Transportation Strategy in a Supply Chain. Outline. Key modes of transport and major issues Transportation Costs Transportation System Design Tradeoffs in transportation design Transportation and inventory: Choice of mode Transportation and inventory: Consolidation
(party that performs the move)
Vehicle-related: Type? Number?
Fixed operating: e.g. Terminal facilities
Trip-related: labour and fuel
Overhead: planning/scheduling, information technologies
Responsiveness/Service level offered
(party requiring movement of goods)
supply chain design
transportation mode choice
assignment of shipment to transportation mode
Transportation: paid to carriers
Inventory: at intermediate warehouses, retailers, etc.
Facility: e.g. warehouse operating costs
Processing: loading/unloading, invoicing, etc.
Service level: expediting, safety stock, etc.
Responsiveness; Delivery guaranteesFactors Affecting Transportation Decisions
Trailer on Flat Car (TOFC)
Back Haul Costs?
Cost, speed and dependability considered most important
Minimum shipment = 20000 lbs = 2000 motors
Cycle inventory = Q/2 = 2000/2 = 1000
Safety stock = L/2 days’ demand = (6/2)(120000/365) = 986
In-transit inventory = (120000/365)5=1644
Annual holding costs = (1000+986+1644)(120)(0.25) = $108900
Annual transportation costs = (120000)(0.65) = $78000
Tradeoffs? Number and location of DC’s?
Direct Supplier Network
Direct Shipping with Milk Runs
All Shipment via DC
Milk Runs From DC
If shipment size to customer is 0.5H + 5L, total cost of option 2
increases to $36,729.
All Shipments Direct cost
All Shipments via Kokomo
Some from Kokomo
Milk Runs from Kokomo
Number of DCs?
Location of DC’s?
This approach is useful if deliveries are time sensitive and there are several dropoffs in proximity, not all of which can be delivered on a single truck.Line Haul and Cross Dock
Reference: Chopra & Meindl, Supply Chain Management, 2001, Prentice-Hall.