chapter 10 carrier strategies. carrier operating conditions operating network with assets spread...

Chapter 10

Carrier Strategies

CARRIER OPERATING CONDITIONSOperating Network• With assets spread over vast geographic

territories, managers face difficult management control issues.

1. First, assets and equipment must be deployed to the shippers’ location, which requires continuous monitoring of equipment location and customer demand. Dilemma of operating the vehicle empty to a shipper’s location, incurring operating cost without revenue.

Management control issues :

2. Second, a high proportion of operating tasks is performed beyond the scope of supervisors. Truck drivers, pilots, engineers, and the like perform their duties in the absence of immediate supervision. The supervisors of equipment operators are typically hundreds or thousands of miles away. Technology is the link that enables the supervision of geographically separated operators.

management control issues :

3. Third, the vast geographic operating network is interrelated and interdependent. That is, the origin terminal, pickup vehicles, consolidation terminals, and so on, all must work together to accomplish the delivery of the shipper’s freight. Information technology connects


4. Fourth, the carrier’s operations and equipment are continually exposed to weather conditions and other hazards beyond the control of management.

5. Other hazards beyond management control include traffic congestion and calamities.


6. operating equipment is located throughout a widespread area, making it difficult for carriers to protect equipment against vandalism, pilferage, and sabotage

Operations

• Transportation operations come into direct contact with the general public, making safety a critical factor.

• Because of these interactions with the general public, transportation accidents have the potential for doing great harm to many people.

Operations

• The need for safety, coupled with the high proportion of tasks performed without immediate supervision, necessitates extensive operating rules.

• consequences of accidents resulting from unsafe operations are so excessive that the cost of rigidity is miniscule in comparison.

Operations

• Gorvernment safety regulations: transporting hazardous materials.

• carriers are concerned with the safe delivery of the cargo. That is, the carriers desire delivery of cargo and passengers without damage or undue delay.

Labour

• transportation is a service, and one of the characteristics of a service is that it cannot be inventoried.

• If a labor strike occurs in a transportation company the operation is stopped and no service is provided.

Labour

• The carrier cannot produce the service in anticipation of the strike, inventory the service, and then sell it during the strike.

• This inability to provide service during a strike causes considerable disruption to society in the form of canceled travel, plant closings, and product shortages.

Performance Measures

• The service performance measurements include time, consistency, and damage.

• Time – Delivery time• Consistency - Consistently producing a

desired transit time, free of damage, is a value to a carrier because it provides a value to the shipper in the form of reduced inventory and stockout costs

Performance Measures

• Damage - damage to cargo negatively impacts the shipper and/or receiver by rendering the delivered item useless, thereby setting the stage for the shipper and/or receiver to incur stockout costs.

Financial performance measures

• By monitoring financial performance, carrier management attempts to efficiently use resources (capital and human) employed in the business.

• financial performance measurements consider the short- and long-term financial performance of a carrier and the efficient use of resources.

• NOTES

OPERATING STRATEGIES

• The rule of efficiency states that it is most efficient to move in a continuous, straight line whenever possible. This rule describes the most efficient movement for goods and people.

• Intermediate handlings should be minimized.

OPERATING STRATEGIES• The full capacity of the transportation vehicle

should be maximized on each run. (fixed costs) (plane capacity = 50 passengers)


• Consolidation and break-bulk activities should be used to achieve full capacity for long-haul moves.

• One means of attaining full equipment use is to use a pickup and delivery network to accumulate freight for the line-haul efficiency.


• Empty mileage should be minimized. The cost of moving an empty vehicle is almost that of moving a loaded one without the offset of revenue.

• Empty kilometres represent wasted fuel, labor, capital costs, and lost revenue.


• Movements should be scheduled and dispatched so as to fully use labor and equipment in line with the market.

• Transportation service cannot be stored. Because the service must be in place for the market, this rule calls for the optimal equipment levels to be in place with the required personnel.

TECHNOLOGY AND EQUIPMENT

• The more expensive the long-haul vehicle, the greater the required investment in fast load/unload and other support equipment.


• The economies of high capital investment call for high utilization of the equipment throughout the day, week, month, or year

• Because these expensive investments are only earning revenue when they are running, firms strive to operate with a minimum of down time or loading and unloading time


• Generally, the larger the vehicle, or the more freight or passengers that can be moved in it, the less each unit will cost to move.

• Carriers may dedicate vehicles to particular routes based on power, speed, and maneuverability. Example?


• the size of vehicle used on a particular route is determined in part by the demand on the route.

• Carriers attempt to match the vehicle carrying capacity with the demand on the route


• The fastest possible speed is not always the most efficient for economical operations. The cost of fuel consumption in relation to speed for most transportation vehicles is shown in Figure 10.1.


• Carriers attempt to maximize the length, width, and height of vehicles so as to increase cubic carrying capacity and loadability.


• Larger vehicle dimension strategy is particularly important to carriers moving low- density freight.

• A larger vehicle permits the shipper to increase the shipment size that in turn lowers the cost per unit shipped.

• The longer the trailer, the greater the cubic capacity, the higher the shipment weight, and the lower the cost per Rand transported.

• Shippers of low-density freight desire carriers to have high cubic capacity vehicles permitting larger loads and lower freight costs.


• Equipment should be standardized as much as possible.

• Standardized equipment simplifies planning, purchasing, crew training, maintenance, and spare parts inventories.

THE HUB-AND-SPOKE ROUTE SYSTEM

• The hub-and-spoke system concentrates the flow of passengers and freight along a fewer number of routes with a main mixing point (hub) at a center.

• It expands the number of points the carrier can offer travelers with good schedules, and it concentrates more business into a fewer number of runs.

MARKETING

• Transportation firms are faced with the challenge of developing and marketing something that cannot be felt, inventoried, or tested.

• This makes the marketing of carrier services extremely important to the profitability of the firm, and a knowledge of marketing concepts is critical to this success.

MARKETING

• Service marketing is different from product marketing because of the differences between products and services.

1. First, services are intangible. The inability to see, feel, and try a service before it is produced makes it more difficult to sell and more difficult for buyers to make purchase decisions.

Service marketing characteristics

2. Second, there is a focus on the service provider.

• For example, flight satisfaction influenced by flight attendant .

• truck drivers who make customer deliveries can reinforce the positive image of a carrier or change a customer’s perception of that image.


3. service providers are usually highly labor-intensive.

• This can make service quality subject to more variability.

• Although carriers have high investments in equipment, people actually provide the service.


4. there is a simultaneous production and consumption of services; that is, there is no inventory.

• Transportation services cannot be produced before demand occurs to take advantage of production economies.

• Equipment, in the form of capacity, can be put into place in anticipation of demand, but production of transportation service occurs at the same time as demand.


5. services are perishable.

• A move by rail has no shelf life.

• Likewise, empty seats on an airplane are lost forever immediately after takeoff.

MARKETING

• Carriers that stress operations are more likely to optimize their existing system at the expense of customer satisfaction.

• They tend to be inflexible and are very inwardly focused.

MARKETING

• On the contrary, marketing-oriented carriers stress customer satisfaction by tailoring their system and services to meet customer needs.

• These carriers are outwardly focused, are very flexible, and perceive themselves to be supportive of a buyer or receiver’s logistics and business needs.

• The logical extension of this marketing orientation is the establishment of carrier outsourcing, third-party operations.

• Most of the major trucking companies and air cargo carriers have outsourcing subsidiaries that offer a wide variety of value-added services to their customers.

• These outsourcing subsidiaries enable the carrier to differentiate its services from its competitors and gain customer business

COORDINATION

• A hallmark of successful carrier firms is that a close coordination exists between marketing and operations departments.

• A close link ensures that marketing efforts are conducted with operational costs in mind and that an operating department does not allow marketing efforts to be wasted on poor service.

CHALLENGES AFFECTING CARRIER MANAGEMENT

• geographically dispersed - By their very nature, carrier operations take place over vast distances.

• This causes carriers to rely upon tight controls, often with decentralized structures and close communications.

• he dispersion problem is compounded by the fact that the firm’s product availability is constantly in motion.


• The carrier employee who came in contact with the customer traditionally had been given relatively low status and training within the carrier organization.

• Today’s carriers, however, have realized the importance these customer-contact personnel play in shaping customer perceptions concerning service quality.


• Transportation operating employees are often minimally supervised.

• carrier crews often come into contact with their supervisors for only minutes per day and often only by phone or radio.

• Without supervision, a driver has the potential opportunity for low performance and little accountability to the terminal managers.


• This has caused many carriers to implement strong communication and performance measurement systems.

• Satellite communication technology also permits carrier management to track the progress of operating equipment and personnel


• Single accountability for the transportation service “product” is often minimal (geographic dispersion).

• Although transportation service standards can be established, without effective discipline and accountability, reliable service is difficult to maintain.


• It is often very difficult to determine the exact cost of transportation.

• Transportation is an activity in which the total cost consists of large amounts of fixed, overhead, and joint costs.

THE TERMINAL: THE BASIC TRANSPORTATION SYSTEM

COMPONENT• General Nature of Terminals

• A terminal is any point in a carrier’s network where the movement of freight or passengers is stopped so some type of value-adding activity can be performed.

General Nature of Terminals

• One of the basic tenets of logistics is to keep an item moving at a constant speed through the system.

• Once this item is stopped, costs are incurred, so a delay at a terminal must add more value than it incurs costs.

• An overview of the terminal’s role in the transportation process is given in Figure 10.3.

Various value-adding activities or services that terminals provide: concentration or consolidation. This activity takes small shipments or

groups of passengers and combines them to make larger units.

Various value-adding activities or services that terminals provide: dispersion or break-bulk. The opposite of consolidation, this activity

involves separating larger units of freight or passengers into smaller units, normally for delivery to final destination.

Consolidation and dispersion are usually performed simultaneously at most types of terminals.

Various value-adding activities or services that terminals provide:

• Shipment services are also performed at terminals.

• These involve the storage of freight or accommodating passengers in transit, the protection of freight or passengers from the elements, and routing and billing.

Various value-adding activities or services that terminals provide: Many types of terminals are used to provide

vehicle services, which could include equipment maintenance and the storage of equipment until it is needed.

In LTL networks, break-bulks serve as major maintenance facilities for line-haul equipment and also temporarily store equipment that is not needed during periods of slow business.

Various value-adding activities or services that terminals provide: Finally, terminals can provide shipment

process services such as weighing services, customs inspections, claims processing, and interchange operations.

Terminal Ownership

• If the terminal is owned by the carrier, it will incur fixed costs, such as interest, depreciation, and taxes that will not vary in total with the volume of freight.

• As volume increases through these terminals, however, the fixed-cost allocation per unit will decrease, which can be an indicator of economies of increased utilization.

Terminal Ownership

• The other method of terminal financing is through government ownership.

• In this case, the government (state, local, or federal) owns the terminal facility and charges carriers a user fee based on their activity level at the facility.

• This still results in the burden of high fixed costs. • However, the government bears this burden and

passes it along to users as a variable cost. • This variable cost can affect the carrier’s cost

structure and, ultimately, its pricing structure.

Types of Terminals

MOTOR CARRIER (TRUCKLOAD)• Truckload movements consist of one

shipment between one consignor and one or more consignees i.e. no intermediate handlings – no consolidation etc

• These terminals are designed primarily to accommodate drivers and equipment, but not freight

MOTOR CARRIER (TRUCKLOAD)

• these facilities normally provide dispatching, maintenance, and fuel and maintenance services

MOTOR CARRIER (LTL) Terminal

• The most common type of terminal found in the LTL system is the pickup and delivery (PUD) terminal, also called a satellite or end-of-the-line (EOL) terminal. The PUD terminal serves a local area and provides direct contact with both shippers and receivers.


• During and after the deliveries, freight will be picked up from customers and returned with the driver to the terminal at the end of the day.

• When all the drivers return at the end of their shifts, the terminal will have freight to be consolidated and moved outbound to customers in other areas of the country.


• The basic terminal services performed at these facilities are consolidation and dispersion / break-bulk.

Terminal Management Decisions

NUMBER OF TERMINALS• The degree of market penetration and customer

service desired by the carrier will help determine the number of terminals to establish

• The decision as to the number of terminals in a carrier’s network is ultimately based on total cost.

• The carrier will examine the fixed and variable costs of operating different numbers of terminals in a system and select the number that minimizes total costs.


LOCATIONS OF TERMINALS

• Market penetration and potential will help determine terminal location.


EQUIPMENT SELECTION AND DEVELOPMENT

• Truckload and LTL carriers need to make two types of decisions: what type of tractor (power) and what type of trailer.

EQUIPMENT SELECTION AND DEVELOPMENT

• Power must be specified to be able to handle the size and length of the load along with the terrain over which it travels.

• Decisions regarding trailers include length and trailer type (dry van, refrigerated, ragtop, container, flatbed).

• END

chapter 10 carrier strategies. carrier operating conditions operating network with assets spread...

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