A Framework for Supply Chain Logistics - Oakden chapter 07

PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Chapter 7

Transport within Logistics

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Introduction

Learning Outcomes

After this lesson, you should be able to:• Consider the advantages and limitations of

different types of transport• Understand the role of transport in supply chains• Scope the extent of transport economics• Understand the range of variables when pricing

transport• Recognise the approaches to selection of carriers

and measuring performance.

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Modes of transport• Criteria that affect the choice of transport include:

Nature of goods (fragility or perishability) Flexibility of routing Urgency (service-level agreement requirements, such

as a just in time (JIT) operation or threat of idling production)

Transit time Reliability Costs.

• Considerations are based on the balance between value adding and cost adding through a retail supply chain.

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Modes of transportIntermodal transport• Intermodal freight handling is a solution to the

challenge of transferring goods between modes of transport.

• Involves the use of containers to transport goods and transferring them between multiple modes of transport without handling the physical goods when changing modes.

• Containers of 20 ft (6.1 m) and 40 ft length are the standard in ocean freight.

• Common term for a 20 ft container is TEU (twenty-foot equivalent unit) and FEU for a forty-foot equivalent unit.

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Modes of transportIntermodal transportVariations on the standard container are:

• refrigerated intermodal containers used for perishables

• specialised 30 ft (9.1 m) containers for the plastics industry

• pallecons (a metal pallet-like base with a container built on top of it) for chemicals

• ‘tanktainers’, consisting of a tank for liquids fitted inside a standard container frame

• air-freight containers, which are shaped to optimise the space utilisation inside the fuselage of an aircraft

• a range of non-stackable open box containers

• specialised containers used in Europe.

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The Role of Transport in Supply Chains

Transport planning• Key concerns of the newer approaches to

transport planning are: the design of supply networks and the specific routing

and scheduling within them managing demand loads and the effective use of assets environmental considerations safety considerations play an important part (chain of

responsibility legislation) incorporated within the chain of responsibility approach

is managing fatigue at work.

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Transport Management• Inherent risk associated with transport is non-

delivery at each stage of the goods movement to the final end user.

• Two key causes of non-delivery risk:1. Shipment delay – this may be caused by

infrastructure disruption, operational error in scheduling, change to the route or industrial action.

2. Shipment destruction – this may be a result of involvement in an accident, sabotage, exposure to weather or an adverse substance.

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Transport Management• Transport managers must be aware of two

logistical trade-offs when making transport decisions (Chopra and Meindl 2007):1. Trade-off between transport and inventory cost.

2. Trade-off between transport cost and customer responsiveness.

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Network optimisation• The science of maximising operational efficiency,

given the geographical constraints of the network within which a business operates.

• Key challenges: Quality of historical data Assumptions relating to future demand requirements.

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Network optimisation• The network efficiencies are affected by:

how well the movements can be planned and how well the vehicles/vessels/containers can be used

technology solutions to assist network design, such as transport management systems (TMS)

route planning for distribution.

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Transport Economics

• The discipline of allocating resources within the transport sector and maximising the commercial and operational efficiency of a transport operation.

• Has a dependent and derived demand – it is created in response to the demands by customers or consumers for products to be transported.

• It operates within constraints, such as peak demands and flow speeds limitations of specific modes.

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Transport EconomicsDrivers of transport economics

Five key drivers in transport economics:1. Density of product

2. Stowability/stackability:

a) vertical strength of the packaging (a function of packaging quality and pallet configuration)

b) weight of the products to be stacked

c) possible movement during transport and nature of the products

3. Handling

4. Liability

5. Market

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Transport EconomicsEfficiency theory• ‘Rule of efficiency’ – term used to denote

efficiencies gained in transport operations through: minimising handling at points of transfer between modes consolidating and break-bulk activities at freight terminals maximising capacity of the transport vehicle avoiding travelling empty whenever possible.

• ‘Economy of distance’ – decreasing cost per unit as the distance increases.

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Transport Economics

Cost groups• Business costs in general, and transport costs in

particular, are divided into four categories:1. Variable costs – sometimes referred to as direct or

marginal costs, are inherent in operating a transport service (labour and fuel).

2. Fixed or indirect costs – unaffected by the operational variable such as shipment volume.

3. Joint costs – created as a consequence of operational decisions that need to be recovered.

4. Common costs or overheads – typically administrative costs, such as company management and office facilities, are incurred on behalf of all parts of the business.

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Transport EconomicsTransport pricing• The decision about which approach to use

concerning transport pricing, or the pricing of transport services, will be conditioned by business factors, such as: the cost and value component of the commodities to be

transferred operating conditions economics of the customer’s industry.

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Transport EconomicsTransport pricing• Criteria under which pricing is established are:

1. Route related

2. Distance related

3. Volume related

4. Miscellaneous.

• Four basic pricing approaches used by carriers:1. Cost of service

2. Value of service

3. Fully allocated pricing

4. Risk-based contribution margin.

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Carrier Selection and Performance

• Carrier selection is a specific procurement decision made after the mode of transport has been selected.

• Decision is based on a range of criteria: the carrier’s capability geographical presence commercial competitive position equipment availability.

• Operational factors affecting carrier selection can be grouped into cost-, service- and flexibility-related categories.

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Carrier Selection and Performance• Cost category factors:

What is the end-to-end total cost of working with this carrier?

How willing is the carrier to develop a pricing arrangement that aligns with the potential client’s business model?

• Service category concerns: Operations service (performance and low damage/ loss

incidence).

• Customer service (accuracy of billing, claim investigation and processing, ability to ‘track and trace’ the goods, performance reporting).

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Carrier Selection and Performance

• Flexibility-related categories addresses the carrier’s responsiveness to: changes in requirements equipment availability scheduling flexibility.

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Carrier Selection and PerformanceMeasuring transport performance• Analysis of transport performance plays a crucial role in

managing the transport task.

• Good-quality data about customer requirements and performance levels achieved by the carrier is essential.

• Includes despatch and delivery dates (and in some instances times) and damage or loss information from the receiver.

• Data is consolidated to form the transport metrics and includes: order turnaround time on-time delivery loss or damage rates inventory accuracy

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A Framework for Supply Chain Logistics - Oakden chapter 07

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