Managing Transportation in a Supply Chain Chapter 13. utdallas.edu/~metin

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1 Managing Transportation in a Supply Chain Chapter 13 1

2 Parties Involved in Transportation Carriers, owners of the vehicles; E.g. Passengers by Southwest airlines; Cargo by Cargolux airlines, only freight; Passengers and cargo by railways Shippers, consolidator of shipments; E.g. Postal service; Administrative assistants; Care about Vehicle related costs Fixed operating costs, hubs Trip related costs Quantity related cost Overhead cost Care about Transportation cost -paid to carriers Inventory cost Consolidating facility cost Processing cost Service levels, customer satisfaction Is FedEx a Carrier or a Shipper? 2

3 14.3: Transportation Modes Trucks Rail Air TL: Truckload. High utilization of trucks. LTL: Less than truckload. Fast delivery.» Suffering from high transportation costs, Lennox wants to use more TL in the future. Carload Intermodal Package Carriers Water Pipeline 3

4 Truckload (TL) Average revenue per ton mile in 1996 = 9.13 cents Average haul = 274 miles Average Capacity = 17.5 to 21 tons = 42,000-50,000 lb. Low fixed and variable costs Major Issues Coordination of local and interstate hauls Utilization Backhauls» Return trips are empty» What to send back to China from the U.S.? Consistent service among different companies Dynamic pricing, is the industry ready? 4

5 Less Than Truckload (LTL) Average revenue per ton-mile in 1996 = cents Average haul = 646 miles compare to 274 miles of TL Higher fixed costs (terminals) and low variable costs Major Issues Location of consolidation facilities Utilization Vehicle routing Customer service 5

6 Rail Average revenue / ton-mile in 1996 = 2.5 cents Average haul = 720 miles Average load = 80 tons Key Issues Scheduling to minimize delays / improve service Off track delays (at pick up and delivery end) Yard operations» To build a train on the next page Variability of delivery times Since these important issues are not visible, some may think of railway operations as mundane as pushing brown boxes on a rail. Operations are fairly complicated; a lot of opportunities for improvement for railway companies; see bnsf.com of Forth Worth. 6

7 Yard operations to build a train Disassembling and assembling a train Cities:

8 Air Key Issues for Passenger Airlines, $250 B /year Cost cutting, costs in 2004 are about $0.1 per customer per mile Location/Number of hubs Depeaking: Moving operations away from rush hours Location of fleet bases / crew bases Schedule optimization, Fleet assignment, Crew scheduling» Recent idea: Always keep the same crew with the same aircraft Yield management Cargo Airlines, $40 B /year Shape, weight, volume of the cargo Cargo shippers, consolidators Safety: Risk sharing between shipper and carrier. New legislation expected. Service supply chains deal heavily with airline issues 8

9 How far does 1 Ton of Cargo go with 1 Gallon of Fuel? Source: Brian Wickett Fall 2007 SCM student 9

10 An Example of Multimodal Cargo Transportation Source: A Threat in Every Port. By L. M. Wein. NYT OpEd article on June 14,

11 14.4: Transportation System Design AC Delco: Very high value, low volume parts Three plants: Milwaukee(Wisc), Kokomo(Ind), Matamoros(Mex) 21 assembly plants (customers for above plants) Products: ACs, batteries, hoses, brakes, belts, etc. What are the distribution options? 11

12 All Shipments Direct All Shipments Via Kokomo (with or without cross dock) Milwaukee Milwaukee Kokomo Kokomo Matamoros Matamoros 12

13 Milk Runs Milk run is a loop containing either a single supplier or a single retailer. Milk Runs From Kokomo Milwaukee Milk Runs From Plants Milwaukee Kokomo Kokomo Matamoros Matamoros 13

14 Shipments via a Central Warehouse Shipments via a Central Warehouse Using Milk Runs Milwaukee Milwaukee Kokomo Kokomo Matamoros Matamoros 14

15 Cross Docking This approach is useful if deliveries are time sensitive and there are several small dropoffs in proximity, not all of which can be delivered on a single truck. Items are shifted from one truck to another without going in to storage. Timing of truck arrivals/departures is very crucial. Matamoros Milwaukee Kokomo 15

16 Summary Key modes of transport and major issues Transportation options 16