Transportation in a Supply Chain

Transcription

1 Transportation in a Supply Chain 1

2 The role of transportation in a supply chain 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 hands Products are rarely produced and consumed in the same location

3 The role of transportation in a supply chain Transportation is a significant component of the cost most supply chains incur Transportation is a larger fraction of the delivered cost of products sold on-line: small packages versus full trucks

4 The role of transportation in a supply chain Any supply chain s success is closely linked to the appropriate use of transportation. Examples: Wal-Mart crossdocking 7-Eleven responsive transportation system Amazon.com relies on parcel carriers and the postal system

5

6 Cross-docking

7 Crossdock Shapes

8 7-Eleven: A Convenience Store With more than 17,000 stores in more than 20 countries, 7-Eleven is one of the largest convenience store chains in the world. It has more than 7000 stores in Japan and at most 5000 in the United States. Its growth in Japan has been phenomenal, given that the first 7-Eleven store opened in Japan in SEJ is one of the most profitable companies listed on the Tokyo stock exchange.

9 7-Eleven: A Convenience Store It has seen tremendous growth in sales and profitability while simultaneously decreasing its inventory relative to sales. SEJ s success is attributed primarily to its supply chain design and management ability. A key reason for its success is 7-Eleven s efforts to obtain a strategic fit between its competitive strategy and its location, transportation, inventory, and information strategy in the supply chain.

10 7-Eleven: A Convenience Store 7-Eleven aims to provide customers with what they want, when they want it. From a strategic perspective, one of the company s key objectives is to micro-match supply and demand by location, season, and time of day. 7-Eleven designs and manages location, inventory, transportation, and information to support this objective. 7-Eleven follows a dominant location strategy and opens new stores in target areas to establish or enhance a strong presence.

11 7-Eleven: A Convenience Store In Japan, for example, 7-Eleven stores are present in less than half of the prefectures (roughly equivalent to a county in the United States). However, 7-Eleven has a strong presence, with several stores, in each prefecture where they are located. The dominant location strategy allows the company the benefits of consolidation in both warehousing and transportation. In Japan, fresh food constitutes a significant percentage of 7-Eleven s sales.

12 7-Eleven: A Convenience Store Most of the fresh food is cooked off site and delivered to the stores. In Japan, a store placing an order by 10 A.M. has it delivered by dinnertime the same day. There are at least three fresh food deliveries a day per store so that the stock can change for breakfast, lunch, and dinner. All stores are electronically connected to the head office, distribution centers (DCs), and suppliers. All store orders are passed on to the suppliers who package store-specific orders and deliver them to the DC.

13 7-Eleven: A Convenience Store At the DC, all orders of like products (categorized by temperature at which they are maintained) from different suppliers are combined and delivered to the stores. Each delivery truck delivers to more than one store and tries to visit stores during the offpeak hours. SEJ has made an effort to have no direct store delivery from vendors to the stores. Rather, all deliveries pass through and are aggregated at a 7-Eleven DC from which they are shipped to the stores. Note that the location strategy helps facilitate this supply strategy

14 7-Eleven: A Convenience Store It has seen tremendous growth in sales and profitability while simultaneously decreasing its inventory relative to sales. 7-Eleven Japan s success is attributed primarily to its supply chain design and management ability. A key reason for its success is 7-Eleven s efforts to obtain a strategic fit between its competitive strategy and its location, transportation, inventory, and information strategy in the supply chain.

15 Factors affecting transportation decisions There are two key players in any transportation that takes place within a supply chain: The shipper is the party that requires the movement of product between two points in the supply chain The carrier is the party that transports the product

16 Factors affecting transportation decisions A carrier makes investment decisions regarding the transportation infrastructure, and then operating decisions to try to maximize the return from these assets A shipper, in contrast, uses transportation to minimize the total cost of the supply chain, while providing an appropriate level of responsiveness to the customer

17 Factors affecting carrier decisions 1. Vehicle-related cost 2. Fixed operating cost 3. Trip-related cost 4. Quantity related cost 5. Overhead cost

18 Factors affecting shippers decisions 1. Transportation cost 2. Inventory cost 3. Facility cost 4. Processing cost 5. Service level cost

19 Transport cost characteristics A transportation service incurs a number of costs, such as labor, fuel, maintenance, terminal, roadway, administrative and others. These can be arbitrarily divided in costs that vary with service or volume (variable costs) and those that do not (fixed costs)

20 Transport cost characteristics Fixed costs are those for roadway acquisition and maintenance, terminal facilities, transport equipment, and carrier administration. Variable costs usually include line-haul costs such as fuel and labor, equipment maintenance, handling, and pickup and delivery.

21 Transport cost characteristics Definition of Line-haul Movement of cargo between two major cities or ports, specially those more than about 1,500 kilometers or 1,000 miles apart. Line-haul transportation rates are based on two important dimensions: distance and shipper volume.

22 Modes of transport and their performance characteristics 1. Air 2. Parcel carriers 3. Truck 4. Rail 5. Water 6. Pipeline 7. Intermodal 22

23 1. Air Revenue management for passengers Fast and fairly expensive mode of transportation Small, high-value items or time-sensitive emergency shipments that have to travel a long distance are best suited for air transport 23

24 1. Air Location and number of hubs Assigning planes to routes Setting up maintenance schedules for planes Scheduling crews Managing prices and availability at different prices 24

25 2. Parcel Carriers Package carriers use air, truck, and rail to transport time-critical smaller packages Small packages weigh less than 150 pounds Expensive Fast and reliable delivery Tracking order status 25

26 2. Parcel Carriers Consolidation of shipments is a key factor in increasing utilization and decreasing costs 26

27 3. Truck It is the dominant mode of freight transportation in the United States and accounts for over 75% of the nation s freight bill. In Mexico: 27

28

29

30 Truckload (TL) Low fixed costs Idle time and travel distance between successive loads adds to cost in the TL industry Economies of scale with regard to the distance traveled

31 Explain how the cost per trip for 150 kilometers is obtained.

32

33 33

34 Less-than-truckload (LTL) LTL operations are priced to encourage shipments in small lots, usually less than half truckload. TL tends to be cheaper for larger shipments LTL carriers use consolidation centers. Improve truck use, but increase delivery time Key issues: assigning loads to trucks, scheduling and routing of pickup and delivery

35 35

36 4. Rail Rail carriers incur a high fixed cost in terms of rails, locomotives, cars and yards There is also a significant trip related labor and fuel cost that is independent of the number of cars but does vary with the distance traveled and the time taken Idle time is very expensive and occurs when 36

37 4. Rail trains exchange cars for different destinations or track congestion Rail is priced to encourage large shipments over a long distance Keep locomotives and crew well utilized Trains are not scheduled, they are built 37

38 5. Water Water transport is ideally suited for carrying very large loads at low cost It is the slowest of all the modes, and significant delays occur at ports and terminals Cars, grains, apparel, and other products are shipped to and from the US by sea Management of containers is an issue 38

39

40

41 What is a TEU?

42

43 43

44 6. Pipeline Primarily used for transport of crude petroleum, refined petroleum products, and natural gas A significant initial fixed cost is incurred in setting up the pipeline and related infrastructure Pipeline operations are typically optimized at about 80 to 90 % of pipeline capacity 44

45 6. Pipeline Stable and large flows Sending gasoline to a gas station does not justify investment in a pipeline 45

46 7. Intermodal Truck on Flat Car (TOFC). Also known as piggyback Container on Flat Car (COFC). Containerized freight often uses truck/water/rail combinations Key issues: exchange of information 46

47

48 Why is it important to have an effective More competition transportation system? Example: perishable products Economies of scale in production Example: auto-parts manufactured in Taiwan, Indonesia, Korea and Mexico to be distribuited in the United States Reduced price Example: petroleum, oil 48

49 What is a transportation service? A transportation service is a set of performance characteristics bought at a given price 49

50 How to choose a transportation service? It can be chosen from any of the seven modes of transportation There are usually few options for transportation given a particular situation 50

51 Basic characteritics common to all transport services Price In-transit time and variability Loss and damage 51

52 Loss and damage Who is responsible when the product gets damaged? What is the loss for the shipper when the product is damaged? How do the carriers try to prevent damage? Who ends up paying for it? 52

53 Design options for a transportation network Direct shipment network Direct shipping with milk runs (what is a milk run?) All shipments via central distribution center Shipping via distribution center using milk runs Tailored network

54

55

56

57

58

59

60 Exercice Transportation Exercise in besana. Problems 3, 4, 16 and 20 in pages of Ballou s book (4th edition in English)

61

62 Next: Routing and scheduling in Transportation Savings Matrix Method Sweep algorithm and sequence customers within routes

63 Problem 21 (page 183) A traffic manager has two options in scheduling a truck to make multiple pickups and deliveries. The pickup-delivery problem is shown pictorially below. The traffic manager can ship the accumulated volumes as single shipments between the designated points or can use the stop-off privilege at $25 per stop for any or all portions of the trip. 63

64 Problem (cont.) If the traffic manager wishes to minimize shipping costs, which alternative should be chosen? Assume that the final destination point incurs the stop-off charge. (Note. cwt means hundredweight.)

65

66 Bibliography Ballou, R.H. Business Logistics Management. Fourth Edition. Englewood Cliffs, NJ: Prentice Hall, Chopra, S. and P. Meindl. Supply Chain Management. NJ: Upper Saddle River, Ruiz-Olmedo, S.A. Tratado práctico de los transportes en México. Mexico City: Editorial 20+1, 2007.