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Transportation Transportation inin

Supply Chain Supply Chain

ByPratick Gayen .

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Learning ObjectivesLearning Objectives

• Role of Transportation in Supply Chain

• Factors affecting Transportation Decisions

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Role of Transportation in Role of Transportation in Supply ChainSupply Chain

• Transportation refers to the movement of product from one location to another .

• It plays a key role in every supply chain because products are rarely produced and consumed in the same location .

• Transportation is a significant component of the cost of the Supply Chain .

• Any supply chain’s success is closely linked to the appropriate use of transportation .

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What the Companies are What the Companies are doing ?doing ?

• Wal-Mart - It has effectively used a responsive

transportation system to lower its overall costs.

- To achieve a high level of product availability at reasonable price , WM carries low level of inventory (relative to demand) at its stores and replenishes frequently as product is sold .

- It uses cross-docking .- Transportation is thus a key to WM’s ability

to improve the matching of supply and demand while keeping costs low .

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• Amazon.com relies on package carriers and the postal system to deliver customers orders from centralized warehouses.

• Dell manufacturer out of one location in the US uses responsive transportation provided by package carriers to provide customers with highly customized products at a reasonable price .

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There are two key factors in any transportation that takes place in SC:

- The Shipper : It is the party that requires the movement of the product between the two points in the SC.

- The Carrier : It is the party that moves or transports the product .

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Transportation related decisions taken , vary depending on whether one takes the perspective of a carrier or a shipper .

- A carrier, makes investment decisions regarding the transportation infrastructure ( rails, locomotives, trucks , airplanes etc.) and then makes operating decisions to maximize the returns from these assets .

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- A shipper, in contrast, uses transportation to minimize the total cost ( Transportation ,Inventory, information and facility) while providing appropriate level of responsiveness to the customers .

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Factors affecting Factors affecting Transportation DecisionsTransportation Decisions

• Vehicle Related costs : This is the cost a carrier incurs for the purchase or lease of the vehicle used to transport goods. This cost is proportional to the no. of vehicles leased or purchased .

• Fixed Operating Cost :This includes any cost associated with terminals, airport gates and labour that are incurred whether vehicles are in operations or not .It is proportional to the size of the operating facilities .

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• Trip related cost :This cost includes the price of labor and fuel incurred for each trip and is independent of the quantity transported . This cost depends on the length and duration of the trip and is independent of the quantity shipped .

• Quantity Related Cost : This category includes loading/unloading costs and a portion of the fuel cost that varies with the quantity being transported .

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•Overhead Cost : This includes the cost of planning and scheduling a transportation network as well as any investment in IT .

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Shipper’s decision includes : - Transportation network. - Choice of means of Transportation. - The assignment of each customer

shipment to a particular means of transportation .

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Factors affecting Factors affecting Shipper’s DecisionsShipper’s Decisions

• Transportation Cost : This is the total amount paid to various carriers for transporting products to customers .

• Inventory Cost : This is the cost of holding inventory incurred by the shipper’s supply chain network .

• Facility Cost :This is the cost of various facilities in the shipper’s supply chain network .

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• Processing Cost : This is the cost of loading/unloading orders as well as other processing costs associated with transportation .

• Service Level Cost : This is the cost of not being able to meet delivery commitments .

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A shipper must make a trade-off between all these costs when making transportation decisions .

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Thanks …