Derby Business School

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Education
with the personal touch

Week 7 - IPSCM Physical

Distribution
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The dynamics of global sourcing

Cost potential for significant savings from low-cost sources

Trading blocs tariff reductions and market easing

Better and cheaper Distribution Channels

Competition forces a cost reduction focus

Technology growth of systems to manage ERP, DRP

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Critical Factors

Total Purchase Price

Inventory carrying costs

Trading costs taxes, tariffs, duties

Supplier performance delays, poor quality

Risks political changes, instability, natural disasters

Social Responsibility people and resources aspects

Transportation costs transport, fuel, insurance, duties etc

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Structural (and Strategic) decisions in

distribution
Types, size and location of depots/warehouses

Corporate/Strategic

Channels of distribution

Customer service levels

Stock levels

Use of IT

Third party outsourcing

Tactical

Operational

Transport (vehicles: type, numbers, size,

configuration, routing, staffing)

Warehouse (design, layout, space allocation,

equipment)

Administration/information (stock control and

location, order processing and procedures,
monitoring implementation and support systems).

Goods receipt and checking

Order picking and packing

Load scheduling

Handling returns

Vehicle maintenance

Deliveries

Containerisation

Road, Rail, Sea, Waterways, Air

Advantages

The introduction of door-to-door movements

Increased security due to containment

Reduced handling

Improved transit and turnaround times

Cost savings from areas such as packing and better space usage

Improved service quality

Disadvantages

Huge initial investment in vessels, ports and facilities

Costs of investing in, maintaining, tracking and storing containers

Not all cargoes are suitable for containerisation

Sea Freight

Cost. For a large majority of goods, sea freight remains the

lowest cost option.

Availability. Vessel sailing schedules and types are published

up to a year in advance particularly on the main
international trading routes.

Flexibility. There is a wide range of vessels and vessel types.

Speed. Vessels are not designed for speed.

Handling. Container vessels use technology extensively to

locate containers in the appropriate position to allow for
loading and offloading at ports.

Air Freight

Cost. Air-freight rates can be high when compared to sea freight

but costs can be reduced by using the services of a freight
forwarder.

Availability. Major international routes can be served many times

daily.

Speed. The main advantage of dispatching goods by air rather than

sea is speed, which comes at a price.

Handling. Aircraft are limited in the size, weight and capacity of

cargo they can carry. The majority of bulk cargo will be limited to
sea freight for long distances.

Evaluating road freight

Cost. Costs are increasing as rising fuel costs, increasing restrictions on

drivers hours and congestion are all impacting on the industry.

Availability. Vehicles are often available at short notice and offer the ability to
deliver door to door.

Speed. Within the UK road haulage can offer door-to-door deliveries within a
short timeframe. Within Europe road haulage competes favourably with air
freight.

Handling. By utilising a unitised (standard) load such as a container, handling

can be restricted to loading and unloading the container.

Environmental issues in road haulage

The creation of traffic congestion

Road haulage adds to the number of road accidents

Road haulage causes and adds to noise, vibration and visual intrusion

Road haulage adds to pollution

Rail Freight

Cost. Rail freight is highly competitive in terms of cost, often

utilising the underused network at off-peak times.
Availability. This is restricted for most organisations because of the
need to deliver to and collect from a railhead.
Speed. Although some door-to-door services are offered they are
the exception rather than the norm. Generally speed would not be
a priority.
Congestion. Rail services remove vehicles from the road network.
Reduced pollution and energy consumption when compared to
road haulage.
Dangerous goods movement. Rail offers a proven safety track
record over road.
Public safety. Rail has an impressive safety record with deaths per
100 million vehicle kilometres at 0.194 on rail as opposed to 53 on
the roads.

Cons of Rail Freight

Lack of ability to offer direct deliveries. Rail is restricted to movements to

railheads.

Inflexibility, particularly for smaller consignments.

Lack of speed and adaptability required for just in time systems.

Specialised wagons limit handling. A constraint that applies in the UK is the

height of the rail wagon owing to the number of low bridges.

Choosing your transport mode?

Quality

Speed

Availability

Reliability

Cost

EU-27 goods transport growth by mode 19952006

Source: European Commission (2009, p.56).

EU-27 modal distribution 2006 and growth rate 19952006 of goods

Source: European Commission (2009, p.7).

Figure 4.3

Transportation service and economic characteristics