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Supply Chain Management
Transportation
Management
By
ZUBIN POONAWALLA

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Logistics Overview
Why has logistics become increasingly
important?
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 Cost reduction pressures are severe
 Logistics has a high impact on customer service
 A strong need exists for demand & supply
planning consistency
 A focus on core competencies has placed
logistics in the outsourcing “spotlight”
 Development of IT technology supports
integrated logistics management

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Value-added Transportation Concept
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Supplier Manufacturer Customer
Inbound Outbound
Product/Info Flows
Info/Return Goods Flows

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Role of Transportation
Time & Place Utility:
Movement across space or distance.
 Place utility - Where it is needed
 Time utility - created or added by the
warehousing & storage of product until it is
needed.
 Also a factor in time utility; it determines how fast & how consistently
a product move from one point to another.
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Transportation Role in Value Attainment
Process
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• Critical element of structure,
capacity, & movement decisions
• Both between supply chain
members & intra-organizational

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Transportation-Related Service
Elements
Speed: time-in-transit
Availability: accessible to customers when they
want it
Dependability: pick-up & delivery time variability
Flexibility: adjustment to shipper’s needs
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 Role of Transportation in Logistics & Supply Chain Management
 Transportation Functions, Principles, Participants
 Transportation Regulation
 Transportation Industry Structure
 Transportation Services
 Industry Deregulation
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Economies of Scale
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Transportation
Cost/ Book
Number of Books in Shipment
$.10/book
$100/book
1 1000
The more items (weight)
is transported,
the less the
transportation costs per
item (unit of weight)

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Economies of
Distance
Tapering Principle
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Transportation
Cost/ Mile
Shipment Distance
1 mile 1000 miles
$50/mile
$.05/mile
$.10/mile
500 miles
The larger the distance,
the less the
transportation costs per
unit of distance (e.g.,
per mile)
Transportation rates are distance
related, not distance proportional

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Transportation Participants

+ Types of Transportation Regulation
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Economic
• Investments in transportation infrastructure
(e.g., highways, airports, ports)
• Control of routes, pricing, schedules

+ Types of Transportation Regulation
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Economic
• Investments in transportation infrastructure
(e.g., highways, airports, ports)
• Control of routes, pricing, schedules
Social/Safety
• Protect the public, the environment
• Make sure equipment operates safely, cleanly
• Safe transportation of hazardous materials (HAZMAT)
• Regulating hours worked

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Pipeline Water
Rail
Air
Highway
Five Basic Transportation Modes

+ Basic Modes of Transportation
Fixed Variable Traffic
costs costs composition
Rail high low bulk food, mining, oil
heavy mfg
Motor low medium consumer goods,
medium/light mfg
Water medium low bulk food, mining,
chemicals
Air low high high-value goods,
rush shipments
Pipe high low petroleum, chemicals,
mineral slurry
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Containerization
Significant growth during Vietnam War
 Improves efficiency, protects material, reduces handling &
pilferage
 Sizes: 20 ft (TEU) or 40 ft (FEU)
 Shorter to permit multiple units on railcars
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TEU: 20’ equivalent unit FEU: 40’ Equivalent Unit

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 Transportation Functions, Principles, Participants
 Transportation Regulation Transportation Industry Structure
 Transportation Services
 Non Operating Intermediaries
 Traditional Transportation Carriers
 Package Services
 Intermodal Transportation
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Third Party Providers
 The offering of nearly any form of transportation to a shipper or
receiver as part of a total package of logistics services
 Shipper or user avoids capital outlays & investment
 Focus on core competency--let experts do logistics
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Freight Forwarders
 Formerly common carriers
– non-asset owning
 Earn difference between what they charge (LTL, LCL) & what
they pay (CL, TL)
 Issue bill of lading
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Freight Brokers
 Intermediaries who bring shippers & carriers
together for a fee
 Find customers for carriers or carriers for
shippers
 Reduce burden for carriers & shippers
 Find best means/rate for shippers
 Help maximize capacity for carrier
 Information Systems expanding opportunities
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Owner-Operator
 Own or lease a truck and trailer & make services available to
for-hire carriers
 Contract out their services to other carriers
 Provide overflow capacity & flexibility
 Reduce financial risk to carriers
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Express & Courier
 TCI, UPS, FEDEX, DHL, DTDC, ARAMEX, DelEx
 Fast, D-2-D service
 Operate large network of terminals, pick up & delivery vehicles, & line
haul
 Typically under 200 lbs
 Compete with Postal Service
 Future good due to expansion & innovative practices
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+ What is Intermodal Transportation?
 The use of two or modes of transportation in
moving a shipment from origin to destination
 Mostly associated with “piggyback” or container
shipments
 Combines advantages ( disadvantages) of each
mode used
 Reduces risk of theft & loss
 Shortens customer order cycle time & effectively
reduces costs
 Promotes “seamless” product movement:
Eliminates unnecessary handling
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Intermodal
Enables shippers to benefit from advantages
of multiple modes of transportation
minimizes disadvantages of individual modes
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Rail
Air Water
Truck

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Transshipment
Transshipment is the shipment of goods or
containers to an intermediate destination,
then to yet another destination.
One possible reason for transshipment is to
change the means of transport during the
journey (e.g., Machinery from India is often
imported through transshipment via Dubai)
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Changing Transportation
Environment
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Changing Transportation Environment
Deregulation
Time-based competition
Expanding geographic coverage
Information technology
Social & environmental concerns
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Selected Results of the Changing
Environment - Economic Impact
Increased competition in individual markets - both
within modes & between modes
More efficient carrier operations - less interlining,
more direct routing, efficient pricing
Transportation costs declined in real terms & as %
of GDP
Transportation service quality improved
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Selected Results of the Changing
Environment - Industry Impact
 Consolidation in Rail, Air & LTL trucking
 Proliferation of TL carriers
 Strong growth in regional trucking - networks
 TL growing faster than LTL
 Air freight growth
 Intermodal growth: rail-truck, air-truck, rail-ship
 Growth of “one-stop shopping” - 3PL
 Private fleet conversion
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+Selected Results of the Changing
Environment - Market Impact
Demand for fast, dependable, responsive service
at lower cost
Demand for a broader range of services to
integrate supply chain functions
Core carrier concept - interdependence between
shipper-carrier
Customized price/service packages/contracts
Relational view of transportation as a “value-
added” service
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Transportation Management
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Transportation Management
Network Freight Flows: Macro-
Decisions
Micro-Decisions
Information Systems Support
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+Transportation Decision Making in an Integrated Supply Chain 33
Supplier Manufacturer Customer
Inbound Outbound
DecisionFlow
Understand total network flows
Understand individual lane flows
Understand current
carrier usage patterns
Make mode/carrier
decisions
Routing/Scheduling,
Load Planning, etc.
Strategic
Operational
Macro
Micro
DecisionScope

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Network Freight Flows: A Fully
Integrated Approach
Managing Inbound-Outbound flows in an
optimal manner requires firm to have a good
handle on the entire logistics process
Traditionally view transportation in a vacuum--
need to look at it in the context of the total
logistics system
Greatest improvement opportunities lie in
integrating transportation with other logistics
functional areas such as purchasing, inventory
control, forecasting & production scheduling
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Approach to Analysis
1. Analyze lane densities/frequencies: what opportunities
emerge for:
 inbound/outbound consolidation
 vehicle consolidation
 temporal consolidation
 network consolidation - cross dock potential (hub & spoke
systems)
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Approach to Analysis (cont.)
2. Once opportunities for consolidation are visible, make
mode/carrier selection based on service/cost mix
 Given similar service, are rates better on 1
mode/carrier than another?
 Does any mode/carrier have relative strengths in a
particular lane?
 Any backhaul opportunities?
3. If so, look to consolidate loads on mode/carrier with best
cost structure - assign private fleet to most costly routes
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In the freight industry, freight carried by a trucker to return to his home with a
loaded truck, rather than an empty one (as opposed to headhaul, the outgoing
freight).

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Consolidation Opportunities
• Inbound-Outbound flow consolidation: look for opportunities to combine
inbound/ outbound freight
• Vehicle consolidation: use one vehicle/multi stops for LTL volumes v/s
one shipment to each
• Temporal consolidation: hold orders until large volume shipment
possible
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+ Suggested Analysis
Network flows
Lane densities, frequencies, consistency
Freight distribution by mode, carrier
Consolidation opportunities
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Summary
Identify:
 Opportunities to achieve balanced flows - obtain lower
rates for providing loads both ways
 Significant volumes for rate negotiation
 Vehicle/temporal consolidation opportunities
 Advantages of reducing number of carriers
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Key Principles of Transportation
Management
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I. Improving Efficiency
 Rule of efficiency: Straight line, minimize stopping--avoid
damage and cost (delay)
 Minimize handling: Avoid “handshakes” & attempt to make
process “seamless”
 Full capacity: Reduce cost /unit
 Break bulk & consolidation on long haul
 Avoid empty backhauls
 Effective Scheduling: “Optimize” labor & equipment (5%-
10%)
 Transportation rates are distance related, not distance
proportional
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II. Efficient Use of Technology &
Equipment
 High utilization of expensive assets
 Larger the vehicle, the lower the cost
per unit
 Speed does not equal economical
operations
 Minimize vehicle gross weight
 Standardized vehicles & equipment
 Balance specialization with
adaptability
 Examine trade-offs between IT &
traditional logistics functions
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III. Coordinate Operations
 Coordinate operations with requirements to ensure trade-offs &
appropriate level of service
 Cost accountability as part of performance measurement
 Reliability is sometimes better than speed
 Look for opportunities to innovate, but recognize proven principles
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Customer Service Measures
 Order cycle lead time
 Stock availability/fill rates/stock-outs/back orders/partial
shipments
 Record integrity
 Frequency of delivery
 Delivery reliability
 Order tracing capability
 Volume flexibility
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Customer Service Measures
 Invoice accuracy
 Order status information
 Technical support responsiveness
 Unscheduled service responsiveness
 Speed of product feature changes
 Product & service quality
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Total Cost Concept
 The total cost concept recognizes that an optimum cost in
one area or function may not lead to an optimum total
system cost
 Total cost analysis requires the management of supply
chain trade-offs
 Logistical activity areas that drive total logistics costs:
 Customer service level costs
 Inventory carrying costs
 Lot quantity costs
 Order processing & information costs
 Warehousing costs
 Transportation costs
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Summary-1
The transportation mode available to the
logistics manager consists of the basic
mode, intermodal & indirect and special
carrier
The carrier selection is two fold, selection of
the mode & selection of the specific carrier
Factors determining carrier selection include
transportation rate, transit time, reliability,
capability, accessibility & security
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Summary-2
 Railroads offer low cost for long hauls of large volumes,
but they have accessibility limitation & long transit time.
 Motor carriers are very accessible & move product in
small quantities with low consistent transit times.
However their costs are higher than the other modes
except air
 Water transportation is relatively low cost & is desirable
for moving large volume over long distances. The prime
disadvantage is long transit time & service disruption
caused by weather
 Air carriers have very low transit times but very high
rates.
 Pipelines offer very low rates for the movement of liquids
but are not a viable option for manufactured goods.
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Summary-3
 Intermodal transportation is the combination of two or
more basic modes to provide through movement. The
dominant form is rail-truck or piggyback
 Containerization is the shipping of freight in a box or
container that is subsequently transferred from one
carrier to another. It reduces freight handling & damage
while improving transit time.
 The transportation system includes a number of indirect &
special carriers such as small package carriers,
consolidators, freight forwarder, shipper associations,
brokers & intermodal marketing companies.
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Thank-You