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

Less than 1% of total As much as 40% of total

purchase costs if cost of an item if low-
very-high-value, value, bulky, and heavy,
low-weight, low-bulk such as agricultural
electronic goods commodities or
construction materials

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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
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
Buyer - Files claims (if any)
by seller by adding amount to invoice

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Terms of Sale: Possible FOB Points
(cont’d)
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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