第十一單元(2) ： Managing Transportation in a Supply Chain
Managing Transportation in
a Supply Chain
蔣明晃教授
【本著作除另有註明外，採取創用CC「姓名標示
－非商業性－相同方式分享」台灣3.0版授權釋出】
1
Outline
► Factors affecting transportation decision
► Key modes of transport and major issues
► Transportation System Design
► Tradeoffs in transportation design
》Transportation and inventory: Choice of mode
》Transportation and inventory: Consolidation
》Transportation and service: Transit points at Merloni
► Tailored Transportation
► Routing and scheduling in transportation
2
Factors Affecting Carrier Decisions
► Vehicle-related cost: lease or purchase the vehicles
► Fixed operating cost: terminals, airport gates, and labor
► Trip-related cost: length, duration
► Quantity related cost: loading, unloading, proportion of fuel
► Overhead cost: planning, scheduling, IT investments
本作品轉載自Microsoft Office
2007多媒體藝廊，依據
Microsoft服務合約及著作權法第
46、52、65條合理使用。
本作品轉載自Microsoft
Office 2007多媒體藝廊，依
據Microsoft服務合約及著作
權法第46、52、65條合理
使用。
3
本作品轉載自Microsoft Office
2007多媒體藝廊，依據
Microsoft服務合約及著作權法
第46、52、65條合理使用。
Factors Affecting Shippers Decisions
► Transportation cost
► Inventory cost
► Facility cost
► Processing cost
► Service level cost: delivery commitment
本作品轉載自Microsoft
Office 2007多媒體藝廊，
依據Microsoft服務合約
及著作權法第46、52、
65條合理使用。
4
本作品轉載自
Microsoft
Office 2007多
媒體藝廊，依
據Microsoft服
務合約及著作
權法第46、52、
65條合理使用。
本作品轉載自Microsoft Office
2007多媒體藝廊，依據
Microsoft服務合約及著作權法
第46、52、65條合理使用。
Transportation Modes
► Trucks
》 TL
》 LTL
► Rail
》 Carload
► Air
本作品轉載自Microsoft
Office 2007多媒體藝廊，
依據Microsoft服務合約及
著作權法第46、52、65
條合理使用。
► Package Carriers
► Water
► Pipeline
► Intermodal
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務
合約及著作權法第46、52、65條合理使用。
5
Truckload (TL)
► Average revenue per ton mile (1998) = 9.13 cents
► Average haul = 289 miles
► Average Capacity = 42,000 - 50,000 lb.
► Low fixed and variable costs
► Major Issues
》 Utilization: economies of scale
》 Consistent service
》 Backhauls
本作品轉載自Microsoft Office 2007多媒體藝
廊，依據Microsoft服務合約及著作權法第46、
52、65條合理使用。
6
Less Than Truckload (LTL)
► Average revenue per ton-mile (1998) = 26.12 cents
► Average haul = 629 miles
► Higher fixed costs (terminals) and low variable costs
► Major Issues
》 Location of consolidation facilities
》 Utilization (load assignment)
》 scheduling and routing of pickup and delivery
》 Customer service
本作品轉載自Microsoft
Office 2007多媒體藝廊，
依據Microsoft服務合約
及著作權法第46、52、
65條合理使用。
7
本作品轉載自Microsoft Office 2007多媒體藝廊，依據
Microsoft服務合約及著作權法第46、52、65條合理使用。
本作品轉載自Microsoft Office 2007
多媒體藝廊，依據Microsoft服務合
約及著作權法第46、52、65條合理
使用。
Rail
► Average revenue / ton-mile (1998) = 2.40 cents
► Average haul = 722 miles
► Average load = 80 tons
► Key Issues
》Scheduling to minimize delays / improve service
》Off track delays (at pick up and delivery end)
》Yard operations
》Variability of delivery times
8
Air
 Average revenue / ton-mile (1998) = 56.25 cents
 Average haul = 1260 miles
 Key Issues
》 Location/Number of hubs
》 Location of fleet bases / crew bases
》 Schedule optimization
》 Fleet assignment
》 Maintenance schedule
》 Crew scheduling
》 Yield management (price management)
9
Package Carriers
 Expensive but offer rapid, reliable service
 Value-added services:
》 Order tracking
》 One-stop shipping
 Key factors:
》 Consolidation of shipments
》 Location and capacity of transfer points
》 Information capability
10
Water
 Revenue/Ton-Mile (1998) = 0.73 cents
 Average length of haul:
》 Rivers/Canals 481
》 Great lakes 509
》 Coastwise 1653
 Issue:
》 Delays at ports, customs
》 Management of containers used
11
Pipeline
 Transport petroleum and related products, natural
gas
 Revenue/Ton-Mile (1998): 1.37
 Average length of haul
》Crude 761
》Products 394
 Stable and large flow applied
12
Intermodal
 Use more than one mode of transportation to move a
shipment to destination
 Examples: piggyback, fishyback, birdyback
 Key issues:
》Exchange of information to facilitate shipment
transfer between different modes
13
Design Options for Transportation Network
--- Direct Shipment Network
 Replenishment size close to TL
14
Design Options for Transportation Network
--- Direct Shipping with Mike Runs
 Eliminate warehouse and consolidate the
shipments from suppliers or to customers
15
Design Options for Transportation Network
--- Via Central Distribution Center
 Reduce inbound costs
 Cross-ducking
DC
16
Design Options for Transportation Network
--- Via Distribution Center Using Mike Runs
 Consolidate local small shipments
DC
17
Pros and Cons of Different
Transportation Networks
Pros
Cons
Direct shipping
Simple to coordinate
Large shipping lot size
Direct shipping
with milk run
Lower cost for small lots
Lower inventories
Increased coordination
complexity
Via central DC
with inventory
storage
Lower inbound transportation
cost
Increased inventory cost
Increased handling at
DC
Via central DC
with cross-dock
Very low inventory
Increased coordination
Lower cost through consolidation complexity
Via DC using
milk run
Lower outbound cost for small
lots
Further increase in
coordination complexity
Tailored network Best matches needs of individual Highest coordination
product and store
complexity
18
Trade-Offs in Transportation Design
 Transportation and inventory tradeoff
》Choice of transportation modes
》Inventory aggregation
 Transportation cost and customer responsiveness
trade-off
19
Impact of Transportation Modes
20
Rail
TL
LTL
Packag
e
Air
Water
Lot size
5
4
3
1
2
6
Safety
inventory
5
4
3
1
2
6
In-transit
inventory
5
4
3
1
2
6
Transportation
cost
2
3
4
6
5
1
Transportation
time
5
3
4
1
2
6
Choice of Mode: Eastern
Electric Corporation
 Annual demand = 120,000 motors
 Cost per motor = $120
 Each motor weighs 10 pounds
 Current order size = 3,000 motors
 Safety stock carried = 50% of demand during
delivery lead time
 Holding cost = 25%, annual cost of H = $120  0.25
= $30
21
Eastern Electric Corporation
Carrier
22
Range of Quantity
Shipped (cwt.)
Shipping Cost ($/cwt.)
AM railroad
200 +
6.50
Northeast Trucking
100 +
7.50
Golden Freightways
50 – 150
8.00
Golden Freightways
150 – 250
6.00
Golden Freightways
250 – 400
4.00
Golden Freightways
(new)
400
3.00
Example: AM Rail Proposal
 Minimum shipment 20,000 lb. or 2,000 motors. Replenishment
lead time L = 5 + 1 = 6 days. Q = 2,000 motors
 Cycle inventory = Q/2 = 2,000/2 = 1,000
 Safety inventory = L/2 = (6/2)(120,000/365) = 986
 In-transit inventory = 120,000 (5/365) = 1,644
 Total average inventory = 1,000 + 986 + 1,644 = 3,630
 Annual holding cost using AM Rail = 3,630  30 = $108,900
 Annual transportation cost = 120,000  0.65 = $78,000
 Total annual cost for inventory and transportation using AM Rail
is $186,900
23
Eastern Electric Corporation
Alternative Transport
Cost
AM Rail
$78,000
(2,000)
Northeast $90,000
Trucking
(1,000)
Golden
$96,000
(500)
Golden
$96,000
(1500)
Golden
$86,400
(2,500)
Golden
$78,000
(3,000)
Golden
$67,500
(4,000)-old
Golden
$63,500
(4,000)-new
24
Cycle
Safety
Transit
Inventory Total
Inventory Inventory Inventory Cost
Cost
1,000
986
1,644
$108,900 $186,900
500
658
986
$64,320
$154,320
250
658
986
$56,820
$152,820
750
658
986
$71,820
$167,820
1,250
658
986
$86,820
$173,220
1,500
658
986
$94,320
$172,320
2,000
658
986
$109,320
$176,820
2,000
658
986
$109,320
$173,820
Physical Inventory Aggregation: Inventory vs.
Transportation cost
 As a result of physical aggregation
》 Inventory costs decrease
》 Inbound transportation cost decreases
》 Outbound transportation cost increases
 Applications:
》 Inventory and facility costs are higher
》 Products with large value-to-weight ratio or high demand
uncertainty or customer orders are larger
25
Inventory Aggregation at HighMed
 Highval (worth $200, .1 lbs/unit) demand in each of 24
territories, H = 2, H = 5
 Lowval (worth $30/unit, 0.04 lbs/unit) demand in each territory,
L = 20, L = 5
 CSL in each territory is 0.997 for each product. Holding cost is
25%.
 UPS rate: $0.66 + 0.26x (every 4 weeks for replenishments)
26
Inventory Aggregation at HighMed
 Option A: keep the current but start replenishing inventory once
a week
 Option B: Eliminate inventories in the territories, aggregate all
inventories in a finished goods warehouse at Madison, and
replenish the warehouse once a week
》 FedEx rate: $5.53 + 0.53x (one-week lead time to replenish
goods at Madison. An average customer order is for 1 unit of
HighVal and 10 units of LowVal)
27
Inventory Aggregation at HighMed
 Current situation:
》 Replenishment lead time L = 1 week
》 Reorder interval T = 4 weeks
》 CSL = 0.997
》 HighVal inventory costs at each territory:
 Average lot size QH = 4  2 = 8
 Safety stock = F-1(CSL)  T+L = F-1(0.997) 
4  1  5= 30.7
 Total inventory = 8 / 2 + 30. 7 = 34.7
》 For 24 territories, HighVal invetory = 34.7  24 = 832.8
》 LowVal inventory costs at each territory:
 Average lot size QL = 4  20 = 80
 Safety stock = F-1(CSL)  T+L = F-1(0.997) 
4  1  5= 30.7
 Total inventory = 80 / 2 + 30. 7 = 70.7
》 For 24 territories, HighVal invetory = 70.7  24 = 1696.8
28
Inventory Aggregation at HighMed
 Current situation:
》 Annual inventory holding cost = (832.8  $200 + 1696.8  $30 )  0.25 =
$54,366
》 Transportation cost:
 Average weight of each replenishment order = 0.1 QH + 0.04QL = 0.1 
8 + 0.04  80 = 4 lbs
 Shipping cost per replenishment order $0.66 + $0.26  4 = $1.7
》 Annual transportation cost for 24 territories = $1.7  13  24 = $530.4
》 Total cost = $54,366 + $530.4 = $54,896.4
29
Inventory Aggregation at HighMed
30
Current Scenario
Option A
Option B
Number of stocking locations
24
24
1
Reorder interval
4 weeks
1 week
1 week
HighVal cycle inventory
96 units
24 units
24 units
HighVal safety inventory
736.8 units
466 units
95.2 units
HighVal inventory
832.8 units
490 units
119.2 units
LowVal cycle inventory
960 units
240 units
240 units
LowVal safety inventory
736.8 units
466 units
95.2 units
LowVal inventory
1,696.8 units
706 units
335.2 units
Annual inventory cost
$54,366
$29,795
$8,474
Shipment type
Replenishment
Replenishment
Customer order
Shipment size
8 HighVal + 80
LowVal
2 HighVal + 20
LowVal
1 HighVal + 10
LowVal
Shipment weight
4 lbs
1 lb.
0.5 lb.
Annual transportation cost
$530
$1,148
$14,464
Total annual cost
$54,896
$30,943
$22,938
Inventory Aggregation at HighMed
 If shipment size to customer is 0.5H + 5L, total cost of option 2
increases to $36,729.
》 Average weight of each customer order = 0.10.5 + 0.045 = 0.25 lbs
》 Shipping cost per customer order = $5.53 + 0.530.25 = $5.66
》 Number of customer orders per territory per week = 4
》 Total customer order per year = 42452 = 4,992
》 Annual transportation cost = 4,992  5.66 = $28,255
》 Total annual cost = $8,474 + $28,255 = $36,729
31
Key Points
 Inventory aggregation decision must account for inventory and
transportation costs. Inventory aggregation decreases supply
chain costs if the product has a high value to weight ratio, high
demand uncertainty, customer orders are large. If a product has
a low value to weight, low demand uncertainty, or customer
orders are small, inventory aggregation may increase SC costs.
32
Trade-off between Transportation
Cost and Customer Responsiveness
 High responsivenesshigh trans cost
 Example: Alloy steel
》Ship using an LTL with charge 100 + 0.01x,
charge $10 per customer delivery
》Currently ship on the day that order received,
allow two days in transit, the response time is 2
days
33
Daily demand at Alloy Steel
Day 1
34
Day 2
Day 5
Day 6
Day 7
Week
1
19,970 17,470 11,316 26,192 20,263
8,381
25,377
Week
2
39,171
2,158
Day 3
Day 4
20,633 23,370 24,100 19,603 18,442
Quantity Shipped and
Transportation Cost
Two day
Response
Three day
Response
Four day
Response
Day
Demand
Q shipped
Cost
Q shipped
Cost
Q shipped
Cost
1
19970
19970
$299.7
0
-
0
-
2
17470
17470
$274.7
37440
$474.40
0
-
3
11316
11316
$213.16
0
-
48756
$587.56
4
26192
26192
$361.92
37508
$475.08
0
-
5
20263
20263
$302.63
0
-
0
-
6
8381
8381
$183.81
28644
$386.44
54836
$648.36
7
25377
25377
$353.77
0
-
0
-
8
39171
39171
$491.71
64548
$754.48
0
-
9
2158
2158
$121.58
0
-
66706
$767.06
10
20633
20633
$306.33
22791
$327.91
0
-
11
23370
23370
$333.70
0
-
0
-
12
24100
24100
$341.00
47470
$574.70
68103
$781.03
13
19603
19603
$296.03
0
-
0
-
14
18442
18442
$284.42
38045
$480.45
38045
$480.45
$4164.46
35
$3464.46
$3264.46
Tailored Transportation
Factors affecting tailoring
》Customer distance and density
》Customer size
》Product demand and value
36
Tailored Transportation--by Customer Density and Distance
37
Short distance
Medium
distance
Long distance
High density
Private fleet with
milk runs
Crossdock with
milk runs
Crossdock with
milk runs (public
fleet)
Medium
density
Third-party milk
run
LTL carrier
LTL or package
carrier
Low density
Third-party milk
run or LTL carrier
LTL or package
carrier
Package carrier
Tailored Transportation--by Size of Customer
 Large customer: TL carrier
 Smaller customer: LTL carrier or milk run
》Depends on distance and number of deliveries
 Visit larger customers with higher frequency than
small customers
38
Tailored Transportation--by Product Demand and Value
39
Product Type High Value
Low Value
High
Demand
Disaggregate cycle
inventory and aggregate
safety inventory.
Inexpensive mode for
replenishing cycle
inventory and fast mode
for safety stock
Disaggregate all
inventories and use
inexpensive mode for
replenishment inventory
Low
Demand
Aggregate all inventories.
If needed, use mode of
transportation for filling
customer orders
Aggregate only safety
stock. Use inexpensive
mode of transportation for
replenishment cycle
inventory
Routing and Scheduling in
Transportation
Two approaches:
》Saving Matrix Method
》Generalized Assignment Method
40
Procedures of Saving Matrix Method
 Step 1: identify the distance matrix
Dist ( A , B )  ( x A  x B ) 2  ( y A  y B ) 2
 Step 2: identify the saving matrix
》 S (x, y) = Dist (DC, x) + Dist (DC, y) – Dist (x, y)
 Step 3: assign customers to vehicles or routes
》 Initially, each customer assigned to a separate route
》 Two routes combined into a feasible route if the total deliveries across both
routes don’t exceed the vehicle’s capacity
》 Combine routes with the highest savings into a new feasible route.
》 The procedure continues until no more combinations are feasible
 Step 4: sequence customers within routes
》 Sequence customer visits to minimize the distance each vehicle travels
42
Sequence Customers within Routes
 Route Sequencing Procedure
》 Farthest insert: given a trip for each remaining customer, find the min
increase in length for this customer to be inserted from all the potential
points in the trips. Choose to insert the customer with the largest min
increase to form a new trip. Continue until all remaining customers are
included.
》 Nearest insert: given a trip for each remaining customer, find the min
increase in length for this customer to be inserted from all the potential
points in the trips. Choose to insert the customer with the smallest min
increase to form a new trip. Continue until all remaining customers are
included.
》 Nearest neighbor: start at DC, add the closest customer to extend the
trip.
》 Sweep: any point selected and a line swept either clockwise or
counterclockwise from the point. Sequence the customers in the order
they are encountered during the sweep.
45
Routes Improvement Procedures
 2-OPT:
》 Start with a trip and break it at two places which results in
two separated paths. Reconnect in two possible ways.
》 The length of each reconnection is evaluated and smaller of
the two is used to define a new trip. Continue until no further
improvement results.
 3-OPT:
》 Break a trip at three points which results in three paths and
reconnect to form up to 8 possible ways.
》 The length of each reconnection is evaluated and shortest
trip is retained. Continue until no further improvement results.
46
Generalized Assignment Method
 Step 1: assign seed points for each route
 Step 2: evaluate insertion cost for each route
 Step 3: assign customers to routes
 Step 4: sequence customers within routes
47
Assignment Problem Formulation




cij = insertion cost of customer i and seed point k
ai = order size from customer i
bk = capacity of vehicle k
yik = 1 if customer i is assigned to vehicle k
K
n
Min cik yik
k 1 i 1
K
y
s.t.
k 1
ik
n
a y
i 1
48
i
ik
 1, i  1,  , n
 bk , k  1,  , K
Making Transportation
Decisions in Supply Chain
 Align transportation strategy with competitive strategy
 Appropriate combination of in-house and outsourced
transportation
 Design a transportation network that can handle ecommerce
 Use technology to improve performance
 Design flexibility into transportation network
49
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頁碼
50
作品
授權條件
作者/來源
3
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務合約
及著作權法第46、52、65條合理使用。
3
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務合約
及著作權法第46、52、65條合理使用。
3
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務合約
及著作權法第46、52、65條合理使用。
4
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務合約
及著作權法第46、52、65條合理使用。
4
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務合約
及著作權法第46、52、65條合理使用。
4
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務合約
及著作權法第46、52、65條合理使用。
5
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務合約
及著作權法第46、52、65條合理使用。
版權聲明
頁碼
51
作品
授權條件
作者/來源
5
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務合約
及著作權法第46、52、65條合理使用。
6-7
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務合約
及著作權法第46、52、65條合理使用。
7
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務合約
及著作權法第46、52、65條合理使用。
7
本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft服務合約
及著作權法第46、52、65條合理使用。