Chapter 9

Delivery

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 Key Questions Addressed in Chapter 9

How can we assure on-time delivery at lowest total

cost?
What mode(s) of transportation should be selected for
delivery?
Which supplier(s) should be selected for delivery?

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 Logistics Definition

The management of inventory in motion and at rest

“…that part of supply chain management that plans,
implements, and controls the efficient, effective forward
and reverse flow and storage of goods, services, and
related information between the point of origin to the
point of consumption in order to meet customers’
requirements.”
-- Council of Supply Chain Management Professionals (CSCMP)

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 Logistics Costs

Three cost categories:

• Transportation (the bulk of the costs)
• Inventory carrying costs
• Administrative costs

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 Business logistics costs are declining in
U.S. as a percentage of GDP
• Reasons for declining logistics costs in U.S.:
– Transportation deregulation
– Technology advances and e-commerce
– Improvements in supply chain processes and
practices

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 Transportation Costs Varies

Transportation costs account the majority of logistics

costs,
• 64 percent of total business logistics costs in 2017

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 Delivery Decision

Components of the delivery decision:

1) What mode of transportation is most appropriate for
a specific order?
2) What carrier is the best?
3) Which supplier offers the best value?

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 Transportation Industry Segments

Air cargo
Air passenger
Truck/Motor freight
Railroad
Marine
Intermodal
Pipeline

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 Modes of Transportation

Five basic modes:

• Truck/motor carrier
• Rail and intermodal
• Pipeline
• Air
• Marine

Transportation trends:
• Integrating modes (intermodality)
• Linking modes into supply chain activities
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 Transportation Carriers

Carriers transport property or people by any means of

conveyance (truck, auto, taxi, bus, railway, ship,
airplane), almost always for a charge
Once a mode of transportation has been selected, the
buyer must decide on a carrier (e.g., railroad) and a
specific supplier (e.g., BNSF Railway)

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 Truck/Motor Carriers

Three categories:
1) less-than-truck-load (LTL)
2) truckload (TL)
3) small parcel, ground

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 Types of Carriers
Common carriers
• Offer transportation service to all shippers at published rates, in a
nondiscriminatory basis, between designated points.
• Under deregulation, common carriers have considerable flexibility in
establishing rates and routes.
Contract carriers
• For-hire carrier that provides service to a limited number of shippers
and operate under specific contractual arrangements that specify
rates and services.
Exempt carriers
• For-hire carriers, but exempt from regulation of rates and services.
Private carriers
• Provides transportation for its company’s own products and the
company owns (or leases) all related equipment and facilities.
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 Mode and Carrier Selection Criteria

Required delivery time

Reliability and service quality
Available services
Type of item being shipped
Shipment size
Possibility of damage
Carrier financial situation
Handling of claims

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 Third-Party Logistics (3PL) Suppliers

Integration of services desirable

• transport and logistics
• enable through development of supply chain
information technology systems
Opportunity for logistics/transport companies to provide
more value-added services under deregulation
Large and expanding global industry

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 3PL Suppliers

Factors contributing to the expansion of the 3PL industry:

• Increased outsourcing and focus on core competencies
• Advances in information technology
• Opportunities for partnerships focused on reducing
supply chain costs
3PL providers can be differentiated on the basis geographic
scope and industry specialization
Potential advantages of using a 3PL
• economies of scale
• economies of scope
• specialized expertise
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 Bills of Lading
Straight bill of lading
• Used when the goods have been paid for in advance of shipment and requires
delivery. It contains the complete contract terms and conditions and are non-
negotiable.
Short-form bill of lading
• A variation of the straight bill of lading that refers to the contract, but does not
include the contract details.
Order bill of lading
• A negotiable instrument that can be used when goods are purchased on
credit. It must be surrendered to the carrier at the destination before title to the
goods can be obtained.
Clean bill of lading
• states that the goods were loaded onto a vessel in good condition. It is similar
to a carrier’s sign-off.
On board bill of lading
• Used to indicate that cargo was loaded onto a named vessel in good condition
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 The Selection of the FOB Point
Determines Four Things
1. Who pays the carrier
2. When legal title to goods being shipped passes to
the buyer
3. Who is responsible for preparing and pursuing
claims with the carrier
4. Who routes the freight

Since deregulation of the transport sector, purchasers

are increasingly taking control of transport
arrangements as a means of controlling costs

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Terms of Sale: Possible FOB Points
(1 of 2)
Terms of Sale: F.O.B. Origin, Freight Collect

Title passes Freight charges paid Buyer - Pays freight charges

to buyer by buyer Buyer - Bears freight charges
Buyer - Owns goods in transit
Seller Buyer Buyer - Files claims (if any)

Terms of Sale: F.O.B. Origin, Freight Prepaid

Title passes
to buyer
Seller Buyer Seller - Pays freight charges
Seller - Bears freight charges
Freight charges paid Buyer - Owns goods in transit
by seller Buyer - Files claims (if any)

Terms of Sale: F.O.B. Origin, Freight Prepaid and Charged Back

Title passes
to buyer

Seller Buyer Seller - Pays freight charges

Buyer - Bears freight charges
Freight charges paid …then collected from buyer Buyer - Owns goods in transit
by seller by adding amount to invoice Buyer - Files claims (if any)

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Terms of Sale: Possible FOB Points
(2 of 2)
Terms of Sale: F.O.B. Destination, Freight Collect
Title passes
to buyer
Seller Buyer Buyer - Pays freight charges
Buyer - Bears freight charges
Freight charges paid Seller - Owns goods in transit
by buyer Seller - Files claims (if any)

Terms of Sale: F.O.B. Destination, Freight Prepaid

Freight charges paid Title passes

by Seller to buyer Seller - Pays freight charges
Seller - Bears freight charges
Seller - Owns goods in transit
Seller Buyer
Seller - Files claims (if any)

Terms of Sale: F.O.B. Destination, Freight Collect and Allowed

Title passes Buyer - Pays freight charges

to buyer Seller - Bears freight charges
Seller - Owns goods in transit
Seller Buyer Seller - Files claims (if any)
…then charged to seller
Freight charges paid by deducting amount
by buyer from invoice

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 Effects of Transportation Deregulation

Greater innovation and efficiency

• by carriers and shippers
Wider range of services available to shippers
Carriers free to experiment with geographical extent
and nature of services
Restructuring of all modes in transport industry
Greater pressure on suppliers to carriers to be more
efficient
Decreases in actual or real transport costs

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 Elements of a Transportation and
Logistics Strategy
Value analysis of alternatives
Price analysis
Opportunities for freight consolidation
Analysis and evaluation of suppliers
Reassessment of use of different transport modes
Closers relationship with selected carriers
Cost analysis and reductions
Outsourcing, third-party logistics, contracting out
Safety considerations
Sustainability factors
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