What is Transportation Management? • A Transportation Management is a system designed to manage transportation operations. • Transport refers to the activity that facilitates physical movement of goods as well as individuals from one place(source) to another(destination).
Economic Impact • Logistics costs represented 13-14% of total Indian GDP of around $ 1 trillion. • Logistics costs represented 7-8% of developed economies. • Transportation accounts for the largest single cost component of logistics, estimated to be around 35-40% of total logistics cost. • Huge potential to optimize the cost of logistics.
Logistics • Integration of information, transportation, inventory, warehousing, materials handling and packaging • Aims at : • Right place • Right time • Least cost
Logistics Overview Why has logistics become increasingly important? • Cost reduction pressures are severe • Logistics has a high impact on customer service • A strong need exists for demand and supply planning consistency • A focus on core competencies has placed logistics in the outsourcing “spotlight” • Development of IT technology supports integrated logistics management • Government deregulation of transportation has created new opportunities
Importance of Transportation Management • Key component of any logistics program-transportation management and economics • Essentially, the logistics and costs associated with the movement of your supplies and products from A to B • In terms of logistics, your competitive advantage depends on an ability to maintain production schedules and the efficient delivery of product to international markets. • In terms of cost, transportation constitutes the single largest segment of overall logistics cost and must be managed carefully to avoid negative impact on your firm's bottom line.
Continued… • Makes available raw materials to manufacturers or producers • Makes available goods to consumers • Enhances standard of living • Helps during emergencies and natural calamities • Helps in creation of employment • Helps in labor mobility • Helps in bringing nations together
Characteristics of good transporter • Consistent, reliable performance • Right material, right time, right place • Integrated solution-Transportation management, warehousing, distribution, vendor compliance
Total Cost Concept • The total cost concept recognizes that an optimum cost in one area or function may not lead to an optimum total system cost • Total cost analysis requires the management of supply chain trade-offs • Logistical activity areas that drive total logistics costs: • Customer service level costs • Inventory carrying costs • Lot quantity costs • Order processing and information costs • Warehousing costs • Transportation costs
Customer Service Measures • Order cycle lead time • Stock availability/fill rates/stockouts/back orders/partial shipments • Record integrity • Frequency of delivery • Delivery reliability • Order tracing capability • Volume flexibility
Customer Service Measures • Invoice accuracy • Order status information • Technical support responsiveness • Unscheduled service responsiveness • Speed of product feature changes • Product and service quality
Value-added Transportation Concept Product/Info Flows Inbound Outbound Supplier Manufacturer Customer Info/Return Goods Flows
Transportation-Related Service Elements • Speed: time-in-transit • Availability: accessible to customers when they want it • Dependability: pick-up and delivery time variability • Flexibility: adjustment to shipper’s needs
Basic Modes of Transportation Fixed Variable Traffic costs costs composition Rail high low bulk food, mining, heavy mfg Road low medium consumer goods, medium/light mfg Water medium low bulk food, mining, chemicals Air low high high-value goods, rush shipments Pipe high low petroleum, chemicals, mineral slurry
Modes of Transport • Land transport -Road Transport -Rail Transport -Ropeway transport -Pipe transport • Water transport - Inland Transport(Coastal Shipping) - Ocean Transport(Overseas shipping) • Air transport
Advantages of Road Transport • Relatively cheaper mode of transportation • Perishable goods transported at a faster speed over a short distance • Flexible mode of transport as loading and unloading possible at any destination • Provides door to door service • Helps people to travel and carry goods to uncharted places, like hilly areas.
Limitations of Road Transportation • Limited carrying capacity • Not economical for long distance transportation of goods. • Transportation of heavy goods in bulk by road involves high cost. • Affected by adverse weather conditions.
Advantages of Rail Transportation • Convenient mode of transportation for travelling long distances • Relatively faster than road transport • Suitable for carrying heavy goods in large quantities over long distances • Operation not affected by adverse conditions
Limitations of Rail Transport • Relatively expensive for carrying goods and passengers over short distances • Not available in remote parts • Not flexible for loading and unloading of goods at any place. • Involves heavy losses of life as well as goods in case of accident.
Advantages of Water Transportation • Relatively economical mode of transport for bulky and heavy goods • Safe mode of transport wrt occurrence of accidents • Cost of maintaining and constructing routes is very low as most of them are naturally made • Promotes international trade.
Limitations of Water Transportation • Depth and navigability of rivers and canals vary, thus, affect operations of different transport vessels • Slow moving mode of transport, thus, not suitable for perishable goods • Adversely affected by weather conditions • Requires large investment on ships and their maintainence
Advantages of Air Transportation • Fastest mode of transport • Very useful in transporting goods and passengers to areas not accessible by other modes. • Most convenient mode of transport during natural calamities • Provides vital support to security and defense.
Limitations of Air Transportation • Relatively more expensive mode of transportation • Not suitable for transporting heavy and bulky goods • Not suitable for short distances • In case of accidents, results in heavy losses of goods, property and life.
Relative Operating Characteristics Operating characteristicsRail RoadWaterAirPipe 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 4 2 5 3 1 Composite 14 10 18 16 17 1 = Best, 5=Worst
Intermodal • Enables shippers to benefit from advantages of multiple modes of transportation • Minimizes disadvantages of individual modes Rail Truck Air Water
Decision Flow Outbound Inbound Manufacturer Customer Supplier Transportation Decision Making in an Integrated Supply Chain Macro Understand total network flows Strategic Understand individual lane flows Understand current carrier usage patterns Decision Scope Make mode/carrier decisions Routing/Scheduling, Load Planning, etc. Micro Operational
Product related Density Stowability Ease or difficulty of handling Liability Market related Intramode/intermode competition Location of markets Nature and extent of regulation Balance/imbalance of freight traffic Seasonality of product movements Domestic vs. international Transportation Costs
Transportation Economies • Economy of Scale Cost per unit LTL TL Volume/weight
Transportation Economies • Economy of Distance Tapering Principle Cost per load Distance
Routing and Scheduling Goals: • Find best path a vehicle should follow through networks of roads, rail lines, shipping lanes, and air routes • Determine best pattern for stops, multi-vehicle use, driver layovers, time of day restrictions Benefits: • Greater vehicle utilization • Improved and more responsive customer service • Reduced transportation expenses • Reduced capital investment in equipment
Principles for Good Routing/Scheduling • Load trucks with deliveries for customers closest to each other • Stops on individual days arranged together • Start routes with farthest stops first • Circular routes - don’t cross paths • Use largest vehicles first if can be filled • Mix pickups in with deliveries, not at end • If one stop far from other, use other truck • Avoid narrow stop time windows, or handle separately
Categories of Services Available • Exclusive Service Provider-devotes all resources to a single client • Consortium Service Provider-provides services to a small group of clients • Specialist Provider-provides services for products or clients who have specialized needs • National/Multinational Provider-provides services to many clients throughout the world
Third Party Logistics • “Third-party Logistics is simply the use of an outside company to perform all or part of the firm’s materials management and product distribution function.” -- Simchi-Levi (2000) • “A relationship between a shipper and third party which, compared with the basic services, has more customized offerings, encompasses a broad number of service functions and is characterized by a long-term, more mutually beneficial relationship” -- Murphy & Poist (1998)
What Is Contract Logistics? • It is a very confusing term because there are so many different descriptions of what it really is. • “Contracting out the entire distribution function and the related information function” • “Subcontracting specific logistics activities to a third-party specialist service provider.” • A wide range of practices fall under these definitions
Third Party Logistics Outsourced Operation Transportation Shipper Warehousing Shipper 3PL IT support Shipper In-house Operation SC integration Shipper In-house Logistics Department Others Others IT support Warehousing Transportation
Two Types of Providers • Asset-based • Own their own warehousing, transportation, computer systems, etc. • Data-based • essentially asset free companies who sell logistics management capability through their computer systems and managerial skill • There is frequently a bias against asset-based providers
Characteristics of 3PL • Perform outsourced logistics activities • Process management / Multiple activities • More customized services • Mutually beneficial and risk-sharing relationship • Long-term commitments (1~ 3 years)
Services Provided by Third-party Logistics Providers • Transportation • Warehousing • Information management • Human resources • Management
Why is it needed? • Advantages • Cost reduction(service provider has economies of scope and scale) • Less asset investment, redeploy capital • Focus on core competency or core business • Improved efficiency, service and flexibility • Industry-specific application – “build-to-order” systems and e-merchants • Disadvantages • Loss of control • Dependency • Less direct customer contact • Impact on in-house workforce
Pictorial flowchart Shipper books shipment with WHL WHL advises port depot to release empty to Shipper Port depot releases empty to Shipper Released empty is taken to Shipper’s premises At Shipper’s premises shipment stuffed into Contr. laden box taken to vsl side for loading Stuffed laden box upon return to port is stacked in CY Stuffed laden box returned to port by Shipper At Shipper’s premises shipment stuffed into Contr. laden box is loaded to vessel Ship sails out with the shipment
Transportation manager activities • Responsible for the execution, direction, and coordination of all transportation matters within a company or organization. • Also, in charge of other transport staff members in addition to taking charge of every transportation item. • Transportation managers to save money, effectively ship and receive items, and make sure that all operations are running smoothly.
Continued… • He must have excellent bargaining skills, communication skills, and extensive knowledge of the transportation industry. • His/her role includes directing all transportation activities, developing transportation relationships, monitoring transport costs, working with brokers and agencies to facilitate smooth transportation actions, training employees.
Continued… • In various ways, the role of a transportation manager includes anything and everything that is related to transportation including basic mileage calculation skills. • A typical workday within this profession includes negotiating and bargaining transportation prices. • Knowledge of standard rates and routes is necessary, though this kind of information cannot be gained without experience.
Education Qualification Required • Educational background of a transportation manager can vary depending upon job requirements. • Undergraduate degree in the field of logistics. • Without formal schooling, those transportation managers have many years of industry experience. • Transportation manager positions are rarely granted to those without industry knowledge.
Skills Required • Clerical skills • Time management skills • Critical listening skills • Writing skills • Intuition in order to make crucial judgment calls • Should excel in the field of speech recognition.
Continued… • Must speak clearly and concisely, so that rates can be negotiated with ease. • Best suited for candidates that have stellar interpersonal skills, and enjoy working with all kinds of people.
Intermodal Transportation • Includes more than one mode • air, rail, road, water • only truck is only practical single mode trip • Typically refers to containerized goods • as opposed to bulk or general cargo • requires containers • less labor than traditional freight handling • The majority of the costs are incurred between modes (in terminals)
Bulk Cargo Wet bulk cargo refers to fluids like oil Dry bulk cargo refers to non-fluids such as grain, coal, etc.. Many goods that used to be shipped as bulk cargo (grain, bananas, coffee beans)are now shipped in containers (IP grain) Historically well developed commodities
General Cargo • Whatever needs moving • Flatbed trucks for odd-shapes • General cargo vessels