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
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(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 via Kokomo
Some from Kokomo
Milk Runs from Kokomo
Number of DCs?
Location of DC’s?
Reference: Chopra & Meindl, Supply Chain Management, 2001, Prentice-Hall.