Supply Chain Management
(3rd Edition)
Chapter 13
Transportation in the Supply Chain
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Outline
• The role of transportation in the supply chain
• Factors affecting transportation decisions
• Modes of transportation and their performance
characteristics
• Design options for a transportation network
• Trade-offs in transportation design
• Tailored transportation
• Routing and scheduling in transportation
• Making transportation decisions in practice
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Freight Trends
As populations increase and urbanization continues, cities will need to identify
innovative ways to effectively and efficiently move goods – including food,
energy, and manufactured goods – into cities
The country’s 100 largest metro areas drive national goods trade
More than 80% of all U.S. goods movements either start or end in these
cities
Just 10% of U.S. trade corridors move 79% of all goods
In 2010, $16.2 trillion of the $20.3 trillion in goods movement occurred in
these metro areas
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Goods Movement in the U.S.
Top 1 Percent of Trade Corridors Based on Value, Domestic Corridors Only, 2010
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Freight Movement is Multimodal
Our freight system is a multimodal engine that we
depend on to drive our economy
Source: Beyond Traffic 2045
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Factors Affecting
Transportation 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
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Transportation Modes
• Trucks
• TL
• LTL
•
•
•
•
•
Rail
Air
Package Carriers
Water
Pipeline
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Carrier Types
Truckload (TL) Carriers
 Specialize in moving large volumes
of freight for their customers
 Target shipments that weight 15k50k lbs
 Door-to-door service - collect at
point of origin and deliver to
destination without any stops
 Reduced transit times and the
likelihood of delays and damage
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Carrier Types
Less-Than-Truckload (LTL)
Carriers
 LTL carriers specialize in smaller
loads – 150 lbs to 20k lbs
 Share trailer capacity among
multiple shippers
 Collects freight from several
shippers - bring it to a central
terminal - freight is sorted based
on geographic destination and
them loaded onto trucks a
second time (may occur multiple
times)
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Rail Transport
 Highest ton-mile mode of transportation
 Primarily used for long-distance or low-value raw materials
and manufactured products
 Prevalent only as passenger travel in small pockets of US
- but widely used for cargo
 Railroads can include up to a 100 cars - totally over 150k lbs
 It is also 3-4x more fuel efficient than road transport
 Transportation takes considerably longer - wait for all cars,
stop and transfer cars
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Water Transport
 Major mode for international trade – 90%
 Dominates all modes in international freight revenue
 Ships are slow, but offer tremendous capacities for
volume freight, efficient fuel consumption, and low
cost
 May also occur by inland lakes and rivers
 Limitation: origin and destination must be located on
navigable waterways
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Container Ships
 Cargo vessels where freight is stored in 20' or 40' weather
tight containers
 Twenty-foot Equivalent Units (TEU) - volume of one 20ft
container - used to measure ship capacity
 Full container load (FCL)
 Less-than-container load (LCL)
Bulk Carriers
 Merchant ships specially designed to transport unpackaged
bulk in their cargo holds (e.g. grains, coal, ore)
 They may have one or more hold or cavities
 Tankers -the most common type, move bulk liquid such
as petroleum
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Air Transport
 Most common for of long-distance transport for people in the
US, not the case for cargo and freight
 Air freight is the top choice for time-sensitive freight
and small quantities of high-value, low weights goods
(e.g. emergency medical supplies)
 Passenger airlines often operate cargo divisions, allowing
freight to be transported in the cargo bay of passenger
aircraft
 Freight usually only goes one way (not round trip)
– Headhaul vs. backhaul
 All-cargo airlines (e.g. Atlas Air, Polar Air Cargo)
 Parcel Carriers (e.g. FedEx, UPS, DHL)
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Pipeline
 Pipelines are not always well known because
– It is not possible to transport solid objects
– Consumer goods are rarely transported exclusively by pipeline
– They are often built underground in populated areas
 Pipelines are excellent for moving massive volumes
of material (e.g. crude oil, refined oil, natural gas) over
long distances
 Pipelines are very expensive to set-up, usually owned
and run by large companies
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Intermodal
Transportation
 Intermodal Transportation: intermodal freight involves
using railroad, ships, and/or trucks without any handling
of cargo when changing modes
– Cargo stays in one standard container throughout the
transportation process
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Intermodal
Transportation
 Leverage the strengths of each transportation mode or
helps overcome the challenges face by a single mode
 Intermodal transportation is growing in part to the
use of shipping containers
 Trailer on a Flatcar (TOFC) - tractor trailers with their
loads specifically designed for rail cars
 Container shipping is highly efficient, reducing
loading and unload times
 Pricing is based off of TEUs
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Design Options for a
Transportation 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
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Direct shipping network
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Direct shipping with milk runs
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All shipments via central DC
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Shipping via DC using milk runs
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Case Mumbai Dubbawala (video)
• Highly responsive distribution network
• three factors facilitate the success of the dabbawala
distribution network:
• 1. Low uncertainty of demand
• 2. Temporal aggregation of demand
• 3. Use of transportation resources when they are
underutilized
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Trade-offs in Transportation Design
 Transportation and inventory cost trade-off
 Choice of transportation mode
 Inventory aggregation
 Transportation cost and responsiveness tradeoff
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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
• <<ChoiceOfTransportation.xls>>
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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 may increase supply chain
costs if the product has a low value to weight ratio,
low demand uncertainty, or customer orders are small
• <<bookShipment.xls>>
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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 <<truckSize.xls>>
• However, temporal aggregation reduces customer
responsiveness
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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
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Challenges and Opportunities
• Safety
• Truck Safety
• Geometric Design
• Weather-related Challenges
• Congestion
• Scheduling and Logistics
• Parking
• Urban Parking
• Long Haul Parking
• Environment
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How can innovative
solutions and advanced
technologies be used to
address these challenges?
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
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Opportunities: Safety Applications
u At Grade Rail Crossing: Warns
drivers of an approaching train if there
is potential risk of collision
u Curve Speed Warning: Allows
connected vehicles to receive
information that it is approaching a
curve along with the recommended
speed for the curve
u Overheight Detection: Detects
overheight vehicles moving toward
obstacles such as bridges, tunnels and
other overhead structures and
individually warns drivers
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Transportation Management Systems
(TMS)
 Application that controls, coordinates, and manages various
transportation activities including:
– assist in carrier selection
- rating the movement
– tendering the load
-printing documentation
– tracking the load
-billing the correct party
Example : video Ritase
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Cold Chain Technology
 Cold Chain: Refers to the transportation of items that must
be kept at a constant temperature (hot or cold) to keep
products fresh, safe, and healthy
 See Video
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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
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Making Transportation
Decisions 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
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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?
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