Transportation Networks

Lecture 7
What we will learn in Chapter

• Understand the role of transportation in a supply chain

• Evaluate the strengths and weaknesses of different modes of
transportation
• Discuss the role of infrastructure and policies in transportation
• Identify the strengths and weaknesses of network design options
• Identify trade off that shipper must consider when designing a
transportation network
Role of Transportation in Supply Chain

 Transportation refers to the movement of product from one location

to another.
 Its an integral part as no product is produced and consumed at a
single place
 It is a significant part of the cost in Supply Chain
 International trade is booming
and hence the need of multiple
modes of transportation has
gone multiple folds
Logistics

“The process of planning, implementing and controlling the efficient,

effective flow and storage of goods, services and related information
from point of origin to point of consumption for the purpose of
customer satisfaction”
(council of logistics management)
Purpose of logistics

1. Right quantities of the

2. Right goods to the
3. Right places at the
4. Right time in the
5. Right condition at the
6. Right cost to the
7. Right Customer
Modes of Transportation and their characteristics

Air

Package Carrier

Truck

Rail

Water

Pipeline

Intermodal
Modes of Transportation and their characteristics (contd.)

 Air:
 They have high fixed cost in infrastructure and equipment

 Variable cost is low

 Air carrier are the fastest mode of transportation and hence the expensive one
 Key issues in Air is the pre req of location, number of hubs, fleet and their routes,
maintenance schedule, crew and staff and management of price
Modes of Transportation and their characteristics (contd.)

 Package Carrier:
 They use multiple modes of transportation to deliver customers’ package

 They are expensive and cannot compete with LTL carriers

 Package carrier offer rapid and reliable delivery of goods

 They offer multiple services like order tracking, pickup and delivery from door
step, over night deliveries and packing
 Consolidation is a key factor in increasing the utilization and decreasing the cost

 Key issue is the location and capacity of transfer points as well as information
capability
Modes of Transportation and their characteristics (contd.)

 Truck:
 Trucking is cheaper than air but expensive than rail and sea.

 They have advantage of door to door service, and have rather shorter delivery
time
 They have low fixed cost as one can start with 1-2 fleet

 TL can bring in economies of scale

 However LTL are also used in conjunction with degree of consolidation

 Key issue is the location of consolidation for LTL, assigning load to trucks,
scheduling and routing,
Modes of Transportation and their characteristics (contd.)

 Rail:
 Rail is one of the cheapest source of transportation

 Fixed cost is very high due to the setup of rail network, locomotive, facility and
staff
 Location and route is the biggest constraint in rail

 Cost to customer is low due to heavy load lifting capability

 Delivery time is fast but if cars are all loaded and the material to be transported is
consolidated is short time
Modes of Transportation and their characteristics (contd.)

 Water:
 It is ideal for heavy weight cargo with low cost to weight ratio

 it is cheapest mode of transportation due to consolidation and heavy weight

cargo bringing economies of scale
 However is the slowest mode

 Constraints are the availability of ports, facility, staff, infrastructure, customs,

security and management of containers
Modes of Transportation and their characteristics (contd.)

 Pipeline:
 It is primarily used for transportation of liquid i.e. gas, crude oil, refined
petroleum products etc
 A significant fixed cost is incurred for setup

 Variable cost is very low and its all about management and the pumps to push the
liquid
 Constraint is the regular transportation of product which will make this mode
feasibile
Modes of Transportation and their characteristics (contd.)

 Intermodal:
 It is the use of more than one mode to move the commodity/product

 Cost can vary depending on the modes used, product transported

 This mode got famous because the users are not always located near to port or
hubs
 Cost can be brought down depending upon the level of consolidation and mode

 Key issue is the exchange of information to facilitate the transfers

Transportation Infra structure and policies
 Depending on the size and additional facility/infrastructure, the ownership is varied
from public to private entities
 Where chances of monopolies exist, governments are the only owner/manager of
the modes like rail, airports, seaports etc.
 It is the duty of government to provide substantial and well equipped/developed
infrastructure for transportation
Design Options for a transportation Network

 Design of a transportation network affects the performance of a supply

chain by establishing the infrastructure within operational decisions are
taken
 Well designed network will bring economies of scale and desired level of
responsiveness at low cost

Direct shipment network

Direct shipping with milk runs

All shipments via central DC

Shipping via DC using milk runs

Direct Shipment Network

 Direct network option tends buyer to bring all the products from multiple
suppliers to his facility
 Routing of each shipment is specified, while SC manager only needs to
decide the quantity to ship and mode to use
 Advantage of this network is the
elimination of intermediate warehouse
and simplicity of operation
 Decision of one shipment does not affect
other
Direct Shipment Network with milk runs

 Milk run is the route on which truck either delivers product from single
supplier to multiple buyers or multiple supplier to single buyer
 Like direct shipping intermediate warehouse are also not required here
 Consolidation will reduce the overall cost
All Shipments via Central DC

 Under this option, supplier doesn’t send goods directly to buyer but first are
sent to DCs and then after consolidation they are routed to multiple
locations
 It is an extra layer between buyer and supplier
 It has 2 purpose, one is to store inventory and other is to serve as transfer
location
 Economies of scale can be achieved
through consolidation and cross
docking
 Extra coordination is required

 https://www.youtube.com/watch?v=dA
XdeqcHBp4
Shipping via DC using milk runs

 Milk runs are added in the DC model if lot size of deliveries are small and
buyers are scattered
 Many super stores, perishable items suppliers follow this model
 It can reduce cost of transportation
Reverse Logistics

• Reverse Logistics is the process of moving products from their typical

final destination to another point, for the purpose of capturing value
or for the proper disposal of the products.
Why reverse logistics takes place
• Products that have failed, but can be repaired or reused.
• Products that are obsolete but still have value.
• Unsold products from retailers.
• Recalled products.
• Items that have secondary usage, i.e. items that have
another usage after they have exhausted their original
use.
• Waste that must be accounted for and disposed of or
used for energy production.
• Containers (Boxes) that must be returned to their origin
or some sort of consolidation facility.