Lect 3 Transportation Management Points

7/25/2019 Lect 3 Transportation Management Points

1/6

Transportation Management System

Introduction:

The rapidly expanding global economy ofers both opportunities and

challenges or transportation and distribution companies. As the volume o

goods being shipped around the world grows, market players ace increasing

competition.Transport management, also reerred to as transportation and

logistics management, studies the processes involved in the planning and

coordination o delivering persons or goods rom one place to another.

Transportation managers are responsible or the complete reception and

efective shipment o cargos or a trading company. They also deal with the

sae and reliable transportation o passengers, as well as developingshipment relationships and partnerships.The ancient Romans were arguably

the rst people to employ transport managers and planners. Their extensive

network o Roman roads certainly reuired extensive planning and

management, and some clever centurion chap denitely decided to make

them all nice and straight.

!n the modern world, transport management and planning is eually as

important. "ithout these guys, transport routes, systems and policies would

not be careully planned, coordinated and improved. "e would nd train

lines stopping in the middle o nowhere, roads leading to brick walls, and

airplanes would #ust be $ying around in the air not knowing where to land.

%areers in this area are beginning to change more and more, especially with

increasing concerns or congestion, land management and environmental

issues. &fectively, transport planning is concerned with the design, location,

evaluation, analysis and assessment o transport routes, inrastructure and

acilities. These important decisions are all based on expert knowledge o

environmental, social and behavioral science issues.

TRANSPORTATION ECONOMICS

Transportation &conomic strategies reduces transportation cost andincreases delivery reliability through collaboration across all modes andproviders. Transportation &conomics depends upon ollowing elements'


2/6

1. FACTORS

Transportation economics are driven by seven actors. "hile not directcomponents o transport tarifs, each actor in$uences rates. Theactors are'

(a) *istance

(b) "eight

(c) *ensity

(d) +towability

(e) andling

() -iability and

(g) arket.

The ollowing discusses the relative importance o each actor rom ashipper/s perspective. 0eep in mind that the precise impact o eachactor varies, depending on specic market and productcharacteristics.

(a)istanceis a ma#or in$uence on transportation cost since it directlycontributes to variable expense, such as labor, uel, andmaintenance. 1irstly, the cost does not begin at 2ero because thereare xed costs associated with shipment pickup and deliveryregardless o distance. +econd, the cost increases at a decreasingrate as a unction o distance. This characteristic is known as the

Tapering Princip!e.

(b)"eig#tThe second actor is load weight. As with other logisticsactivities, scale economies exist or most transportationmovements. This relationship, between weight and cost, indicatesthat transport cost per unit o weight decreases as load si2eincreases. This occurs because the xed costs o pickup, delivery,and administration are spread over incremental weight. This


3/6

relationship is limited by the si2e o the transportation vehicle. 3ncethe vehicle is ull, the relationship begins again with each additionalvehicle. The managerial implication is that small loads should beconsolidated into larger loads to maximi2e scale economies.

(c)ensityA third actor is product density. *ensity is the combinationo weight and volume. "eight and volume are important sincetransportation cost or any movement is usually uoted in dollarsper unit o weight. Transport charges are commonly uoted perhundredweight (%"T). !n terms o weight and volume, vehicles aretypically more constrained by cubic capacity than by weight. +inceactual vehicle, labor, and uel expenses are not dramaticallyin$uenced by weight, higher4density products allow xed transportcost to be spread across more weight. As a result, higher densityproducts are typically assessed lower transport cost per unit oweight. The relationship o declining transportation cost per unit o

weight as product density increases. !n general, tra5c managersseek to improve product density so that trailer cubic capacity canbe ully utili2ed.

(d)Sto$a%i!ityreers to how product dimensions t intotransportation euipment. 3dd package si2es and shapes, as well asexcessive si2e or length, may not t well in transportationeuipment, resulting in wasted cubic capacity. Although density andstowability are similar, it is possible to have items with similar

densities that stow very diferently. !tems having rectangular shapesare much easier to stow than odd4shaped items. 1or example, whilesteel blocks and rods may have the same physical density, rods aremore di5cult to stow than blocks because o their length and shape.+towability is also in$uenced by other aspects o si2e, since largenumbers o items may be nested in shipments whereas they may bedi5cult to stow in smalluantities. 1or example, it is possible toaccomplish signicant nesting or a truckload o trash cans while asingle can is di5cult to stow.

(e)&and!ing+pecial handling euipment may be reuired to load and

unload trucks, railcars, or ships. !n addition to special handlingeuipment, the manner in which products are physically groupedtogether in boxes or on pallets or transport and storage will impacthandling cost.


4/6

()'ia%i!ityincludes product characteristics that can result in damage.%arriers must either have insurance to protect against potentialdamage or accept nancial responsibility. +hippers can reduce theirrisk, and ultimately transportation cost, by improved packaging orreducing susceptibility to loss or damage.

(g)Mar(et1inally, market actors such as lane volume and balancein$uence transportation cost. A transport lane reers to movementsbetween origin and destination points. +ince transportation vehiclesand drivers typically return to their origin, either they must nd aback4 haul load or the vehicle is returned or deadheaded empty."hen empty return movements occur, labor, uel, and maintenancecosts must be charged against the original ront4haul movement.Thus, the ideal situation is to achieve two4way or balancedmovement o loads. owever, this is rarely the case because odemand imbalances in manuacturing and consumption locations.

1or example, many goods are manuactured and processed in theeastern 6nited +tates and then shipped to consumer markets in thewestern portion o the country. This results in an imbalance involume moving between the two geographical areas. +uchimbalance causes rates to be generally lower or eastbound moves.ovement balance is also in$uenced by seasonality, such as themovement o ruits and vegetables to coincide with growingseasons. *emand location and seasonality result in transport ratesthat change with direction and season. -ogistics system designmust take such actors into account to achieve back4haul economieswhenever possible.

7.TRANSPORTATION COSTIN)

The second dimension o transport economics and pricing concerns thecriteria used to allocate cost. %ost allocation is primarily a carrierconcern, but since cost structure in$uences negotiating ability, theshipper/s perspective is important as well. Transportation costs are

classied into a number o categories. 8ariable %osts that change in apredictable, direct manner in relation to some level o activity arelabeled variable costs. 8ariable costs in transportation can be avoidedonly by not operating the vehicle. Aside rom exceptionalcircumstances, transport rates must at least cover variable cost. Thevariable category includes direct carrier cost associated withmovement o each load. These expenses are generally measured as acost per mile or per unit o weight. Typical variable cost components


5/6

include labor, uel, and maintenance. The variable cost o operationsrepresents the minimum amount a carrier must charge to pay dailyexpenses. !t is not possible or any carrier to charge customers a ratebelow its variable cost and expect to remain in business long. 1ixed&xpenses that do not change in the short run and must be paid even

when a company is not operating, such as during a holiday or a strike,are xed costs. The xed category includes costs not directlyin$uenced by shipment volume. 1or transportation rms, xedcomponents include vehicles, terminals, rights4o4way, inormationsystems, and support euipment. !n the short term, expensesassociated with xed assets must be covered by contribution abovevariable costs on a per shipment basis. 9oint &xpenses created by thedecision to provide a particular service are called #oint costs. 1orexample, when a carrier elects to haul a truckload rom point A to point:, there is an implicit decision to incur a #oint cost or the back4haulrom point : to point A. &ither the #oint cost must be covered by the

original shipper rom A to : or a back4haul shipper must be ound. 9ointcosts have signicant impact on transportation charges becausecarrier uotations must include implied #oint costs based onassessment o back4haul recovery.

Common Costs' This category includes carrier costs that are incurredon behal o all or selected shippers. %ommon costs, such as terminalor management expenses, are characteri2ed as overhead. These areoten allocated to a shipper according to a level o activity like thenumber o shipments or delivery appointments handled. owever,allocating overhead in this manner may incorrectly assign costs. 1or

example, a shipper may be charged or delivery appointments whennot actually using the service.

CARRIER PRICIN) STRATE)*:"hen setting rates, carriers typicallyollow one or a combination o two strategies. Although it is possible toemploy a single strategy, the combination approach considers trade4ofs between cost o service incurred by the carrier and value oservice to the shipper.

Cost+o,+Ser-ice:The cost4o4service strategy is a buildup approach

where the carrier establishes a rate based on the cost o providing theservice plus a prot margin. 1or example, i the cost o providing atransportation service is ;7


6/6

a!ue+o,+Ser-ice' An alternative strategy that charges a price basedon value as perceived by the shipper rather than the carrier cost oactually providing the service is called value4o4service. 1or example, ashipper perceives transporting =

Lect 3 Transportation Management Points

Documents

Transcript of Lect 3 Transportation Management Points