Managing Transportation in a Supply Chain Chapter 13

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Managing Transportation in a Supply
ChainChapter 13
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Parties Involved in Transportation

• Shippers, consolidator of
• shipments
• E.g. Postal service
• Administrative assistants
• Care about
• Transportation cost -paid to carriers
• Inventory cost
• Consolidating facility cost
• Processing cost
• Service levels, customer satisfaction

• Carriers, owners of the vehicles
• E.g. Passengers by Southwest airlines
• Cargo by Cargolux airlines, only freight
• Passengers and cargo by railways
• Care about
• Vehicle related costs
• Fixed operating costs, hubs
• Trip related costs
• Quantity related cost
• Overhead cost

Is FedEx a Carrier or a Shipper?
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14.3 Transportation Modes

• Trucks
• TL Truckload. High utilization of trucks.
• LTL Less than truckload. Fast delivery.
• Suffering from high transportation costs, Lennox
  wants to use more TL in the future.
• Rail
• Carload
• Intermodal
• Air
• Package Carriers
• Water
• Pipeline

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Truckload (TL)

• Average revenue per ton mile in 1996 9.13 cents
• Average haul 274 miles
• Average Capacity 17.5 to 21 tons 42,000 -
  50,000 lb.
• Low fixed and variable costs
• Major Issues
• Coordination of local and interstate hauls
• Utilization
• Backhauls
• Return trips are empty
• What to send back to China from the U.S.?
• Consistent service among different companies
• Dynamic pricing, is the industry ready?

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Less Than Truckload (LTL)

• Average revenue per ton-mile in 1996 25.08
  cents
• Average haul 646 miles compare to 274 miles of
  TL
• Higher fixed costs (terminals) and low variable
  costs
• Major Issues
• Location of consolidation facilities
• Utilization
• Vehicle routing
• Customer service

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Rail

• Average revenue / ton-mile in 1996 2.5 cents
• Average haul 720 miles
• Average load 80 tons
• Key Issues
• Scheduling to minimize delays / improve service
• Off track delays (at pick up and delivery end)
• Yard operations
• To build a train on the next page
• Variability of delivery times

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Yard operations to build a train
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Disassembling and assembling a train
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Cities
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Air

• Key Issues for Passenger Airlines, 250 B /year
• Cost cutting, costs in 2004 are about 0.1 per
  customer per mile
• Location/Number of hubs
• Depeaking Moving operations away from rush hours
• Location of fleet bases / crew bases
• Schedule optimization, Fleet assignment, Crew
  scheduling
• Recent idea Always keep the same crew with the
  same aircraft
• Yield management
• Cargo Airlines, 40 B /year
• Shape, weight, volume of the cargo
• Cargo shippers, consolidators
• Safety Risk sharing between shipper and carrier.
  New legislation expected.
• Service supply chains deal heavily with airline
  issues

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How far does 1 Ton of Cargo go with 1 Gallon of
Fuel?
Source Brian Wickett Fall 2007 SCM student
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An Example of Multimodal Cargo Transportation
Source A Threat in Every Port. By L. M. Wein.
NYT OpEd article on June 14,
2009.
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14.4 Transportation System Design

• AC Delco Very high value, low volume parts
• Three plants Milwaukee(Wisc), Kokomo(Ind),
  Matamoros(Mex)
• 21 assembly plants (customers for above plants)
• Products ACs, batteries, hoses, brakes, belts,
  etc.
• What are the distribution options?

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All Shipments Direct
All Shipments Via Kokomo (with or without cross
dock)

Milwaukee
Milwaukee
Kokomo
Kokomo
Matamoros
Matamoros
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Milk Runs
Milk run is a loop containing either a single
supplier or a single retailer.

Milk Runs From Plants
Milk Runs From Kokomo

Milwaukee
Milwaukee
Kokomo
Kokomo
Matamoros
Matamoros
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Shipments via a Central Warehouse
Shipments via a Central Warehouse Using Milk Runs

Milwaukee
Milwaukee
Kokomo
Kokomo
Matamoros
Matamoros
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Cross Docking

• This approach is useful if deliveries are time
  sensitive and there are several small dropoffs in
  proximity, not all of which can be delivered on a
  single truck.
• Items are shifted from one truck to another
  without going in to storage. Timing of truck
  arrivals/departures is very crucial.

Milwaukee
Kokomo
Matamoros
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Summary

• Key modes of transport and major issues
• Transportation options