TRANSPORTATION MANAGEMENT

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TRANSPORTATION MANAGEMENT
DECISION MAKING MODE AND CARRIER SELECTION
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TRANSPORTATION MANAGEMENT

• Transportation management describe the
  functional area dedicated to shipper network
  strategy.
• Traffic management
• used for the tasks of obtaining and controlling
  transportation services for shippers or
  consignees or both.
• applied to a position or an entire department in
  almost any extractive,raw material,manufacturing,
  assembling, or distribution firm.
• Transportation management replaced traffic
  management
• Applied to purchase and control of transportation
  services in some organizations.
• The transportation manager develops strategies to
  address the procurement of transportation in
  general, as well as small,bulk and inbound
  shipments.

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• Transportation is often one of the largest cost
  elements and decisions in this are can be
  favorably or negatively impact the total
  distribution performance.
• Example, slow but low-cost transportation can
  have an adverse impact on
• customer service
• inventory levels.
• minimize transportation cost,
• inventory levels might need to be much higher to
  accomodate longer transit times.
• These higher stocking levels, with the resultant
  increase in inventory-carrying costs, might be
  more than any saving in freight charges.

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Transportation Management

• Mode of transport
• Method of selection
• Transportation costs
• Fleet sizing and configuration
• Routing and scheduling
• Futuristic direction in transportation

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Selection of transport
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Transportation-Related Service Elements

• Speed time-in-transit
• Availability accessible to customers when they
  want it
• Dependability pick-up and delivery time
  variability
• Flexibility adjustment to shippers needs

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Selection of Mode of transport.
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Method of selection

• The selection procedure for the transport mode
  could vary from the simple decision either to
  identify one feasible method of distribution.
• Judgment Identification of the important factors
  affecting the transport problem by the transport
  manager, and the transport mode from a list of
  alternatives available, so that the important
  features of the transport requirements are met.
• Cost- trade-off It is where the impact of
  transport is calculated in relation to immediate
  terminal objectives and activities, and the total
  cost of distribution system is optimized.
• Distribution models This identifies and explains
  the interrelationships between the components of
  the distribution system at various levels of
  daily, weekly or monthly demands.

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Transportation costs

• Transport costs varyless than 1 (for
  machinery) to over 30 (for food) of the
  recommended selling price of products, depending
  upon the nature of the product range and its
  market.
• The average transport costs is between 5 to 6 of
  the recommended retail price of a product.
• With inflation, transport costs also rise because
  the major components are the workforce, fuel,
  spare parts and overall operating costs.

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Fleet sizing and configuration

• Fleet size can be regulated and minimized by
• Utilizing standard size pallets and transport
  containers
• Vigorously monitoring fleet utilization levels
  periodically
• Maintaining total fleet visibility, including
  loading times, unloading, transit times and
  maintenance times.
• Choosing low-use periods to conduct routine
  maintenance
• Monitoring and charging for demurrages for fleet
  detention by suppliers, customers, port
  authorities and carriers.
• Utilizing alternative coverage means during super
  peak periods to avoid carrying the burden of an
  oversized fleet.

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Routing and Scheduling

• Goals
• find best path a vehicle should follow through
  networks of roads, rail lines, shipping lanes,
  and air routes
• determine best pattern for stops, multi-vehicle
  use, driver layovers, time of day restrictions
• Benefits
• greater vehicle utilization
• improved and more responsive customer service
• reduced transportation expenses
• reduced capital investment in equipment

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Principles for Good Routing/Scheduling

• load trucks with deliveries for customers closest
  to each other
• stops on individual days arranged together
• start routes with farthest stops first
• circular routes - dont cross paths
• use largest vehicles first if can be filled
• mix pickups in with deliveries, not at end
• if one stop far from other, use other truck
• avoid narrow stop time windows, or handle
  separately

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Routing and scheduling

• Delay in delivery due to routing problems
  increase costs of goods manifold.
• Efficient versus inefficient routing can save
  tremendous amount of money in fuel, labor,
  capital expenditures and significantly enhance
  customer satisfaction.
• The objectives of routing and scheduling to
  minimize.
• Total route costs
• Number of routes
• Distance travelled

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Routing and scheduling

• The constraints are
• Customer requirements and time available
• Balancing of the route for the driver, to avoid
  overtaxing
• Maximum route time
• Vehicle capacity
• Start Stop points enroute
• Infrastructure constraints

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• A basic routing problem looks for the best path
  for a delivery vehicle around a set of customers.
  
• There are many variations on this problem, all of
  which are notoriously difficult to solve.
• Real problems are much more complicated.
• competing aims
• uncertain costs
• variable delivery times
• varying speeds caused by traffic conditions
• customers with different importance and
  conditions for deliveries
• incompatible products
• different logistics facilities

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Transportation Strategy

• Transportation Strategy is concerned with the
  purchase and control of transportation services.
• Transportation purchasing decisions include
• modal selection,
• consolidation,
• private transportation,
• intermediaries and contracting.
• The strategies in guiding the transportation
  decisions are concerned with controlling
  transportation.
• Transportation strategies have been seperated
  into those that apply to all types of shipments,
  including small and bulk shipments.

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Transportation Strategy
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Management Strategy Six Factors

1. Proactive Management Approach
2. Reducing the Number of Carriers
3. Negotiating with Carriers
4. Contracting with Carriers
5. Consolidating Shipments
6. Monitoring Service Quality

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Management Strategy Proactive Management
Approach

• Absence of the regulatory safety net encourages
  logistics mangers to take a proactive management
  approach to identify and solve transportation
  problems.
• Creativity in problem solving no longer
  restricted by fixed regulations.
• Positive attitudes result in using transportation
  to solve company problems in many functional
  areas.

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Proactive Management

• Elimination of economic regulations to control
  transportaiton rates and services, the
  transportation manager is able to develop
  innovative approaches to a companys
  transportation problems.
• The transportation manager relies on basic
  management techniques to seek innovative
  transportation systems that will provide the
  company with a competitive price or service
  advantage in the marketplace. 
• The thrust of proactive managament strategy is
  problem solving.
• Today the transportation manager must rely on
  his/her ability and creativity to design a
  transportation system that permits product
  differentiation and a competitive advantage.

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Management Strategy Reducing the Number of
Carriers/Limit Number of Carriers

• By reducing the number of carriers it uses, a
  shipper increases its market power and therefore
  ability to effectively negotiate with its
  carrier.
• Consolidation of freight increases the shippers
  leverage with the remaining carriers.
• Being one of a carriers largest customers gives
  the shipper increased negotiating power.
• Shippers become more important to the carriers as
  they funnel larger volumes to fewer carriers.

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Management Strategy Reducing the Number of
Carriers

• Improved service from the remaining carriers
  decreased its inventory by 30 million.
• Supply chain strategic alliances are also created
  through consolidation.
• Disadvantage of limiting the number of carriers
  used is the increased dependency on the carriers
  that are used.This risk must be balanced against
  the benefits.

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Management Strategy Negotiating with Carriers

• Before deregulation, carrier negotiation was
  almost nonexistent. With the market free of
  economic regulation all carrier rates and
  services are matters for negotiation
• With rate negotiation a common outcome of
  deregulation, consolidation provides the leverage
  to successfully negotiate more favorable terms of
  carriage.
• Market power the shippers ability to negotiate
  acceptable rates and services.To increase market
  power shippers use the strategy of limiting the
  number of carriers.
• A shippers market power and negotiating strength
  also determined by the characteristics of its
  freight.

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Management Strategy Contracting with Carriers

• Elevating the carrier to partnership status in
  the supply chain philosophy assists in assuring a
  win-win arrangement between the partners.
• As in any contract, special and/or custom
  services such as JIT can be negotiated.
• Contracting widely adopted by rail rates, types
  of equipment, service levels and minimum
  quantities are subject to contract terms.
• Contracting out the entire distribution function
  and the related information function
• Subcontracting specific logistics activities to a
  third-party specialist service provider.

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Management Strategy Consolidating Shipments

• Small shipment strategies consist of freight
  consolidation, using drop-off carriers and
  pooling services and avoid using private motor
  carrier.
• The strategic thrust for small shipments is to
  reduce the inherently high transportation costs
  associated with small-sized shipments.
• Shippers are often rewarded with lower rates as
  the amount shipped increases.
• Contracts may be written with minimum shipment
  size per shipment or for annual cumulative
  shipment size.
• Quantity/rate discounts are real savings that the
  carriers pass on to shippers, from 30-50.

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Management Strategy Monitoring Service Quality

• Product movements that are consistent, timely,
  and undamaged can be a competitive advantage for
  a customer.
• Trade-offs between speed and cost of service must
  be analyzed to provide the service customers need
  without paying for speed that might not be
  required.
• Examine the Carrier Evaluation Report usually on
  a quarterly basis. Used to assure that carriers
  are providing the service quality that is
  demanded or specified by agreement.

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Decision Making

• 1.Step Mode Selection

• 2.Step Carrier Selection

• 3.Step Mode and carrier assignment

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Mode/Carrier Selection

• step 1
• step 2
• Modal Choice
• basic mode Specific Carrier step 3
• intermodal legal type
  Transport
• individual carrier provider

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Examples of Information Flows
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Transportation Decision Making in an Integrated
Supply Chain
Understand total network flows
Strategic
Macro
Understand individual lane flows
Understand current carrier usage patterns
Decision Scope
Make mode/carrier decisions
Routing/Scheduling, Load Planning, etc.
Operational
Micro
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Choice of Mode

• Choice of mode depends on a variety of
  factors.The main ones are the nature of materials
  to move, the volume and distance.
• Other factors include
• Value of materials
• Importance
• Transit times,
• Reliability
• Cost and flexibility to negotiate rates

• Reputation and stability of carrier
• Security, loss and damage
• Schedules and frequency of delivery

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The Carrier Selection Decision

• Various modes of transportation should be
  considered.
• Choose a carrier or carriers within the selected
  mode, if there is a choice.
• Carefully examine the service capabilities of the
  carrier as services can vary widely between
  carriers.

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Carrier Selection Determinants

• Cost
• Transit time and reliability
• Can be a competitive advantage
• Lowers customers inventory costs
• Capability
• Accessibility
• Security

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Carrier Selection Determinants and User
Implications
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The Pragmatics of Carrier Selection

• Transit time reliability
• Negotiated rates
• Consolidating shipments among a few carriers
• Financial stability
• Sales rep
• Special equipment