TRANSPORTATION IN A SUPPLY CHAIN

Jannatul Shefa
Lecturer, Department of IPE, MIST
Introduction
■ Transportation refers to the movement of product from one location to
another as it makes its way from the beginning of a supply chain to the
customer.
■ The shipper is the party that requires the movement of the product between
two points in the supply chain.
■ The carrier is the party that moves or transports the product.
■ Besides the shipper and the carrier, two other parties have a significant
impact on transportation:
(1) the owners and operators of transportation infrastructure such as roads,
ports, canals, and airports and
(2) the bodies that set transportation policy worldwide.
Modes of Transportation
Supply chains use a combination of the following modes of
transportation:
• Air
• Package carriers
• Truck
• Rail
• Water
• Pipeline
• Intermodal
Air
■ Airlines have three cost components:
(1) a fixed cost of infrastructure and equipment,
(2) cost of labor and fuel that is independent of the passengers or cargo on a
flight but is fixed for a flight,
(3) a variable cost that depends on the passengers or cargo carried.
■ Air carriers offer a fast and fairly expensive mode of transportation for cargo. Small, high
value items or time-sensitive emergency shipments that must travel a long distance are best
suited for air transport.
■ Key issues that air carriers face include-
•identifying the location and number of hubs
•assigning planes to routes
•setting up maintenance schedules for planes
•scheduling crews
•managing prices and availability at different prices.
Package Carriers
■ Package carriers are transportation companies such as FedEx, UPS, and
the U.S. Postal Service, which carry small packages ranging from letters to
shipments weighing about 150 pounds.
■ Package carriers use air, truck, and rail to transport time-critical smaller
packages.
■ The major service they offer shippers is rapid and reliable delivery.
■ Package carriers also provide other value-added services such as package
tracking and, in some cases, processing and assembly of products.
■ Key issues in this industry include the location and capacity of transfer
points and information capability to facilitate and track package flow. For
the final delivery to a customer, an important consideration is the
scheduling and routing of the delivery trucks.
 Truck
■ The trucking industry consists of two major segments—truckload (TL) or less
than truckload (LTL).
■ Trucking is more expensive than rail but offers the advantage of door-to-door
shipment and a shorter delivery time. It also has the advantage of requiring no
transfer between pickup and delivery.
■ The challenge in the TL business is that most markets have an imbalance of
inbound and outbound flows.
■ The goal of a TL carrier is to schedule shipments that provide high revenue
while minimizing trucks’ idle and empty travel time (deadheading).
■ LTL operations are priced to encourage shipments in small lots, usually less
than half a TL, as TL tends to be cheaper for larger shipments.
■ LTL shipments take longer than TL shipments because of other loads that need
to be picked up and dropped off.
Rail
■ Rail carriers incur a high fixed cost in terms of tracks, locomotives, cars,
and yards.
■ A significant trip-related labor and fuel cost is independent of the number
of cars (fuel costs do vary somewhat with the number of cars) but does
vary with the distance traveled and the time taken.
■ The price structure and heavy load capability make rail an ideal mode for
carrying large, heavy, or high-density products over long distances.
Transportation time by rail, however, can be long.
■ Rail is thus ideal for heavy, low-value shipments that are not time sensitive.
■ A major goal for railroad firms is to keep locomotives and crews well
utilized.
■ Major operational issues at railroads include vehicle and staff scheduling,
track and terminal delays, and poor on-time performance.
Water
■ Water transport is ideally suited for carrying large loads at low cost.
■ It is, however, the slowest of all the modes, and significant delays
occur at ports and terminals. This makes water transport difficult to
operate for short-haul trips, although it is used effectively in Japan
and parts of Europe for daily short-haul trips of a few miles.
■ For the quantities shipped and the distances involved in international
trade, water transport is by far the cheapest mode of transport.
■ This has led to a demand for larger, faster, and more specialized
vessels to improve the economics of container transport.
■ Delays at ports, customs, and security and the management of
containers used are major issues in global shipping.
Pipeline
■ Pipeline is used primarily for the transport of crude petroleum, refined
petroleum products, and natural gas.
■ A significant initial fixed cost is incurred in setting up the pipeline and
related infrastructure that does not vary significantly with the diameter
of the pipeline. Pipeline pricing usually consists of two components.
■ Given the nature of the costs, pipelines are best suited when relatively
stable and large flows are required.
■ Pipeline may be an effective way of getting crude oil to a port or a
refinery.
■ Sending gasoline to a gas station does not justify investment in a
pipeline and is done better with a truck.
Direct Shipment Network to Single
Destination
Direct Shipping with Milk Runs
All Shipments via Intermediate
Distribution Center with Storage
All Shipments via Intermediate Transit
Point with Cross-Docking
Shipping via DC Using Milk Runs
Pros and Cons of Different Transportation
Networks
Trade-Offs in Transportation Design
■ Transportation and inventory cost trade-off
• Choice of transportation mode
• Inventory aggregation

■ Transportation cost and customer responsiveness trade-off

Tailored Transportation by Customer
Density and Distance
Tailored Transportation by Size of
Customer
■ Large customers can be supplied using a TL carrier, whereas smaller customers will
require an LTL carrier or milk runs.

■ When using milk runs, a shipper incurs two types of costs:

• Transportation cost based on total route distance
• Delivery cost based on number of deliveries

■ The transportation cost is the same whether going to a large or small customer.
Risk Management in Trnasportation
Three main risks to be considered in transportation are:
■ Risk that the shipment is delayed
■ Risk of disruptions
■ Risk of hazardous material

Risk mitigation strategies:

■ Decrease the probability of disruptions
■ Alternative routings
■ In case of hazardous materials the use of modified containers, low-risk
transportation models, modification of physical and chemical properties can prove
to be effective
THANK YOU!