Supply Chain Management

Chapter 9 : Managing Transportation in a Supply Chain

Role of Transportation in a Supply Chain

Function of Transportation in a Supply Chain

Product Movement Product Storage

Participants in Transportation Decisions

The Shipper
The Carrier
The Receiver or Consignee
The Government

Costs that Influence Transportation Decisions

Costs Affecting Shipper’s Decisions

Transportation Costs Processing Costs Inventory Costs Customer service Level Costs

Costs Affecting Carriers Decisions

Fixed Costs
Variable Costs

Modes of Transport

Road Transport
Rail Transport
Water Transport
Pipelines
Air Transport
Intermodal Transport

Transportation Network Design

Direct Shipment Network
Direct Shipping with Milk Runs
Shipments Managed from a Centralized Distribution Center
Shipping via Distribution Center using Milk Runs

Tailored Networks

Tailored Transportation based on Customer Density and Distance
Tailored Transportation according to the Size of the Customer
Tailored Transportation According to the Product Demand and Value

Trade-offs in Transportation Network Design Decisions

Transportation and Inventory Cost Trade-offs

Choice of Transportation Mode Inventory Aggregation

Trade-offs Between Transportation Cost and Customer Service Level

Transportation Analysis Decisions

Transportation Analysis Techniques

Heuristic Approaches
Exact Approaches
Interactive Approaches
Combination Approaches.

Chapter Summary

Transportation is one of the major items of cost in a supply chain. As a firm's ability to serve the customers depends on how efficiently and quickly the orders are delivered, transportation management becomes one of the important operations in a supply chain. In this chapter, we first discussed the functions of transportation.

There are two important functions performed by transportation: product movement and product storage. While product movement is the primary function of transportation, temporary product storage becomes its secondary function. Later, we examined the participants present in the transportation environment.

There are five key participants in transportation environment: the shipper, the carrier, the receiver or consignee, the government, and the public. Then, we examined the costs to be considered while making transportation decisions. From the shipper’s perspective, transportation costs, facility costs, inventory costs, processing costs, and customer service level costs are to be evaluated before taking any transportation decisions.

From the carrier’s perspective, fixed costs like that for the terminal, information systems, equipment, vehicles, and variable costs like fuel costs, personnel costs, and toll fees need to be evaluated. Later we presented the design options for transportation networks. These are: direct shipment to the retail outlets, direct shipping with Milk Runs, shipments managed from a centralized distribution center, shipping via distribution center using Milk.

Runs and tailored transportation. Then we discussed the trade offs to be made in transportation decisions. There are two important trade-offs that a firm has to make: transportation and inventory cost trade-off, and transportation costs and customer service level trade-off. Finally, we discussed various transportation analysis techniques used by the firms. They are: the heuristic approach, the exact approach, the interactive approach, and the combination approach.

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