CONTENTS

INTRODUCTION FACTORS AFFECTING TRANSPORTATION DECISIONS

DIFFERENT MODES OF TRANSPORTATION AND THEIR COMPARISON

Transportation
Refers to the movement of goods across the supply chain. Transportation related decisions affect cost as well as responsiveness of the supply chain. Key decisions made by a firm are - selection of transportation strategy - choice of transportation mode

Factors Affecting Transportation Decisions

Carrier (party that moves or transports the product)
Vehicle-related cost Fixed operating cost Trip-related cost

Shipper (party that requires the movement of the product between two points in the supply chain)
Transportation cost Inventory cost Facility cost

Transportation cost
It depends on two factors - distance - quantity of goods to be shipped. Economies of scale and economies of distance graphs show how the transportation cost varies with distance and the quantity of goods.

Economies of Scale
The more items (weight) is transported, the less the transportation costs per item (unit of weight)
$100/book

Transport ation Cost per Book

$.10/book

1 Number of Books in Shipment Supply Chain Logistics Management

1000

Economies of Distance
Tapering Principle
The larger the distance, the less the transportation costs per unit of distance (e.g., per mile)
$.10/mile

Transport ation Cost per Mile

Tapering P rinciple

$.05/mile

$50/mile

1 mile

500 miles Shipment Distance Supply Chain Logistics Management

1000 miles

Modes of transportation
Supply chain uses five major modes of transportation : Air Rail Road Water pipeline

Cost Structure For Each Transportation Mode

Rail

high fixed costs (land, tracks)

low variable costs (operating costs, e.g., labor, fuel) slow, but inexpensive way to transport heavy freight that doesnt require special handling, long distances

Supply Chain Logistics Management

Cost Structure For Each Transportation Mode

Water

moderate fixed costs (ships and freight handling equipment)

low variable costs (operating costs, e.g., labor, fuel) very slow, but inexpensive way to transport large, heavy freight over long distances (e.g., oceans, rivers, inland waterways, lakes)

Supply Chain Logistics Management

Cost Structure For Each Transportation Mode

Highway

low fixed costs (government builds, maintains highways)

medium-high variable costs (operating costs, e.g., labor, fuel) most accessible mode (more highways than railroads, waterways, pipelines); best for transporting medium to high value products short to moderate distances

Supply Chain Logistics Management

Highway

LTL less than truckload

TL truckload Specialty

Supply Chain Logistics Management

Cost Structure For Each Transportation Mode

P ipeline

highest fixed costs (right of way & construction costs of equipment)

lowest variable costs (no significant labor or fuel costs) slow, but dependable (e.g., no weather, traffic disruptions); no flexibility with regard to types of products that can be transported must be liquid (e.g., petroleum)

Supply Chain Logistics Management

Cost Structure For Each Transportation Mode

Air

low fixed costs (aircraft and freight handling equipment)

highest variable costs (e.g., labor, fuel, maintenance) very fast; used for transporting high value and/or high perishability product over short to medium distances.

Supply Chain Logistics Management

Comparison of modes of transportation on supply chain performance measures

Freight cost Lot size Delivery time Losses and damage