes beginning with the farthest stop from
the depot
4. The stop sequence on a route should form a
teardrop pattern (without time windows)
5. The most efficient routes are built using the largest
vehicles available first
6. Pickups should be mixed into delivery routes
rather than assigned to the end of the routes
7. A stop that is greatly removed from a route cluster
is a good candidate for an alternate means of
delivery
8. Narrow stop time window restrictions should be
avoided (relaxed) 7-24
 Application of Guidelines to
Casket Distribution

Warehouse
Funeral home Typical weekly demand and
CR (2004) Prentice Hall, Inc. pickups 7-25
 Application of Guidelines to
Casket Distribution (Cont’d)
Territories of
equal size
to minimize
number of trucks

Warehouse Division of sales territories into

Funeral home
CR (2004) Prentice Hall, Inc. days of the week 7-26
 Application of Guidelines to
Casket Distribution (Cont’d)

Warehouse
Funeral home Route design within territories 7-27
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 “Sweep” Method for VRP

Example A trucking company has

10,000-unit vans for merchandise
pickup to be consolidated into larger
loads for moving over long distances. A
day’s pickups are shown in the figure
below. How should the routes be
designed for minimal total travel
distance?

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 Stop Volume and Location
Geographical Pickup
region 1,000
points
4,000
2,000
3,000
2,000

3,000 3,000

2,000 Depot
1,000
2,000
2,000
2,000

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 “Sweep” Method Solution
Sweep direction
is arbitrary
Route #3
Route #1 1,000 8,000 units
10,000 units
4,000
2,000
3,000
2,000
3,000 3,000

2,000 Depot
1,000
2,000
2,000
2,000
Route #2
9,000 units

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 The “Savings” Method for VRP
Stop
dA,0
A d0,A
A
d0,A dA,B
0 d0,B 0
Depot Depot dB,0 B
dB,0 B

Stop

(a) Initial routing (b) Combining two stops on a route

Route distance = d 0,A +dA,0 +d0,B + dB,0 Route distance = d 0,A +dA,B +dB,0

“Savings” is better than “Sweep”

method—has lower average error 7-25
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 Savings Method Observation

The points that offer the greatest

savings when combined on the
same route are those that are
farthest from the depot and that are
closest to each other.

This is a good principle

for constructing multiple-stop
routes

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Route Sequencing in VRP
Route Departure time Return time
1 8.00 A. M. 10.25 A. M.
2 9.30 A. M. 11.45 A. M.
3 2.00 P. M. 4.53 P. M.
4 11.31 A. M. 3.21 P. M.
5 8.12 A. M. 9.52 A. M.
6 3.03 P. M. 5.13 P. M.
7 12.24 P. M. 2.22 P. M.
8 1.33 P. M. 4.43 P. M.
9 8.00 A. M. 10.34 A. M.
10 10.56 A. M. 2.25 P. M.

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 Route Sequencing in VRP
AM PM
8 9 10 11 12 1 2 3 4 5 6
Route #1 Route #10 Route #6
Truck #1

Route #9 Route #4
Truck #2

Route #5 Route #8
Truck #3

Route #2 Route #7
Truck #4

Route #3
Truck #5

Minimize number of trucks

by maximizing number of routes
handled by a single truck 7-27
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 Freight Consolidation

Combine small shipments into larger

ones
A problem of balancing cost savings
against customer service reductions
An important area for cost reduction in
many firms
Based on the rate-shipment size
relationship for for-hire carriers

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 Freight Consolidation Analysis
Suppose we have the following orders for the
next three days.

From:
Ft Worth Day 1 Day 2 Day 3
To: Topeka 5,000 lb. 25,000 lb. 18,000 lb.
Kansas City 7,000 12,000 21,000
Wichita 42,000 38,000 61,000

Consider shipping these orders each day or

consolidating them into one shipment. Suppose that
we know the transport rates.

Note: Rates from an interstate tariff

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Freight Consolidation Analysis (Cont’d)
Separate shipments Day 1 Day 2
Rate x volume = cost Rate x volume = cost
Topeka 3.42 x 50 = $171.00 1.14 x 250 = $285.00
Kansas City 3.60 x 70 = 252.00 1.44 x 120 = 172.80
a
Wichita 0.68 x 420 = 285.60 0.68 x 400 = 272.00
Total $708.60 Total $729.80
a
Ship 380 cwt., as if full truckload of 400 cwt.

Day 3
Rate x volume = cost Totals
Topeka 1.36 x 180 = $244.80 $700.80
Kansas City 1.20 x 210 = 252.00 676.80
Wichita 0.68 x 610 = 414.80 972.40
Total $911.60 $2,350.00
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Freight Consolidation Analysis (Cont’d)
Consolidated shipment
Computing transport cost for one combined, three-day
shipment
Day 3
Rate x volume = cost
a
Topeka 0.82 x 480 = $393.60
Kansas City 0.86 x 400 = 344.00
Wichita 0.68 x 1410 = 958.80
Total $1,696.40
a
480 = 50 + 250 + 180
Cheaper, but what about
the service effects of holding
early orders for a longer time
to accumulate larger shipment
sizes?
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Design Options for a Transportation Network

What are the transportation options? Which one to

select? On what basis?

Direct shipping network

Direct shipping with milk runs

All shipments via central DC

Shipping via DC using milk runs

Tailored network

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