Supply Chain Logistics Management

Transportation Infrastructure
and Management

Transport functionality
1. Product movement is the movement of
inventory to specified destinations
Transportation consumes time, financial, and
environmental resources
Transportation is +60% of the cost of logistics
Impacts traffic congestion, noise and air pollution

2. Product Storage: in-transit inventory

A trade-off exists between using a transportation
vehicle vs placing products in a warehouse.
Diversion occurs when a shipment destination is
changed while product is in transit

Transport Principles
1. Economy of scale is the cost per unit weight
decreases as the size of the shipment increases
Cost decreases because the fixed cost of the carrier
is allocated over a larger weight of shipment

2. Economy of distance is the cost per unit

weight decreases as distance increases
Longer distances allow fixed cost of the carrier to be
spread over more miles, lowering the per mile charge

Supply Chain Logistics Management, First Edition. Bowersox, Closs, and Cooper.
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Transport participants relationship

Role and perspective of participants

Shipper and receiver have a common interest in
moving goods from origin to destination within a given
time at the lowest cost
Carriers Agents desire to maximize their revenue for
movement while minimizing associated costs
Government desires a stable and efficient transportation
environment to support economic growth
Public is concerned with transportation accessibility,
expense, and standards (security, safety, environment)
The Internet provides the vital communications links
between the transactional participants (shipper-carrierconsignee)

Transportation regulation

Transportasi Darat
Transportasi Laut
Transportasi Udara
Transportasi Perkeretaapian
Penunjang
source: http://jdih.dephub.go.id/

Basic Modes of Transportation

Fixed costs
Rail
Road
Water
Air
Pipe

high

Var. costs Traffic composition

low
bulk food, mining,
heavy mfg
low
medium consumer goods,
medium/light mfg
medium low
bulk food, mining,
chemicals
low
high
high-value goods,
rush shipments
high
low
petroleum, chemicals,
mineral slurry

Operating characteristics by modes

Speed is the elapsed movement time from origin
to destination
Availability is ability of a mode to service any
given pair of locations
Dependability is the potential variance from
expected delivery schedule
Capability is the ability to handle any load size
or configuration
Frequency is the quantity of scheduled
movements a mode can handle

Relative Service Characteristics

Operating
characteristics Rail Motor Water Air
Speed
3
2
4 1
5
Availability
2
1
4 3
5
Dependability 3
2
4 5
1
Capability
2
3
1 4
5
Frequency
3
1
4 2
5
Composite 13
9
17 15 21
1 = best, 5=worst

Pipe

Infrastructure in crisis
2004-2013 panjang jalan nasional Indonesia hanya
bertambah 4.400 kilometer
Panjang Rel KA th 2010 = 5.018km, target th 2013 =
5.209km
Kualitas infrastruktur Indonesia (2011-2012)
peringkat ke-82 sedangkan Malaysia posisi ke-23
Biaya logistik di Indonesia = 24% dari total PDB
(Rp1.820 T/th) terdiri dari biaya penyimpanan =
Rp546 T, biaya transportasi = Rp1.092T, biaya
administrasi = Rp182 T (Malaysia =15% dr PDB, AS
dan Jepang = 10% dr PDB)

Supply Chain Logistics Management, First Edition. Bowersox, Closs, and Cooper.
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Transportation service
1. Traditional carriers are firms that provide service using
only one of the five basic transport modes
2. Package service uses intermodal transportation (ground
and air) to handle small shipments or parcel deliveries
Ground package, air package

3. Intermodal transportation combines two/more modes

to take advantage of the inherent economies of each and
provide an integrated service (container)
4. Nonoperating intermediaries include several business
types that do not own or operate equipment
Freight Forwarders: consolidate small into bulk shipment
Shipper Association: similar to FF but operated by shippers
Brokers: coordinate transportation arrangements for shippers,
consignees, and carriers (IT)

Transportation economics & pricing

An effective logistics strategy must understand
four interrelated topics
A. The factors that drive transport costs
B. Cost structures or classifications
C. Carrier pricing strategy
D. Transportation rates and ratings

A. Transportation Costs
1.
2.
3.
4.
5.
6.
7.

Distance
Weight
Density
Stowability
Handling
Liability
Market

1. Distance
Directly contributes to
variable expenses
Labor, fuel, and maintenance

Cost curve starts above

zero because of fixed
costs associated with
pickup and delivery
Rate of cost decreases as
distance increases
This is called the tapering
principle

2. Weight
Cost per pound
decreases as weight
increases until the carrier
vehicle is full
Relationship starts again
for the next vehicle load

Small loads should be

consolidated into larger
loads to maximize scale
economies

3. Density
Volume is important
because vehicles are
typically constrained
more by cubic capacity
than by weight loaded
Cost per unit of weight
declines as product
density increases
Higher density products
allowed fixed transport
costs to be spread over
more weight

4. Stowability
Stowability is how product
dimensions fit into
transportation equipment
Items with rectangular
shapes are easier to stow
Nesting refers to ability of
product to be placed in itself
or collapsed for better
stowability

5. Handling
Special equipment may be
needed to load and unload
trucks, railcars, or ships
How products are grouped
together in boxes or pallets
will also impact handling cost

6. Liability
Carriers must pay for
liability insurance or
accept financial
responsibility
Shippers can reduce
their risk by
Improved packaging
and loading
Reducing susceptibility
to loss or damage

7. Market factors
Transport lane refers to
movements between origin
and destination points
Carriers must find a
backhaul load or vehicle is
returned empty

Imbalances in volume
between shipping points
can result in higher
transport costs

B. Cost Structure

Variable Costs
Fixed Costs
Joint Costs
Common Costs

1. Variable costs
The variable category includes direct carrier cost
associated with movement of each load (labor,
fuel, and maintenance)
Measured as a cost per unit of weight per mile.
Represents the minimum amount a carrier must
charge to pay its day-to-day bills.

2. Fixed costs
Fixed costs are not influenced by shipment
volume
Includes vehicles, terminals, rights-of-way,
information systems, & support equipment
Must be covered by contribution above
variable costs on a per shipment basis

3. Joint costs
Typical example is the implicit decision to incur
a joint cost for a backhaul from a destination
Significant impact on charges
Carrier quotations must include implied joint
costs based on assessment of back-haul
recovery

4. Common costs
Terminal or management expenses are typical
examples (overhead cost)
Usually allocated to shippers based on level of
activity for that customer
E.g. number of shipments

C. Carrier Pricing Strategies

1.
2.
3.
4.

Cost-of-service strategy
Value-of-service strategy
Combination pricing strategy
Net-rate pricing strategy

1. Cost-of-service strategy
Cost-of-service is similar to
cost-plus pricing strategy for
manufacturing
Carrier estimates cost of
providing service then adds on
a percent profit margin
Commonly used for pricing
transport of low value goods or
in highly competitive situations

2. Value-of-service strategy
Value-of-service price is based
on value as perceived by the
shipper rather than the carrier
Depends on the value of the
goods being shipped
Electronics vs coal
Used for high value goods or
when limited competition exists

3. Combination Pricing strategy

Combination price is set at a value between
cost-of-service minimum and value-of-service
maximum
Most carriers use some form of combination
pricing
Common in highly volatile markets and changing
competitive situations

4. Net-rate Prices Strategy

The goal is to drastically
reduce carriers' administrative
cost and directly respond to
customer demand to simplify
the rate-making process
Established discounts and
accessorial charges are rolled
into one all-inclusive price
Pricing is tailored to the
individual customers needs

D. Rates and rating

Class rates are the price in dollars and cents per
hundredweight to move a specific product
between two locations
Classification is the grouping of similar
products into uniform classes that are
assigned a rating
Rate determination is based on the
classification rating, shipment origin, and
destination

D. Rates and rating

Commodity rates are for a large quantity of
product which moves between two locations
on a regular basis
Typical for most rail freight today

Exception rates are special rates to provide

prices lower than the prevailing class rates
(special rate for specific area)

Transportation administration
1.
2.
3.
4.
5.

Operational Management
Consolidation
Negotiation
Control
Auditing and claims
administration
6. Logistical integration

1. Operational management

Equipment scheduling
Load planning
Routing
Carrier administration
(selection, integration,
evaluation)

2. Consolidation
Freight consolidation techniques can be grouped
as reactive and proactive.
Reactive approach does not attempt to influence
composition and timing of transportation movements,
but reacts to shipments as they come
Proactive approach includes preorder planning of
quantity and timing with the shipper to facilitate
consolidated freight movement

3. Negotiation
Seeking win-win
agreements where both
shippers and carriers share
transportation consolidation
and productivity gains
Both parties seek the lowest
total logistical cost
consistent with the shippers
needed service level (i.e.
delivery time)

4. Control responsibilities
Tracing is procedure to
locate lost or late shipments
with RFID and GPS systems

Expediting involves the

shipper notifying carrier that
it needs a specific shipment
to move quickly and with no
delays
Tracking driver hours of
service (HOS) to comply
with federal regulations

5. Auditing and claims administration

Auditing is checking freight bills to
ensure accuracy
Preaudit determines proper charges
prior to payment
Postaudit does the same after
payment
Claims can be
Loss and damage resulting from poor
performance
Overcharge/undercharge when amount
billed is different from expected

6. Logistical integration
Integration is finding the best
combination of packaging,
selection of carrier, mode and
consolidation for lowest total
logistical cost consistent with
the shippers service needs