William DeWitt, Ph. D. Teaching Professor University of Maryland, College Park

Transportation in Supply Flow Networks:The Critical Process

Federal Highway Administration’s Freight Discussion Series – December 2000

William DeWitt, Ph. D.

Teaching Professor

University of Maryland, College Park

December 2000 FHWAWilliam J. DeWitt, Ph.D.

Transportation and Supply Flow Networks

• Supply Flow Networks (SFN) Defined and Discussed

• Transportation’s Critical Roles in SFN

• Summary


Supply Flow Networks

• Flow – to move with a continual change of place among the parts

• Supply – to make available a quantity• Networks – an interconnected or interrelated

chain, group, or system

• Complements of Webster’s Third New International Dictionary


Distribution

Semi-Processed

ManufacturingFinal Product

orParts/Components

Warehousing

Consumer

Retail

RecycleReturnRepair

Assembly

TransportationFromthe Earth-

Plantsor

Minerals

Personal Auto

Transportation

Transportation

Transportation

$

Industry/Business

Supply Flow Networks"Earth to Earth Flows

With Value-Added Processes"(c) William DeWitt, Ph.D. - November 2000

"From the Earth" - Mining or Harvesting; Limitedoptions; Few ubiquitous"Semi-Processed" - Generally near mining orharvesting; Conversion to usable form or structure"Manufacturing" - Final Product or Parts &Components; Driven by weight, labor, capital andfinal markets"Assembly" - Final Product; Growing high flexibilitywith IT and postponement; generally nearconsumption"Warehousing" - Move to staging and cross-dockfrom storage

TraditionalLogistics

Supply FlowNetwork Options

KEY

Distribution

Distribution

Transportation


Significance of Supply Flow Networks

• Raw Materials sourcing is fixed and limited in scope for most materials; Related weight/bulk shedding semi-processing is similarly limited

• Manufacturing, Assembly and Warehousing are value-added exercises; CAD/CAM and postponement making them more variable in the flow

• As Channels of Distribution change, i.e., wholesalers, jobbers, distributors, retailers, driven by ecommerce, transportation requirements change dramatically

• Consumption is relatively fixed


Freight Transportation Importance

• Major Cost of Logistics – 40 to 60%

• Integral and Essential Link for Global Supply Chains

• Dynamic Inventory Will Rival Static Inventory


Transportation as a Major Cost Component of Logistics

Source Transportation Costs($ Billions)

Transportation % of Logistics

Costs

Transportation % of Sales

Delaney

1998

499(Approx. 6% GNP)

58

Davis & Drumm 1997

45 4.08

Morreale & Prichard

1996

43.4 3.13


Transportation Essential Linkage for International Supply Chains (Sine Qua

Non)

• Logistics now viewed as part of supply chains or supply flow networks (CLM 1998)

• Global information and communication systems (Netcentricity) enhance development of international supply flow networks

• Telegraph and Railroads 100-years ago > Web and Multimodal Transportation today

• Supply Flow Networks are spatial and cannot exist without transportations time and place utilities


Increased Sourcing and Market Distance Mean Increased Transportation

• Sourcing around the world

• Marketing internationally

• Customers indifferent to space, sensitive to time

• Global Supply Flow Networks mean increased distance and transportation

• Global means increased reliance on multimodal transportation


Increased Speed of Transportation Systems

• Customers want process speed

• Achieved through:

• Variance Reduction

• Smoother Connections/Handoffs

• Technology Improvements– RoadRailer

– FastShip

– 747-400F

– 8,000 ++ TEU's


Growing Transportation Complexity/Options and Trade-offs

(Customization and Multimodal)• Optimal Combination of

– Modes

– Equipment

– Information

– Service

• To meet– Speed

– Complexity

– Precision

– Capacity

– Profitability


Transportation and Urban Congestion

• Linehaul capacity (point to point) is significant issue

• Critical issue is the urban congestive failure

• Population growth

• Changes in Supply Flow Network patterns to residences


In-transit (Dynamic) Inventory Will Rival Storage (Static) Inventory

• Production from mass/push to customized/pull

• Large production lots required large inventories

• Erratic transportation of today/past required safety stocks

• Inventory visible and measured in ERP worlds

• Mass customization makes lot size a unit of “one”

• Inventory is expensive (materials/parts, labor, capital = cash)

• Only want inventory stopped long enough to restage or transfer, not stopped for storage


Increased Information and Communications Systems for

Transportation • Netcentricity

– Information

– Communication

• Operational– Control – Capacity and Variance Reduction

– Tracking/Tracing – Future need?

• Market– Forecast

– Adjustments to flow/Stochastics


Wrap-up: Transportation and Supply Flow Networks

• Supply Flow Networks Make Transportation the Focus– Fixed/Limited Sourcing and Consumption

– Ecommerce and channel changes will significantly change transportation requirements

• Transportation and Supply Flow Networks– Major Cost of Logistics – 40 to 60%

– Integral and Essential Link for Global Supply Chains

– Dynamic Inventory Will Rival Static Inventory

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William DeWitt, Ph. D. Teaching Professor University of Maryland, College Park