CH08 TRANSP

Global Logistics and Supply Chain Management

John Mangan Chandra Lalwani Tim Butcher

ISBN: 978-0-470-06634-8

PART II: SCM-Operations “5-11”

PART II: SCM-Operations “4-11”

1. Logistics Service Providers

2. Procurement/ Outsourcing

3. Inventory Management

4. Warehousing/ Materials Handling

5. Transportation

6. Information Flow

7. Logistics & Financial Management

8. Measuring Logistics Performance

Chapter 8

Transport in Supply Chains

Learning objectives

1. Understand the cost structures and operating characteristics of the

different transport modes, and the relationships between freight rates

and consignment weight, dimensions and distance to be travelled

2. Highlight key terms used in transport

3. Identify the range of issues to be considered in planning transport

infrastructure

Learning objectives

4. Discuss the roles of distribution centers and highlight the concept of

factory gate pricing

5. Explain the application of a technique known as the transportation

6. Identify some of the many issues (including the effect of supply

chain strategies) that can impact the efficiency of transport services

Figure 8.1 Relationship between rate and distance

Figure 8.2 Relationship between rate per kilo and consignment weight

Table 8.1 A Summary of costs and relative operating characteristics of the different transport modes

Mode Relative Costs and Operating Characteristics by Mode

Air Fixed cost is on the lower side but variable cost, including fuel, maintenance, security requirements, etc., is high. The main advantage of air is speed; it is however limited in uplift capacity, similarly other modes of transport are required to take freight to and from airports, thus air cannot directly link individual consignors and consignees

Road Fixed cost is low as the physical transport infrastructure, such as motorways,is in place through public funding; variable cost is medium in terms ofrising fuel costs, maintenance and increasing use of road and congestioncharges. In terms of operating characteristics, road as a mode of transportscores favourably on speed, availability, dependability, and frequency, butnot so good on capability due to limited capacity on weight and volume.Uniquely among transport modes, it can allow direct access to consignor andconsignee sites.

Water Fixed cost is on the medium side, including vessels, handling equipment andterminals. Variable cost is low due to the economies of scale that can be enjoyedfrom carrying large volumes of freight, this is the main advantage of the watermode, together with its capability to uplift large volumes of freight. Like air, itcannot offer direct consignor to consignee connectivity, and vessels are sometimes limited in terms of what ports they can use. It is also quite a slow mode.

Rail Fixed cost is high and the variable cost is relatively low. Fixed cost is high dueto expensive equipment requirements, such as locomotives, wagons, tracksand facilities, such as freight terminals. On relative operating characteristics,rail is considered good on speed, dependability, and especially capability tomove larger quantities of freight.

Pipeline Fixed cost is high due to rights-of-way, construction and installation, but thevariable cost is relatively low and generally just encompasses routine maintenance and ongoing inspection/security. On operational characteristics, the dependability is excellent but this mode can only be used in very limited situations.

Figure 8.3 Modal split for freight transport in the EU 25 in 2005 (% tonne kilometres)

2- Intermodal transport

Where freight moves within a loading unit (known as an ITU – Intermodal Transport Unit), this unit may move upon a number of different transport modes

But the freight remains within the unit at all times Various types of ITUs:

– Standard sized containers (typically 20 and 40 feet in length)

– ‘Igloo’ containers used in air freight

3- Planning transport infrastructure

A complex task for policy makers Transport is a derived demand:

– people or freight does not travel for the sake of making a journey, it travels for some other reason

4- Factory Gate Pricing-FGP

Retailers take control of the delivery of goods into their distribution centres

This gives a single point of control for the inbound logistics network

FGP is the use of an ex-works price for a product plus the organisation and optimisation of transport by the purchaser to the point of delivery

Figure 8.4 Inbound logistics in the retail sector

Figure 8.5 The evolution of grocery distribution

The impact of the primary consolidation network with FGP

Table 8.2 The Impact of the Primary Consolidation Network

Product Type

Scenario Weekly Transport Miles (normalised)

Weekly Transport Cost (normalised)

Volume Segregation 100%

Direct Consolidated

Ambient-Temp

As is 100 100 88.7% 11.3%

FGP design 74.7 (25.3) 86.1(13.9%) 16.7% 83.3%

Composite-Temp

As is 100 100 39.0% 61.0%

FGP design 77.0 (23) 82.8 (17.2%) 12.8% 87.2%

5- The transportation model

Seeks to work out a minimum total transport cost solution for the number of units of a single commodity that should be transported from given suppliers to a number of destinations

The transportation model

Understanding Logic– SCM Manager

– Stakeholders• Supplier Side

• Demand Side

• Finance Side

The transportation model

Let us assume that the amount of supply at origin i is s i and demand at destination j is

d j and the unit cost between i and j is c ij . Let x ij be the amount or the number units

transported from origin i and destination j. The transportation problem using linear programming can be defined as follows:

Minimise total transport cost C = ij

ijc (1)

subject to

for i = 1,2,É É ,m (2)

for j = 1,2,É É ,n (3)

ijx o for all i and j (4)

•Algorithm

The Transportation ProblemShip items at lowest costSources have fixed suppliesDestinations have fixed demand

Transportation Problem(1)

The Alpha Limited Manufacturers W.M TEXT pp143

The Alpha Limited Manufacturers Transportation Cost

Don caster Newcastle

Birmingham 25 ₤/ton 35

Manchester 15 20

Glasgow 40 30

The Alpha Limited Manufacturers W.M Transportation Tableau

DC(1)Don caster

DC(2)Newcastle

Plant Capacity

P(1)Birmingham

? ? 300

P(2)Manchester

? ? 200

P(3)Glasgow

? ? 150

DC-Demand 400 250

Solving Transportation Problems

Manual methodsStepping-stoneModified distribution (MODI)

Computer solutionExcelPOM/QM for Windows

Computer solutionExcelUsing Solver Adds-In

1. Build The Optimization Model

A. Cost Drivers

B. Supply/Demand Model

C. Total Cost (Shipment*Cost)

D. Constraints

2. Optimize (Solve using Solver)

The Alpha Limited Manufacturers Optimization Using Solver

DC(1)Don caster

DC(2)Newcastle

Plant Capacity

P(1)Birmingham

300 *25 ---*35 300

P(2)Manchester

100 *15 100 *20 200

P(3)Glasgow

---- *40 150*30 150

DC-Demand 400 250

Total Cost ₤9,000 ₤6,500 ₤15,500

• From From GRAIN FARMERGRAIN FARMER SUPPLYSUPPLY

1.Kansas City1.Kansas City 1501502.Omaha2.Omaha 175175Des MoinesDes Moines 275275

600 tons600 tons

• To MILLTo MILL DEMANDDEMAND

A.A. ChicagoChicago 200200B.B. St. LouisSt. Louis 100100C.C. CincinnatiCincinnati 300300

600 tons600 tons

•COST MODELCOST MODEL TO MILLTO MILL

•FROM GRAINFROM GRAIN ChicagoChicago St. LouisSt. Louis CincinnatiCincinnatiFARMERFARMER AA BB CC

•Kansas CityKansas City $6$6 $8$8 $10$10•OmahaOmaha 77 1111 1111•Des MoinesDes Moines 44 55 1212

•SUPPLY/DEMAND MODEL

The Transportation Tableau

•FROM/TO FROM/TO ChicagoChicago St. Louis Cincinnati St. Louis Cincinnati SUPPLY/Ton SUPPLY/Ton

•Kansas CityKansas City $6$6 $8$8 $10$10 150150•OmahaOmaha 77 1111 1111 175175•Des MoinesDes Moines 44 55 1212 275275•DEMAND/TonDEMAND/Ton 200200 100100 300300 600600

•Example 7.1Example 7.1

•Demand (tons)Demand (tons)•Supply (tons)Supply (tons)

•Des Moines (275)Des Moines (275)

•Omaha (175)Omaha (175)

•Kansas City (150)Kansas City (150)

•Chicago (200)Chicago (200)

•Cincinnati (300)Cincinnati (300)

•St. Louis (100)St. Louis (100)

•$7$7

•$11$11•$6$6

•$8$8

•$12$12

•$10$10

The Transportation Tableau•TOTO

•FROMFROM ChicagoChicago St. Louis St. Louis Cincinnati Cincinnati SUPPLY SUPPLY

•Kansas CityKansas City 66 88 1010 150150•OmahaOmaha 77 1111 1111 175175•Des MoinesDes Moines 44 55 1212 275275•DEMANDDEMAND 200200 100100 300300 600600

•$11$11

•$4$4

•$5$5

GRAIN/MILLS DISTRIBUTION Optimization Using Solver

Mill(1)Chicago

Mill(2)St.Louis

Mill(3)Cincinnati

Plant Capacity

P(1)Kansas

0 0 150 150

P(2)Omaha

25 0 150 175

P(3)DM

175 100 275

Mills-Demand

200 100 300

Total Cost 4,525$

6- Transportation Efficiency

Seeking Efficient Asset utilization Streamlining Shipments Container Load

Figure 8.7 Poor asset utilisation in transportStreamlining Shipments

Full container loads

The term FCL is used in transport to refer to full container loads

The term LCL is used to refer to less than full container loads

When carriers have a consignment that will not fill an entire loading unit they will usually try and build a consolidated shipment to make up a FCL

CH08 TRANSP

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