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Tr anspor tation
in
Suppl y Chain
By
Pratick Gayen .
 Learning Objectives

• Role of Transportation in Supply

Chain
• Factors affecting Transportation
Decisions

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 Role of Transportation in
Supply 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
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
Transportation 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
Shipper’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 …

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