Module 5 notes - Michael Knemeyer powerpoint chapter 5 PDF

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Michael Knemeyer powerpoint chapter 5...

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Module 5: How does Transportation Influence Logistics Total Cost and Value Creation  Key Question: What is the role of transportation in the supply chain and in society?  Transportation o Huge expenditure – 5% of GDP in US, more in most countries o Cost is not important issue -> performance is key o Relationship to strategy, operations, and competitiveness 

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Transport functionality -> primarily consists of product movement services o Product movement – the movement of inventory to specified destinations  Restrictive element – in-transit inventory is ‘captive’, usually inaccessible during transportation  Flexible element – inventory can be diverted during shipment to a new destination o Transportation consumes time, financial, and environmental resources  More than 60% of cost of logistics is transportation  One of largest consumers of oil and gas in the US  Impacts traffic congestion, noise and air pollution Transport functionality -> also functions as a storage service for products while in a vehicle o In-transit inventory is captive in the transport system  Managers strive to reduce in-transit inventory to a minimum o Product can also be stored in vehicles at origin or destination  Usually more expensive than traditional warehousing o Diversion occurs when a shipment destination is changed after a product is in transit Key Question: Who are the major players in the transportation system? Major relationships among transportation participants

o Shipper and consignee -> have a common interest in moving goods from origin to destination within a given time at a low cost o Carriers -> desire to maximize their revenue for movement while minimizing associated costs o Agents (brokers and freight forwarders) -> facilitate carrier and customer matching o Government -> desires a stable and efficient transportation environment to support economic growth o Public -> concerned with transportation accessibility, expense, and standards for security, safety, and the environment o Internet -> provides a vital communication link between transactional 

participants as well as providing and information exchange Transportation regulation by the government focuses on: o Economic regulation -> seeking to make transportation equally accessible and economical to all without discrimination  Government created infrastructure (roads, canals, ports)  Intended to prevent carriers from taking advantage of suppliers while ensuring long-term financial stability for carriers o Social regulation -> takes measures to protect public safety and environment 

Department of Transportation (DOT, 1966) has active role in hazardous material safety and driver safety

Hazardous Materials Transportation Uniform Safety Act (1990) took precedence over state and local regulations Key Question: What does the US transportation system look like? The US Transportation Infrastructure o US enjoys the world’s most comprehensive transportation system: 

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Almost 4 million miles of roads, 143000 miles of roads, 5286 public airports, 150000 miles of oil pipelines o Without this domestic system, the US could not compete on a global basis Freight Transportation Options o Consists of rights-of-way, vehicles, and carriers operating within five basic modes o Modes: 

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 Rail, Highway, Water, Pipeline, Air o Truck is 76.7% of transportation cost  8% is Rail  6.9% is Air  4.2% is water  3.7% is pipeline Trucking in the US o Key benefits: speed of transit, ability to operate door-to-door o More efficient than rail for small shipments over short distances o Dominate freight moves under 500 miles and from manufacturing to wholesalers to retailers o Many companies run their own truck fleets as well The Backbone of the Trucking Industry: Interstate Highway System o Full name -> National System of Interstate and Defense Highways o Received initial funding in 1954 (Eisenhower) o 45K+ miles at $120B cost o Funded primarily through fuel taxes, user fees, and tolls o *Significant contributor to the shift of freight from rail to motor transportation Truckload (TL) vs. Less-than-Truckload (LTL) o Truckload carriers  Offer direct door-to-door service between two locations for a single shipper (ex. customer)  Loads are large enough to consume most of the weight and space capacity of a trailer o Less-than-Truckload carriers 

Consolidate smaller loads from multiple customers to fill a trailer and achieve shipping economies

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 Typically, smaller than 15,000 pounds Truck Takeaways o High performing and reliable o United States -> 80,000 lb is the maximum allowable legal gross vehicle weight without a permit-issued state Railroads in the United States o Track mileage has decline by over half since 1970 o Traffic shifted from broad range of commodities to hauling specific freight in traffic segments  Carload, intermodal, container o New technologies:  Articulate cars, unit trains, and double-stacked cars Rail Takeaways o Tremendous cargo growth in the US (not for rest of world) o Large volume, long distance o Popular for intermodal movement (using multiple modes of transportation with an intermodal vehicle) o Due to differing rale gauge per country doesn’t work well in EU or South America Water transportation in the US o Rights of way (canals and rivers) maintained by federal government o Ranks between rail and truck in fixed cost Water takeaways o Barge: inland water ways, mainly bulk (also container)  Cheap, slow -> need navigable waterways o Ocean: huge growth in 20 years  Container ship most common (durable goods)  Tankers, largest can carry 18000 TEUs Air cargo transportation in the United States o Accounts for only 1% of intercity ton-miles o Fastest of all modes o Fixed cost is 2nd lowest but variable costs are extremely high o Most air-shipped products have value, high priority or extreme perishability Air transportation takeaways o Dedicated and in the belly of passenger flights o Fast, expensive, secure o High value or VERY time-sensitive products Pipeline transportation in the United States

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o Have highest fixed costs and lowest variable cost of all modes o Unique transportation mode  Can operate 24 hours a day, 7 days a week  No empty container or vehicle to return o Not flexible -> limited to liquids and gases o Accounts for 68% of all crude and petroleum ton-mile movements in US Pipeline Takeaways o For fluid commodities (oil and gas) o Tend to be privately owned o Slow, but very reliable and secure when underground o Controversy surrounding underground leaks Intermodal Transportation o Trailers on Flatcar (TOFC) o Containers on Flatcar (COFC) o Double-stack units (each five cars long – holding 10 containers) Intermodal takeaways o Combining two or more modes for a single delivery  Ex) Trailer on flatcar combines low-cost rail low cost with flexibility of truck o Relies on containerization for efficiency Comparing various modes of transportation

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Key Question: What is the economics of transportation? Two fundamental principles of transportation economics: o 1) Economy of scale is the cost per unit weight decreases as the size of the shipment increase  At least until you totally fill the carrying vehicle  Cost decreases because the fixed cost of the carrier is allocated over a larger weight of shipment o 2) Economy of distance is the cost per unit weight decreases as distance increases  Often called the tapering principle  Longer distances allow fixed cost of the carrier to be spread over more miles, lowering the per mile charge o Goal: to maximize the size of the load and distance shipped while still meeting service expectations Key questions: What drives transportation costs for a product? Drivers of transportation costs o Distance, weight, density, stowability, handling, liability, market Influence of distance on transportation costs: o Directly contributes to variable expenses (labor, fuel, and maintenance) o Cost curve starts above zero (fixed costs) o Rate of cost decreases as distance increases ( tapering principle) Influence of weight on transportation costs o Cost per pound decreases as weight increases until the carrier vehicle is full o Small loads should be consolidated into larger loads to maximize scale economies o Weighing out: TL vs. LTL Influence of density (weight and volume) on transportation costs o Volume is important -> vehicles are typically constrained more by cubic capacity than by weight added o Cost per unit of weight declines as product density increases  Higher density products allow fixed transport costs to be spread more over weight Economics of transportation: Capacity o Cubing out (fills up the space) Influence of stowability on transportation costs o Odd package shapes and sizes can waste cubic capacity o Items with rectangular shapes are easier to stow Influence of handling on transportation costs o Special equipment may be needed to load and unload trucks, railcars, or ships

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o How products are grouped together will also impact handling Influence of potential liability on transportation costs o Carriers must pay for liability insurance or accept financial responsibility o Shippers can reduce risk by:  Improve packaging and loading  Reducing susceptibility to loss or damage Influence of market factors on transportation costs o Transport lane refers to movements between origin and destination points  Carriers must find a backhaul load or vehicle is returned empty o Imbalances in volume between shipping points can result in higher transport costs Product vs. Market related costs o Product: weight, density, stowability, difficulty of handling, value, liability o Market: nature of regulation, location (urban vs. rural // domestic vs. international), distance, competition, balance of flow (trade imbalances, seasonality) Key Question: How do we choose an appropriate transportation solution? Common Mode and Carrier Selection Criteria o Generally, select mode first, then specific carrier o Carrier performance varies with mode Multi-Criteria Analysis o Weighted by criteria (ex. cost, reliability, delivery time, trustworthiness, financial stability) Key Question: What are some trends affecting transportation? Other trends in transportation o Driver shortage, aging infrastructure, congestion, sustainability, risk management/complexity, insourcing versus outsourcing, improved technology information Hours of Service (HOS) Regulations Devised by USDOT o “34-hour restarts” must include two period between 1 AM and 5 AM at home terminal o May drive only if 8 hours or less have passed since end of driver’s last off-duty period of at least 30 minutes o On-duty time does not include any resting in a parked vehicle o “Egregious Violation” for driving 3 or more hours beyond driving-time limit o Intended to improve safety, but many fear loss in productivity Relay Networks Used in Trucking

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o Relays allow truck to stay in near-constant motion while permitting drivers to keep hours-of-service obligations – and stay closer to home o Ex) East-West connectivity provided through a relay network along Interstate 70 US Infrastructure in crisis – potential to increase uncertainty o US aggressively invest in highway construction after WWII -> now in need of widespread repair to sustain the safe movement of over 26 million trucks o Roughly 12% of public road bridges on the National Bridge Inventory are classified as structurally deficient Transportation Management System (TMS) Functionality

Collaborative Transportation Management (CTM) – holistic effort to help participants drive inefficiencies out of transport planning and execution process o Objective: to eliminate inefficiencies in the transportation component of the

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supply chain through collaboration to deliver benefit to all members of the collaboration Carriers and shippers work together o Shippers enter into partnerships with carriers by:  Mutually reducing the costs of doing business  Entering into long-term commitments

 Providing guaranteed volumes  Sharing investments and resources o In return, carriers offer:  Guaranteed “time-definite” deliveries  Quality programs emphasize execution and areas for improvement  Real-time delivery signature, automatic claims processing  Ability to track and trace in real time  Proactive notification of transit delay  Invoice-less freight payment...