MULTI MODAL TRANSPORTATION PROBLEMS

1. MULTI MODAL TRANSPORTATION PROBLEMS

2. Importance • Greater competition • Economics of scale • Reduced prices

3. Transistor Radios Source all the components to build a radio Put all of them into a plastic bag Ship them to Mainland China for assembly Finished goods back to HK for testing and inspection

4. Characteristics of Transport Service • Price • Transit time and variability • Loss and damage • Other factors including availability, capability, frequency of movement, and various less tangible services

5. By Products Hauled Air · -- very high - valued, time sensitive products Truck · -- moderately high - valued, time sensitive products. Many finished and semifinished goods Rail · -- low - valued products including many raw materials Water · -- very low - valued products moved domestically, high - valued if moved internationally Pipe · -- generally limited to petroleum products and natural gas Single-Service Choices

6. Single-service choices

7. Single service choice (Cont’d)

8. Performance Overview

9. Intermodal Services Rail Air Birdyback Piggyback Truck Fishyback Water Pipeline

10. Containerization • Container A large rectangular box into which a firm places commodities. After initial loading, the commodities themselves are not rehandled until they are loaded at their final destination. Throughout the movement, the carrier handles the container, not the commodities; the shipper can transfer the container from one mode to another, eliminating the need to handle the commodities each time. • Benefits Handling costs (labor costs), damage costs, theft and pilferage, time • Requirements: • capital-intensive: cranes, forklift trucks,… • standard

12. More about containers • General purpose • High cube • Refrigerated • Open top • Flatracks • Garmentainers Source: http://www.oocl.com/eng/ourservices/containers

13. Third Parties • Transport brokers Information on rates, routes and capabilities. No liability • Freight forwarders Consolidate, pick-up and delivery, liable to shippers for cargo loss and damage • Shipper’s associations Mainly for consolidation of small shipments, non-profit basis

14. Third parties (cont’d) • Third party logistics service providers (3PL) Dealing with one third-party firm who will handle all or most of their freight offers a number of advantages, including the management of information by the 3PL, freeing the company from day to day interactions with carriers, and having the 3PL oversee the shipments. Examples: Sears – Menlo Logistics Kerry Logistics – KFC, Louis Vuiton, Bayer

15. Transport Cost Characteristics • Variable and Fixed Costs • Variable costs: vary with a given variable • Fixed costs: do not vary with a given variable cost cost volume TL LTL distance Fixed costs: terminal, roadway, adm. Variable costs: labor, fuel, maintenance Fixed costs: labor, fuel Variable costs: handling,

16. Transport Cost Characteristics • Common or Joint costs • Many shipments in different sizes and weights move jointly in the same haul. How much of the cost should be assigned to each shipment? • Forward and back haul

17. Rate Profiles Transportation rates are prices that for-hire carriers charge for their services. • Volume-related rates • Any quantity (AQ) rate, less-than-vehicle load rate, vehicle-load rate, special rate on high volume • Distance-related rates • Demand-related rates (value of services)

18. Distance-related rates Uniform rate Tapering rate Proportional rate Blanketing rates

19. Demand-related rates Rates are set according to the value of the service, not the costs of producing the transportation services A Transportation = ? Production $0.85/lb M Market price = $1.00/lb Transportation =$0.20/lb B Margin =$0.05/lb Production $0.75/lb

20. Transport prices • Line-haul rates Charges incurred between origin and destination terminals, or door to door in the case of truckload motor carrier service • Special service charges Prices for additional services, such as terminal services, stop-off services, and detention of carrier equipments

21. Line-haul Rates • By product • By shipment size (weight) • By route • Miscellaneous rates • Cube rates (light and bulky product) • Import – export rates • Deferred rates • Released value rates

23. Class Rate Example Suppose we wish to ship 15,000 lb. (150 cwt.) of aprons from New York to Los Angeles by truck. The trucker offers a 40% discount from the published tariff. What is the transportation charge? From the freight classification table, this is item number 4745-00. It shows a minimum weight of 20,000 lb., which is more than this shipment size. Therefore, the class rating is 100, or less-than-truckload. From the class 100 tariff, the rate is 6065, or $60.65 per cwt. With a 40% discount, the effective rate is (1- .40) x 60.65 = $36.39. The shipment charges are 36.39 x 150 = $5458.5. Table 6-4 Table 6-5 Should always check to see if shipment can be declared at the next higher weight break for a lower rate and lower total charges

24. Break Weight Question Suppose 9,000 lb. of Class 100 merchandise is to be shipped from New York to Dallas. From Table 6-5, the rate would be $52.21/cwt. However, should the shipment be priced at the next higher weight break rate of $40.11/cwt. for a lower cost? where: Break Weight = Weight above which the next higher weight break rate should be used for lower transport costs RateNext = Rate for next higher weight break WeightNext = Minimum weight of next higher weight break RateCurrent = Rate for true weight of shipment.

25. Break Weight (Cont’d) Answer Calculate break weight Since the 9,000 lb. shipment size exceeds the break weight of 7,682 lb., size as if a 10,000 lb., shipment for a total cost of $40.11x 100 = $4,011. Otherwise, the shipment would have cost $52.21x90 = $4,699.

26. Special Service Charges • Special line-haul services • Diversion and re-consignment • Transit privileges • Protection • Interlining • Terminal services • Pickup and delivery • Switching • Demurrage and detention

27. Stop-Off Privilege Example Suppose 3 shipments of J=8,000 lb., K=12,000 lb., and L=10,000 lb. originating at I are to be delivered in the following way.

28. Load, lb. Points Rate, $/cwt. Charges 8,000 I to J 3.05 $244.00 12,000 I to K 3.35 402.00 10,000 I to L 3.60 360.00 Total $1006.00 Rate, Load, lb. Points $/cwt. Charges 30,000 I to L 3.00 $900.00 The better choice 3 stops at All volume to the farthest stop $15 each 45.00 Stop-Off Privilege Example (Cont’d) Total $945.00

29. Documentation • Bill of lading • Receipt • Contract • Documentary evidence of title • Freight bill Information about the freight charges • Freight claims • Loss, damage, and delay claims • Overcharges

30. Factors AffectingTransportation Decisions • Carrier (party that moves or transports the product) • Vehicle-related cost • Fixed operating cost • Trip-related cost • Shipper (party that requires the movement of the product between two points in the supply chain) • Transportation cost • Inventory cost • Facility cost

31. Transportation Modes • Trucks • TL • LTL • Rail • Air • Package Carriers • Water • Pipeline

32. Truckload (TL) • Average revenue per ton mile (1996) = 9.13 cents • Average haul = 274 miles • Average Capacity = 42,000 - 50,000 lb. • Low fixed and variable costs • Major Issues • Utilization • Consistent service • Backhauls

33. Less Than Truckload (LTL) • Average revenue per ton-mile (1996) = 25.08 cents • Average haul = 646 miles • Higher fixed costs (terminals) and low variable costs • Major issues: • Location of consolidation facilities • Utilization • Vehicle routing • Customer service

34. Rail • Average revenue / ton-mile (1996) = 2.5 cents • Average haul = 720 miles • Average load = 80 tons • Key issues: • Scheduling to minimize delays / improve service • Off-track delays (at pickup and delivery end) • Yard operations • Variability of delivery times

35. Air • Key issues: • Location/number of hubs • Location of fleet bases/crew bases • Schedule optimization • Fleet assignment • Crew scheduling • Yield management

36. Package Carriers • Companies like FedEx, UPS, USPS, that carry small packages ranging from letters to shipments of about 150 pounds • Expensive • Rapid and reliable delivery • Small and time-sensitive shipments • Preferred mode for e-businesses (e.g., Amazon, Dell, McMaster-Carr) • Consolidation of shipments (especially important for package carriers that use air as a primary method of transport)

37. Water • Limited to certain geographic areas • Ocean, inland waterway system, coastal waters • Very large loads at very low cost • Slowest • Dominant in global trade (autos, grain, apparel, etc.)

38. Pipeline • High fixed cost • Primarily for crude petroleum, refined petroleum products, natural gas • Best for large and predictable demand • Would be used for getting crude oil to a port or refinery, but not for getting refined gasoline to a gasoline station (why?)

39. Intermodal • Use of more than one mode of transportation to move a shipment to its destination • Most common example: rail/truck • Also water/rail/truck or water/truck • Grown considerably with increased use of containers • Increased global trade has also increased use of intermodal transportation • More convenient for shippers (one entity provides the complete service) • Key issue involves the exchange of information to facilitate transfer between different transport modes

40. Design Options for aTransportation Network • What are the transportation options? Which one to select? On what basis? • Direct shipping network • Direct shipping with milk runs • All shipments via central DC • Shipping via DC using milk runs • Tailored network

41. Trade-offs in Transportation Design • Transportation and inventory cost trade-off • Choice of transportation mode • Inventory aggregation • Transportation cost and responsiveness trade-off

42. Choice of Transportation Mode • A manager must account for inventory costs when selecting a mode of transportation • A mode with higher transportation costs can be justified if it results in significantly lower inventories

43. Inventory Aggregation: Inventory vs. Transportation Cost • As a result of physical aggregation • Inventory costs decrease • Inbound transportation cost decreases • Outbound transportation cost increases • Inventory aggregation decreases supply chain costs if the product has a high value to weight ratio, high demand uncertainty, or customer orders are large • Inventory aggregation may increase supply chain costs if the product has a low value to weight ratio, low demand uncertainty, or customer orders are small

44. Trade-offs Between Transportation Cost and Customer Responsiveness • Temporal aggregation is the process of combining orders across time • Temporal aggregation reduces transportation cost because it results in larger shipments and reduces variation in shipment sizes • However, temporal aggregation reduces customer responsiveness

45. Tailored Transportation • The use of different transportation networks and modes based on customer and product characteristics • Factors affecting tailoring: • Customer distance and density • Customer size • Product demand and value

46. Role of IT in Transportation • The complexity of transportation decisions demands to use of IT systems • IT software can assist in: • Identification of optimal routes by minimizing costs subject to delivery constraints • Optimal fleet utilization • GPS applications

47. Risk Management in Transportation • 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

48. Making TransportationDecisions in Practice • Align transportation strategy with competitive strategy • Consider both in-house and outsourced transportation • Design a transportation network that can handle e-commerce • Use technology to improve transportation performance • Design flexibility into the transportation network

49. Summary of Learning Objectives • What is the role of transportation in a supply chain? • What are the strengths and weaknesses of different transport modes? • What are the different network design options and what are their strengths and weaknesses? • What are the trade-offs in transportation network design?