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’s handle. In this exciting new broad look at the business of transportation, including Supply Chain Management, Logistics, & procurement. Freight transportation costs in the United States amount to about 6% of the GDP.
Many manufacturers & retailers have found that they can use state of the art supply chain management to reduce inventory & warehousing costs while speeding up delivery to the end customer.
Any supply Chain’s success is closely linked to the appropriate use of transportation. Wal- Mart has effectively used a responsive transportation system to lower its overall costs. At DCs, Wal- Mart uses cross-docking, a process in which product is exchanged between trucks so that each truck going to a retail store has products form different suppliers.
Meanwhile, the booming growth in shipments to & from China is creating both bottlenecks opportunities. Many major corporations have invested in significant buying offices in China, India, & elsewhere.
There are two keys players in any transportation that takes place within a supply chain. The shipper is that 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. For eg, when Dell uses UPS to the ship its computers from the factory to the customer, Dell is the shipper & UPS is the carrier.
There are numbers of factors affecting carrier decisions:
Ø The vehicle- related is incurred whether the vehicle is operating or not & is considered fixed for short-term operational decisions by the carrier.
Ø Fixed operating cost is generally proportional to the size of operating facilities. This includes any cost associated with terminals, airport gates & labor that are incurred whether vehicles are operating or not.
Ø Trip-related cost includes the price of labor & fuel incurred for each trip independent of the quantity transported.
Ø Quantity-related cost are loading / unloading costs & a portion of the fuel cost that varies with the quantity being transported.
Ø Overhead cost includes the cost of planning & scheduling a transportation network as well as any investment in information
A carrier’s decisions are also affected by the responsiveness it seeks to provide its target segment & the prices that the market will bear. The various modes of transportation include water, rail, intermodal, truck, air, and pipeline & package carriers. Water is typically the least expensive mode but is also the slowest whereas air & package carriers the most expensive & the fastest. Rail & water are best suited for low-value. Large shipments that do not need to be moved in a hurry. Air & package carriers are best suited for small, high-value, emergency shipments. Intermodal TL carriers are faster than rail & water but somewhat amore expensive. LTL carriers are best suited for small shipments that are too large for package carriers but much less than a TL.
Making Transportation Decisions in practice:
Managers should ensure that a firm’s transportation strategy supports its competitive strategy. Firms should evaluate the transportation function based on a combination of transportation costs, other costs such as inventory affected by transportation decisions, & the level of responsiveness achieved with customers.
Managers should consider an appropriate combination of company-owned & outsourced transportation to meet their needs.
Wal- Mart has used responsiveness transportation to reduce inventories in its supply chain. Given the importance of transportation to the success of their strategy, they own their transportation Fleet & manage it themselves. Transportation systems for the new economy need to be very responsive but most also be able to exploit every opportunity for aggregation, some cases even with competitors, to help decrease the transportation cost of small shipments. Managers must use the information technology available to help decrease cost & improve responsiveness in their transportation networks. Satellite based communication systems allow carriers to communicate with each vehicle in their fleet.
The supply chain goal is to minimize the total cost while providing the desired level of responsiveness to customers.