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Transportation Management
Transportation Management
Transportation Cost Structures:
Transportation
cost
for
given
mode
of
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Transportation Management
Economies of scale:
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Transportation Management
Economies of distance:
A minimum amount charged irrespective of the distance to be
travelled.
However, transportation rates (cost per unit distance) taper with
increasing distance. With increasing distance the rate of increase
of transportation costs will go down.
This is because of longer distance travelled , the related fixed
costs at the point of origin and destination (loading and
unloading) are distributed over more kilometers.
Also longer the distance travelled, better will be the overall
vehicle utilisation.
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Transportation Management:
from Mumbai
Transportation Management
Transportation
rates
are
generally
quoted
for
origin-
destination pairs.
Note that package carriers work with much simpler and uniform
rate structures than other transport companies.
This is because bulk of their costs are fixed costs (of setting up
network and handling shipment) and shipment sizes are
comparatively small.
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Transportation Management
Product characteristics And Transportation :
Product characteristics influences the choice of mode
of transport.
Nature of product characteristic is captured by a
concept called value density.
Value density is the ratio of rupee value of the
product to its weight.
Value density concept allows a firm to examine
tradeoff between transportation and inventory costs.
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Transportation Management
faster
mode
of
transportation
as
Transportation Management
Volumetric weight:
In case of bulky products, transportation costs are
captured by volume and not by weight (e.g. water
storage tank ).
For
such
products,
air
freight
industry
uses
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Transportation Management
Demand Volume And Transportation Costs:
Transportation Management
Demand uncertainty and Transportation Costs
For a products with higher demand uncertainty, if a firm
is using slower mode of transport (with long lead time),
firm ends up with high safety inventory .
Firms
typically
transportation
employs
with
high
faster
demand
mode
of
uncertainty
Transportation Management
Tradeoff in Transportation Design:
Following
Tradeoffs
must
be
considered
in
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Transportation Management
1. Transportation and Inventory cost Tradeoff
Transportation Management
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Transportation Management
ii) Inventory Aggregation:
Required inventory level (safety inventory) reduces with
aggregation in one location.
Transportation costs in general increases with
aggregation
Transportation Management
2. Transportation and customer responsiveness
tradeoff
Temporal
aggregation
(combining
orders
across
Transportation Management
Mode of Transports:
Air
Rail
Road / Truck
Water
Pipeline
Mix mode services:
Package carriers
Intermodal
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Transportation Management
Air:
Rail:
Unreliable
and
Indian
Railways
share
of
freight
Transportation Management
Road / Truck
Expensive than Rail but offers advantage of door to
Transportation Management
More
than
90%
vehicles
are
owned
by
small
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Transportation Management
Water:
Transportation Management
Package Carriers:
Expensive
Rapid and reliable delivery
Suitable for small and time-sensitive shipments
Uses air, rail and truck for time-sensitive small
deliveries
Packages ranging from letters to shipments
More expensive than LTL for similar shipments
Provide other value-added services
Consolidation of shipments a key factor (because of
small package size and several delivery points)
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Transportation Management
Pipelines:
Bulk
transportation
of
predictable
volumes
of
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Transportation Management
Intermodal:
Containerized
freight
often
uses
truck/rail/water
combinations particularly for global freight.
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Transportation Management
Comparison of Modes of Transport on
Supply Chain Performance Measures
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Transportation Management
Design Options for a Transportation Network
(in
Transportation Management
1. Direct Shipment Network to Single Destination
Shipments comes directly from each supplier to each buyer
location.
Advantage is elimination of intermediate stage and simplicity of
operation.
Transportation time is short as shipment moves directly.
Justified only when the demand at the buyer locations is
large enough that so that lot sizes are optimal and close
to truckload.
However, large lot sizes leads to high inventory levels
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Transportation Management
2. Direct Shipping with Milk Runs
A milk run is a route which a truck either delivers product from a
single supplier to multiple retailers or goes from multiple suppliers to
single buyer location.
Milk runs are suited when quantity destined for each location is too
small to fill a truck but the multiple locations are close enough to
each other that their combined quantity fills the truck.
Used when deliveries are needed on regular basis
Lowers transportation cost by consolidating shipments to a single
truck.
(not using milk runs results in higher costs as FTL cannot be employed)
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Transportation Management
3. All Shipments via Intermediate Distribution Center
with Storage
Products are shipped from suppliers to a central distribution centre
where it is stored and shipped to buyer location when needed.
Suitable when lot sizes on inbound side is larger than sum of lot sizes
on the outbound side or shipment on outbound side cannot be
coordinated.
Helps in achieving economies of scale on inbound transportation from
supplier to DC. Expensive for suppliers to serve customers directly.
DC are typically close to buyers so outbound transportation costs are
not large.
High inventory cost
e.g. Amazon
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Transportation Management
4. All Shipments via Intermediate Transit
Point with Cross-Docking
Transportation Management
Suitable
when
economies
of
scale
in
outbound
sides
and
both
inbound
and
E.g. Walmart
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Transportation Management
5. Shipping via DC Using Milk Runs
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Transportation Management
6. Tailored Network:
Transportation Management
Network
Structure
Pros
Cons
Direct shipping
No intermediate warehouse
Simple to coordinate
Increased coordination
complexity
Increased coordination
complexity
Shipping via DC
using milk runs
Further increase in
coordination complexity
Tailored network
Highest coordination
complexity
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Transportation Management
Total
Cost
Approach
in
Comparing
Different
Transport Modes:
Firm can choose the mode of transport resulting in least total
cost.
Total Cost = Transportation Cost + Cycle Stock Inventory
carrying cost + Safety Stock Inventory carrying cost + Facilities
and processing costs + Cost of losses and damages
(if different mode of transport result in different nos. of
handlings, handlings cost should also be taken into account)
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Transportation Management
Note in reference to total cost equation:
Lot size:
Delivery time:
supply chain is
in transport.
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Pipeline Inventory:
It consists of materials actually being worked on (workin-process inventory) or being moved from one location
to another in the chain (on transit inventory).
Pipeline
inventory
of
an
item
between
two
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example :
LT -Shipment by air = 7 days
LT- Shipment by sea = 45 days
Average demand = 100/day
Pipeline Inventory ( Shipment by air) = 700 units
Pipeline Inventory ( Shipment by Sea = 4500
units
Transportation Management
Illustration:
A retail chain has eight stores in a region supplied
Transportation Management
What network do you recommend if annual
Transportation Management
Choice of Mode of Transport: Illustration
A
Printers
Value/unit ( Rs.)
Inv. Carrying cost/unit/year (20%)
Mean Demand/week (units)
SD of demand /week(Units)
Option
Lot size (units)
Fright/unit (Rs.)
Lead time(weeks)
Sea
400
90
4
20,000
4,000
100
30
Standard
15,000
3000
100
30
Low end
10,000
2000
100
30
Air
100
360
1
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Transportation Management
Part I) under assumption of stable demand, d = 0 and
no supply uncertainty L = 0.
For sea as mode of transport, high end printers:
Annual
Transportation
Cost
Annual
demand
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Transportation Management
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Transportation Management
Time Demand =
L d2 = 30 x 2= 60 and
Time Demand =
L d2
= 30 x 1= 30 and
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Transportation Management
Illustration
All the products cost Rs 200 per unit, so inventory
Illustration
Illustration