TRANSPORTATION

TRANSPORTATIONMovement of product from one location to another from beginning of supply chain to the customerIt is a significant component of costs incurred by most supply chainsIt is a significant link between the various stages in supply chainIf affect cost as well as responsiveness of supply chainKey decisionSelection of transportation strategy: it involves designing the most effective way of reaching products to geographically dispersed markets from plants in a cost-effective way,Choice of transportation mode: choosing the most effective mode of transport from among several feasible options. To practice effective, cost efficient Logistics Management, an organization must lay the foundation for aresponsive,economicaltransportation network. With a responsive, economical transportation network, an organization is able to implement major strategic changes to reduce costs and increase customer service levelsTransportation cost is influenced by the demand-supply gap between the points of origin and destination.Nature of product and its demand characteristics also affect supply chain costs in a significant way. The transportation cost for a given mode of transport is a function of the distance and the quantity of goods shipped.

With increasing distance the rate of increase of transportation costs will go down. For longer distances travelled, the related fixed costs at the points of origin and destination are distributed over more kilometers. Longer the distances travelled, the overall utilization of the vehicle is likely to be higher. This is know as economies of distance in transportationTruck operators always prefer full-truck load (FTL) shipment. With less than load (LTL) shipment, the transport operator will have to run the vehicle at low capacity utilization or will have to aggregate a number of small shipments in one trip, which will increase transaction cost for an operator. Transportation choice depends on..Transportation cost structuresNature of productInventory levels & carrying costs Demand characteristics of productDemand uncertainty and safety stocks

Modes of TransportRail RoadWaterAirpipelineRailIdeal mode of transport for low-density products which are not sensitive to time.Long and unreliable lead timesRoad trucks dominant mode of transportExpensive than railResponsive and reliableShorter delivery lead timeCongestions in transit Water: Extensively used for international cargoSlowest among all transport modesDelays at portsHigh density goodsAir fast and expensiveTime sensitive and high-value density goodsPipeline - used for crude and petroleum productsIntermodal use of more than one mode of transport to move a shipment to its destination. RailCase workStudy Indian railways network with respect to their different region for transportation (key points to be covered are: length and capacity of Indian railways, strength and weakness of IR, revenue, goods, cost, price, challenges etc.)www. Indianrail.gov.in, www.railnet.gov.in

Rail (rail transport in India)Use in long distance freightHigh fixed cost (rail, locomotives, cars, yards, trip related labor and fuel)Idle time is expensive in case of poweredIdle time occurs due to track congestion, exchange of coachesMajor goal is to utilize track and trainsUsed for long distance, heavy, non time sensitive materialsPricing strategy matters lotWaterOcean carriers are limited to certain areasInland waterway system and coastal watersSuited for very large loads at low costUsed for bulk commodity shipments (cheapest- slowest mode), significant delays at ports and terminalsDominant mode in global tradeContainerization is latest trend used

Water shipment

Multimodal transport is generally considered as most efficient way of transportationAmong the choices of transportation available, each one is having its own advantages and disadvantages.Multimodal allows providers to combine in one voyage the advantages of each mode, such as flexibility of road and cost advantage of rail. Comparison of modes transportation on SC performanceFreight cost: water is least expensive mode and air is the most expensive modeLot size: bigger lot sizes via water mode and small lot sizes via air mode. Bigger lot sizes results in bigger cycle-inventory. Delivery time : through water it is longest and air shipment is shortest. It affects the lead time and safety stock.Delivery time variability : variability in lead time is highest in water mode and lowest for air. Losses and damages : highest in rail and least in water

Total cost = transportation cost + cycle-stock inventory carrying cost + safety-stock inventory costs + cost of losses and damages

Design options for transportation networkDirect shipment networkDirect shipping with milk runsAll shipments via central DCshipping via DC using Milk runsTailored networkDirect ShipmentShip directly from each plant to each marketAdvantage of eliminating intermediaries, warehouses, and simplicity in co-ordination and operation.High volumes and low degree of demand uncertaintyFTL shipments for economies of scaleDirect shipments network Suppliers Buyer LocationsAggregate demand across depots and using milk run from each plantAggregating product-wise demand across all 3 depots. Each truck starts from a plant and visits depots X,Y, and Z in sequence and comes back to plant to the plant Depots gets served more oftenIncreases transportation cost but reduces cycle-stock inventoryDepots should relatively in close proximityShip via Distribution centreInvolves putting additional facility, and inventory at the DC Additional loading and unloading costs at DC

Tailored NetworkSuitable combination of options that reduces cost and improves responsiveness of supply chain. Hub and Spoke ModelAll destinations in the region are inter-connected through a central hubBicycle wheel- routes are similar to spokes and the centre in the wheel acts as the hubFedEx pioneered the idea of Hub and Spoke modelSorting is centralized at hubNew cities to network are easily addedN cities are connected through (N-1) routes and every city is connected to hub city. Cross-DockingGoods unloaded from incoming vehicles at the DC are straightaway loaded on to trucks that originate from DC. No inventory at the warehousesThis results in transit of full truck loads of goods and frequent delivery of supply, without being invested in physical DC.Trade- offs in Transportation designAll designs should take in to account-Inventory cost-Facility and processing cost-cost of coordinating operations-level of responsiveness provided to customers