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Global Logistics and Supply Chain Management

John Mangan Chandra Lalwani Tim Butcher


ISBN: 978-0-470-06634-8

2008 John Wiley & Sons Ltd. www.wileyeurope.com/college/Mangan

PART II: SCM-Operations 5-11

2008 John Wiley & Sons Ltd. www.wileyeurope.com/college/Mangan

PART II: SCM-Operations 4-11


1. 2. 3. 4. 5. 6. 7. 8. Logistics Service Providers Procurement/ Outsourcing Inventory Management Warehousing/ Materials Handling Transportation Information Flow Logistics & Financial Management Measuring Logistics Performance
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Chapter 8
Transport in Supply Chains

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Learning objectives
1. Understand the cost structures and operating characteristics of the different transport modes, and the relationships between freight rates and consignment weight, dimensions and distance to be travelled 2. 3. Highlight key terms used in transport Identify the range of issues to be considered in planning transport infrastructure

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Learning objectives
4. Discuss the roles of distribution centers and highlight the concept of factory gate pricing 5. Explain the application of a technique known as the transportation model 6. Identify some of the many issues (including the effect of supply chain strategies) that can impact the efficiency of transport services

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Figure 8.1 Relationship between rate and distance


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Figure 8.2 Relationship between rate per kilo and consignment weight
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Table 8.1 A Summary of costs and relative operating characteristics of the different transport modes Mode Air Relative Costs and Operating Characteristics by Mode Fixed cost is on the lower side but variable cost, including fuel, maintenance, security requirements, etc., is high. The main advantage of air is speed; it is however limited in uplift capacity, similarly other modes of transport are required to take freight to and from airports, thus air cannot directly link individual consignors and consignees

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Table 8.1 A Summary of costs and relative operating characteristics of the different transport modes Mode Road Relative Costs and Operating Characteristics by Mode Fixed cost is low as the physical transport infrastructure, such as motorways, is in place through public funding; variable cost is medium in terms of rising fuel costs, maintenance and increasing use of road and congestion charges. In terms of operating characteristics, road as a mode of transport scores favourably on speed, availability, dependability, and frequency, but not so good on capability due to limited capacity on weight and volume. Uniquely among transport modes, it can allow direct access to consignor and consignee sites.

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Table 8.1 A Summary of costs and relative operating characteristics of the different transport modes Mode Water Relative Costs and Operating Characteristics by Mode Fixed cost is on the medium side, including vessels, handling equipment and terminals. Variable cost is low due to the economies of scale that can be enjoyed from carrying large volumes of freight, this is the main advantage of the water mode, together with its capability to uplift large volumes of freight. Like air, it cannot offer direct consignor to consignee connectivity, and vessels are sometimes limited in terms of what ports they can use. It is also quite a slow mode.

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Table 8.1 A Summary of costs and relative operating characteristics of the different transport modes Mode Rail Relative Costs and Operating Characteristics by Mode Fixed cost is high and the variable cost is relatively low. Fixed cost is high due to expensive equipment requirements, such as locomotives, wagons, tracks and facilities, such as freight terminals. On relative operating characteristics, rail is considered good on speed, dependability, and especially capability to move larger quantities of freight.

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Table 8.1 A Summary of costs and relative operating characteristics of the different transport modes
Mode Pipeline Relative Costs and Operating Characteristics by Mode Fixed cost is high due to rights-of-way, construction and installation, but the variable cost is relatively low and generally just encompasses routine maintenance and ongoing inspection/security. On operational characteristics, the dependability is excellent but this mode can only be used in very limited situations.

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Figure 8.3 Modal split for freight transport in the EU 25 in 2005 (% tonne kilometres)
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2- Intermodal transport
Where freight moves within a loading unit (known as an ITU Intermodal Transport Unit), this unit may move upon a number of different transport modes But the freight remains within the unit at all times Various types of ITUs:
Standard sized containers (typically 20 and 40 feet in length) Igloo containers used in air freight
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2- Intermodal transport

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2- Intermodal transport

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2- Intermodal transport

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2- Intermodal transport

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2- Intermodal transport

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2- Intermodal transport

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2- Intermodal transport

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2- Intermodal transport

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2- Intermodal transport

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2- Intermodal transport

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2- Intermodal transport

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2- Intermodal transport

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3- Planning transport infrastructure


A complex task for policy makers Transport is a derived demand:
people or freight does not travel for the sake of making a journey, it travels for some other reason

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4- Factory Gate Pricing-FGP


Retailers take control of the delivery of goods into their distribution centres This gives a single point of control for the inbound logistics network FGP is the use of an ex-works price for a product plus the organisation and optimisation of transport by the purchaser to the point of delivery

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Figure 8.4 Inbound logistics in the retail sector


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Figure 8.5 The evolution of grocery distribution

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The impact of the primary consolidation network with FGP


Table 8.2 The Impact of the Primary Consolidation Network Product Type Scenario Weekly Weekly Volume Segregation Transport Transport Cost 100% Miles (normalised) (normalised) Direct Consolidated 100 74.7 (25.3) 100 77.0 (23) 100 86.1(13.9%) 100 82.8 (17.2%) 88.7% 16.7% 39.0% 12.8% 11.3% 83.3% 61.0% 87.2%

AmbientTemp

As is FGP design

Composite As is -Temp FGP design

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5- The transportation model


Seeks to work out a minimum total transport cost solution for the number of units of a single commodity that should be transported from given suppliers to a number of destinations

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The transportation model


Understanding Logic
SCM Manager Stakeholders
Supplier Side Demand Side Finance Side

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The transportation model


Algorithm
Let us assume that the amount of supply at origin i is s i and demand at destination j is d j and the unit cost between i and j is c ij . Let x ij be the amount or the number units transported from origin i and destination j. The transportation problem using linear programming can be defined as follows: Minimise total transport cost C =

c x
i 1 j 1

ij ij

(1)

subject to

j 1

xij si

for i = 1,2, ,m

(2)

i 1

xij d j

for j = 1,2, ,n for all i and j

(3) (4)

xij o

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The Transportation Problem


Ship items at lowest cost Sources have fixed supplies Destinations have fixed demand

Transportation Problem(1)
The Alpha Limited Manufacturers W.M TEXT pp143

Transportation Problem(1)
The Alpha Limited Manufacturers Transportation Cost
Don caster Newcastle

Birmingham 25 /ton
Manchester 15 Glasgow 40

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20 30

Transportation Problem(1)
The Alpha Limited Manufacturers W.M Transportation Tableau
DC(1) Don caster
P(1) Birmingham P(2) Manchester P(3) Glasgow DC-Demand ? ? ? 400

DC(2) Newcastle
? ? ? 250

Plant Capacity
300 200 150

Solving Transportation Problems


Manual methods
Stepping-stone Modified distribution (MODI)

Computer solution
Excel POM/QM for Windows

Solving Transportation Problems


Computer solution
Excel Using Solver Adds-In

Solving Transportation Problems


1. Build The Optimization Model
A. B. C. D. Cost Drivers Supply/Demand Model Total Cost (Shipment*Cost) Constraints

2. Optimize (Solve using Solver)

Transportation Problem(1)
The Alpha Limited Manufacturers Optimization Using Solver
DC(1) Don caster
P(1) Birmingham P(2) Manchester P(3) Glasgow DC-Demand Total Cost 300 *25 100 *15 ---- *40 400 9,000

DC(2) Newcastle
---*35 100 *20 150*30 250 6,500

Plant Capacity
300 200 150

15,500

Transportation Problem(2)
SUPPLY/DEMAND MODEL From GRAIN FARMER SUPPLY 150 175 275 600 tons To MILL DEMAND 200 100 300 600 tons

1.Kansas City 2.Omaha Des Moines

A. Chicago B. St. Louis C. Cincinnati

COST MODEL FROM GRAIN FARMER Kansas City Omaha Des Moines Chicago A $6 7 4

TO MILL St. Louis B $8 11 5 Cincinnati C $10 11 12

The Transportation Tableau


FROM/TO Kansas City Omaha Des Moines DEMAND/Ton Chicago St. Louis Cincinnati $6 7 4 200 $8 11 5 100 $10 11 12 300 SUPPLY/Ton 150 175 275 600

Example 7.1

The Transportation Tableau


FROM Kansas City Omaha Des Moines DEMAND TO Chicago 6 7 4 200 St. Louis 8 11 5 100 Cincinnati 10 11 12 300 SUPPLY 150 175 275 600

Supply (tons)
Des Moines (275) $4 Omaha (175) $7

Demand (tons)
Chicago (200) $12 $11 Cincinnati (300) $6 $8 $5 $10 St. Louis (100)

$11
Kansas City (150)

Transportation Problem(2)
GRAIN/MILLS DISTRIBUTION Optimization Using Solver
Mill(1) Chicago
P(1) Kansas P(2) Omaha P(3) DM MillsDemand Total Cost 0 25 175 200 $4,525

Mill(2) St.Louis
0 0 100 100

Mill(3) Plant Cincinnati Capacity


150 150 150 175 275 300

6- Transportation Efficiency
Seeking Efficient Asset utilization Streamlining Shipments Container Load

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Figure 8.7 Poor asset utilisation in transport Streamlining Shipments

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Full container loads


The term FCL is used in transport to refer to full container loads The term LCL is used to refer to less than full container loads When carriers have a consignment that will not fill an entire loading unit they will usually try and build a consolidated shipment to make up a FCL

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