MANAGEMENT OF TRANSPORTATİON

Chapter 1Transportation, the Supply

Chain, and the Economy

CHAPTER 1 TOPİCS

The 2000s: A Decade of Challenge

The Logistics ConceptThe Supply Chain ConceptTotal Cost AnalysisBusiness Logistics ActivitiesTransportation and the

Economy2

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CHAPTER 1 TOPİCS, CONT’D

Historical SignificanceEconomic SignificanceEnvironmental SignificanceSocial SignificancePolitical SignificanceOverview of Modern TransportationOverview of Transportation Trends

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CHAPTER 1 TOPİCS, CONT’D

Demand for TransportationDemand Measurement UnitsLevel of AggregationDemand ElasticityFreight TransportationValue of ServicePassenger Transportation

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THE 2000S: DECADE OF CHALLENGE

1990s put focus on business fundamentalsQuality, value add of customer service

First decade of 2000s Ever increasing customer expectationsIncreasing strategic and operational

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

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THE 2000S: DECADE OF CHALLENGE, CONT’D Continuously emerging challenges:

Increasing e-business activity via InternetFulfillment characterized by

smaller shipment sizes more frequent deliveries residential delivery requirements push to reduce inventory levels

Increasing world trade and global business operationsLengthening and more transport intensive supply chains 6

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THE 2000S: DECADE OF CHALLENGE, CONT’D

Continuously emerging challenges, cont’dChanging nature of business alliances

Push for asset productivity and improved processes

Expanding scope of 3PL servicesAlliances among competitors

Ever changing, more capable technologyMany operating efficienciesCommunications (Ex: GPS)Data capturing (Ex: RFID) 7

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THE LOGİSTİCS CONCEPT

Military origins Early business applications

Physical distribution integrationMaterials management integration

DefinitionProcess orientationIntegrated management Systems decision-making frameworkFocus on customer requirements

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TOTAL-COST ANALYSİS Interdependencies

Among logistics activitiesBetween functional areas within firmBetween 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

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BUSİNESS LOGİSTİCS ACTİVİTİES

Movement-storage interactionImpact of transportation decisions

on other corporate functionsUtility creationMaterials managementPhysical distribution

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TRANSPORTATİON AND THE ECONOMY

Transportation: a tool of civilized societiesEssential element of daily life

Conceptual views of transportationEnabler of utility creationAs a bundle of services at a certain

costFactor of productionMarket access Spatial and temporal relationships 16

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HİSTORİCAL SİGNİFİCANCE

Development of civilizationCreation of social structuresCommunicationFacilitation of tradeMilitary conquest and national

defense

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ECONOMİC SİGNİFİCANCECONCEPTUAL FOUNDATİONS

Value of goodsPlace utility, Lardner’s Law,

producer-consumer gapTime and quantity utilities

Utility of goods: additional conceptsGeographic specializationLarge-scale productionIncreased competitionLand values

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ECONOMİC SİGNİFİCANCE, CONT’D

Transportation patternsPatterns of tradeImpact on population locations

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

Transport: 15.7% of GDP in 2001Downward trend due to improving transport productivity

Modal split – passengers, freight21

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ENVİRONMENTAL SİGNİFİCANCE

The EnvironmentAir qualityAcid rainGlobal climate changesMaritime and water qualityNoise

SafetySubstance Abuse

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SOCİAL SİGNİFİCANCE

EmploymentApprox. 4.7 million(10%) workers

employed in transport in U.S. (2000)

Employment growing Enhancement of health and welfare

Social integrationFamine and other disaster relief

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POLİTİCAL SİGNİFİCANCE

Governmental responsibilityRegulatory role examples

Common carrier conceptPower of eminent domain

Promotional role examplesFacilitation of commercePreservation of national defense

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OVERVİEW OF MODERN TRANSPORTATİON

Prior material: broad impact of transportEconomic (micro and macro) environmental, social, political

Three decision-making groups shape the transport system :Users: create the demand

requirementsProviders: supply, operate, and

manage services to meet demandGovernment: develop policy, supply

infrastructure, and regulate29

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OVERVİEW OF TRANSPORTATİON 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

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DEMAND FOR TRANSPORTATİON 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 aggregationTotalBy modeBy carrier

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DEMAND (PRİCE) ELASTİCİTY

Sensitivity of demand to price change Relative measure between price change

and quantity change % change in quantity ¸ % change in price

TerminologyPrice elastic: demand is sensitive to

price changePrice inelastic: demand is insensitive to

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DEMAND (PRİCE) ELASTİCİTY, CONT’D

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

If % change in quantity > % change in price, then demand is price elasticPrice increase leads to revenue reductionPrice reduction leads to revenue increase

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DEMAND (PRİCE) ELASTİCİTY, CONT’D

Aggregate demand for freight transportation tends to be price inelasticCost for transport generally small %

of product’s landed cost Demand for particular mode or carrier

tends to be price elasticOften, substitutes are available

Service elasticity

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FREİGHT TRANSPORTATİONDEMAND CHARACTERİSTİCS

Derived demandDef: 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 locationRemember, demand is a relationship between price and quantity demanded

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

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VALUE OF (TRANSPORT) SERVİCE, CONT’D

Transport cost is a component of a product’s landed costTransport 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

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FREİGHT RATE EQUALİZATİON

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

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VALUE OF (TRANSPORT) SERVİCE, CONT’D

Service components of freight demandTransit time

Volume and cost of holding inventoryPotential stockout costs

Reliability or consistency of transit timeSafety stock and/or stockout costs

Accessibility: impacts transport cost and time

Capability: “special” service requirementsSecurity: safety stocks and stockout costs

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PASSENGER TRANSPORTATİON

Expenditures for passenger movement 10% of GDP

Intercity (long-distance) passenger travelDemand influenced by trip purpose

Business travel - schedule-sensitiveVacation travel - price-sensitivePersonal travel

Urban transit (intracity passenger travel)

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