ch01 transport supply chain economy.ppt

Transportation Sixth Edition

Coyle, Bardi, & Novack © 2006 Thomson

Chapter 1Transportation, the

Supply Chain, and the Economy

Coyle/Bardi/Novack Transportation 6e © 2006 Thomson 2

Chapter 1 Topics

• The 2000s: A Decade of Challenge

• The Logistics Concept

• The Supply Chain Concept

• Total Cost Analysis

• Business Logistics Activities

• Transportation and the Economy


Chapter 1 Topics, cont’d

• Historical Significance

• Economic Significance

• Environmental Significance

• Social Significance

• Political Significance

• Overview of Modern Transportation

• Overview of Transportation Trends


Chapter 1 Topics, cont’d

• Demand for Transportation

• Demand Measurement Units

• Level of Aggregation

• Demand Elasticity

• Freight Transportation

• Value of Service

• Passenger Transportation


The 2000s: Decade of Challenge

• 1990s put focus on business fundamentals– Quality, value add of customer service

• First decade of 2000s – Ever increasing customer expectations– Increasing strategic and operational roles for

transport, logistics, and supply chain management in meeting higher expectations


The 2000s: Decade of Challenge, cont’d

• Continuously emerging challenges:– Increasing e-business activity via Internet

• Fulfillment characterized by – smaller shipment sizes – more frequent deliveries – residential delivery requirements – push to reduce inventory levels

– Increasing world trade and global business operations

• Lengthening and more transport intensive supply chains


The 2000s: Decade of Challenge, cont’d

• Continuously emerging challenges, cont’d– Changing nature of business alliances

• Push for asset productivity and improved processes

• Expanding scope of 3PL services

• Alliances among competitors

– Ever changing, more capable technology• Many operating efficiencies

• Communications (Ex: GPS)

• Data capturing (Ex: RFID)


The Logistics Concept

• Military origins• Early business applications

– Physical distribution integration– Materials management integration

• Definition– Process orientation– Integrated management – Systems decision-making framework– Focus on customer requirements


Total-Cost Analysis

• Interdependencies – Among logistics activities– Between functional areas within firm– Between firm and supply chain partners

• Cost trade-offs within systems– Need for system-wide analysis

• Objective of total-cost reduction• Importance of service level choice

– Relation to revenue generation, strategy


Business Logistics Activities

• Movement-storage interaction

• Impact of transportation decisions on other corporate functions

• Utility creation

• Materials management

• Physical distribution


Transportation and the Economy

• Transportation: a tool of civilized societies– Essential element of daily life

• Conceptual views of transportation– Enabler of utility creation– As a bundle of services at a certain cost– Factor of production– Market access – Spatial and temporal relationships


Historical Significance

• Development of civilization

• Creation of social structures

• Communication

• Facilitation of trade

• Military conquest and national defense


Economic SignificanceConceptual Foundations

• Value of goods– Place utility, Lardner’s Law, producer-

consumer gap– Time and quantity utilities

• Utility of goods: additional concepts– Geographic specialization– Large-scale production– Increased competition– Land values


Economic Significance, cont’d

• Transportation patterns– Patterns of trade– Impact on population locations

• Gross Domestic Product (GDP)– Measure of the size of the economy

• Transport: 15.7% of GDP in 2001

• Downward trend due to improving transport productivity

• Modal split – passengers, freight


Environmental Significance

• The Environment– Air quality– Acid rain– Global climate changes– Maritime and water quality– Noise

• Safety

• Substance Abuse


Social Significance

• Employment– Approx. 4.7 million(10%) workers

employed in transport in U.S. (2000)– Employment growing

• Enhancement of health and welfare– Social integration– Famine and other disaster relief efforts


Political Significance

• Governmental responsibility– Regulatory role examples

• Common carrier concept

• Power of eminent domain

– Promotional role examples• Facilitation of commerce

• Preservation of national defense


Overview of Modern Transportation• Prior material: broad impact of transport

– Economic (micro and macro) – environmental, social, political

• Three decision-making groups shape the transport system :– Users: create the demand requirements– Providers: supply, operate, and manage services

to meet demand– Government: develop policy, supply

infrastructure, and regulate


Overview of Transportation Trends

• Key trends in demand for transport services

• Key trends in supply, operation, and management of transport services

• Key trends in government policy and regulation


Demand for Transportation

• Demand measurement units– Ton-miles (freight)– Passenger-miles (people)– Heterogeneous units: Two units may have

• Very different costs of production • Very different service requirements

• Levels of aggregation– Total– By mode– By carrier


Demand (price) elasticity

• Sensitivity of demand to price change

• Relative measure between price change and quantity change

– % change in quantity % change in price

• Terminology– Price elastic: demand is sensitive to price change– Price inelastic: demand is insensitive to price

change


Demand (price) elasticity, cont’d

• If % change in quantity < % change in price, then demand is price inelastic (insensitive to price change)– Price increase leads to revenue increase– Price reduction leads to revenue reduction

• If % change in quantity > % change in price, then demand is price elastic– Price increase leads to revenue reduction– Price reduction leads to revenue increase


Demand (price) elasticity, cont’d

• Aggregate demand for freight transportation tends to be price inelastic– Cost for transport generally small % of

product’s landed cost

• Demand for particular mode or carrier tends to be price elastic– Often, substitutes are available

• Service elasticity


Freight TransportationDemand Characteristics

• Derived demand– Def: Demand for transport service to move a

product to a given location depends upon the existence of demand to consume (use) that product at that location

• Remember, demand is a relationship between price and quantity demanded

– Aggregate demand for freight transport cannot be easily affected by carrier actions


Value of (Transport) Service, cont’d

• Transport cost is a component of a product’s landed cost– Transport costs influence a producer’s landed cost

advantage/disadvantage in distant markets, thus determining the value of the transport service to the producer

– Similar to place utility concept

• Landed cost also determines extent or range of a producer’s market area (Lardner’s Law) and thus value of transport service


Freight Rate Equalization

• To increase market area freight rates are equalized (averaged) with mor distant points being subsidized and nearer points penalized

• Can be national in scope or regional

• Freight rates are part of product pricing strategy


Value of (Transport) Service, cont’d

• Service components of freight demand– Transit time

• Volume and cost of holding inventory• Potential stockout costs

– Reliability or consistency of transit time• Safety stock and/or stockout costs

– Accessibility: impacts transport cost and time– Capability: “special” service requirements– Security: safety stocks and stockout costs


Passenger Transportation

• Expenditures for passenger movement – 10% of GDP

• Intercity (long-distance) passenger travel– Demand influenced by trip purpose

• Business travel - schedule-sensitive

• Vacation travel - price-sensitive

• Personal travel

• Urban transit (intracity passenger travel)

ch01 transport supply chain economy.ppt

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