CHAPTER 9

Decision Strategies in Transportation

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

9-2Areas in the Supply Chain Affected by Transportation

Planning Procurement Manufacturing Distribution

Network and assetrationalization

Landed costs Interplantmovements

Load plans

Lead times Inbound in-transitinventorymanagement

JIT and otherspecializedservices

Pick lists

Vendor sourcing Reduced rawmaterial and work-in-processinventories

Shippingdocumentationpreparation

Economic orderquantity

Dock scheduling

Outbound shipmentmanagement

Mode/carrierselection

Source: Adapted from The Emergence of Third Party Logistics, White Paper no. 4 (Atlanta, GA: PricewaterhouseCoopers, 1998), p. 5.

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

9-3Mode/Carrier Selection

• Problem recognition

• Search process

• Choice process

• Postchoice evaluation

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

9-4Cost Factors Often Considered in Mode Carrier Selection

• Freight costs

• Inventory carrying costs – inventory in pipeline– cycle stock at the receiving location– required safety stock at the receiving location

• Investment cost required to produce the inventory to fill the pipeline

a

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

9-5Service Factors Often Considered in Mode Carrier Selection

• Perceived quality of customer service• Shipment tracking and tracing capabilities• Billing/invoicing accuracy• Electronic data interchange (EDI) capabilities• Potential to develop mutually beneficial long-term partnership • Cargo capacity limitations• Ability to provide service that does not damage goods in transit• Customs clearance capabilities for international shipments• Impact on the shipper’s negotiating position/leverage on other

shipping activities

9-4 b

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

9-610 Steps in Evaluating Private Carriage Option

1. Define the problem.

2. Develop transport objectives.

3. Collect pertinent information

4. Determine present cost.

5. Analyze present operations.

9-5 a

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

9-710 Steps in Evaluating Private Carriage Option (cont.)

6. Develop alternatives.

7. Determine private fleet costs.

8. Consider indirect factors.

9. Summarize alternatives.

10. Make the decision.

9-5 b

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

9-8Financial Considerations in the Decision to Private Carriage

Capital Requirements

Annual Cash Inflows

Cost of buying or leasing fleet

Cost of maintenance facilities

Cost of terminal facilities

Savings over using public carriers

Reduction in lost sales

Reduction in inventory carrying costs

due to more efficient routing

Total

9-6 a

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

9-9Financial Considerations in the Decision to Private Carriage (cont.)

Annual Cash Outflows

FuelLabor - driversLabor - maintenance and terminalInsurance - trucks

- drivers-maintenance and terminal facilities

License feesParts supplyUtilitiesSupervisionAdministrative- billing, telephone, accounting

Total

Annual cash inflows - Annual cash outflows

9-6 b

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

9-10Steps in Logistics Alliance FormationObjectives and selection criteria

Identify qualified vendors

Needs determinationand request for bids

Evaluate bidders and select

Integrate logistics providers with own systems

Implement and manage the relationship

Measure performanceand analyze deviations

Redefine goals and objectives

Know your needs and wantsDefine criteria

Phase 1 Need awareness

Phase 2 Planning and management

Phase 3 Evaluation

Know the marketplace

Cooperate in management and control

Cooperate in critical review

Logistics IS Train partners

Revisit needs and provider capability

Identify partners

Articulate needs and wants

DO

ACT

CHECK

PLAN

Continuous Improvement Process

Logistics Alliance Phases

7-7