Chapter 7: Transportation

Learning Outcomes
Explain the role transportation plays in the supply chain.

Discuss the service and cost characteristics of the primary transportation

modes.

Discuss the key activities involved in transportation planning and

execution.
What are the main drivers of transportation decisions within a firm?

Introduction
Transportation involves the physical movement of goods between origin

and destination points.

The transportation system links geographically separated partners and

facilities in a companys supply chain.

Transportation facilitates the creation of time and place utility in the

supply chain.
Transportation also has a major economic impact on the financial

performance of businesses.
Transportation service availability is critical to demand fulfillment in the

supply chain.

C1

C2

C3

C4

C5

C6
VENDORS
INBOUND
TRANSPORTATION

PLANTS

INTERFACILITY DISTRIBUTION OUTBOUND CUSTOMERS TRANSPORTATION CENTERS TRANSPORTATION

Functions of Transportation
Product movement
Temporal Resources Financial Resources Environmental resources Product Storage

Principles of Transportation
Economies of Scale
Economies of Distance

Participants in Transportation Decisions

The shipper The consignee The Carrier The government The public

Key Transportation Decisions

Selection of Transportation Strategy:
Transportation strategy would involve designing the most

effective way of reaching products to geographically dispersed

markets from plants in a cost effective way.

Choice of Transportation Mode:
Choosing the most effective mode of transport from among

several feasible options.

Factors Affecting Freight Cost

Volumes
Distance Product density

Product shape/Stow ability

Product handling Product type

Liability
Market dynamics

Modes of Transportation
Primary modes of transportation

truck rail air water pipeline intermodal transportation

Modes of Transportation
Modal breakdown: U.S.A stats.

Trucking 80.0 % $635 billion Rail 06.7% Air 04.7%

Water 04.6%
Pipeline 01.2%

Road transportation
Advantages Flexibility Door to door service Reliability Cost-comparative and negotiable Access to remote places Disadvantages Environmental pollution Varying handling condition Strong packaging required Slow speed

Rail Transportation
Advantages Disadvantages

Any type of commodity can be moved Low freight cost compared to road and air Large carrying capacity

Varying handling conditions Strong packing required Needs loading/unloading platforms Low delivery reliability

Air Transportation
Advantages Disadvantages

Speed Low packaging cost Good security Less risk

High Freight cost Limitation on size Needs airport facility

Water Transportation (Sea and Inland)

Advantages
Cheapest freight cost No capacity constrains Size and shape no bar No environmental problems

Disadvantages
Varying handling conditions Strong packing required Weather conditions affect delivery Slow movement

Classification of Carriers
Common Carriers
Contract Carriers Private Carriers Specialized Carriers

Modal Selection

Characteristic of Goods
Availability Distance

Cost
Delivery time Frequency

Modal Selection
Product Safety
Safety advantage: Air transportation and motor carriage Safety disadvantage: Rail and water

Cost
Cost advantage: The cost of transportation service varies greatly between and within the modes Cost disadvantage: Motor carriage and air transportation

Modal Selection
The nature of a productsize, durability, and value

Durability

Product value

Shipment characteristicssize, route, and required speed

Multi Modal / Inter modal Transportation

Piggy Back Road + Rail Fishy Back Road + Water Birdy Back Road + Air

SELF STUDY : Transportation Cost

Variable Cost Fixed Cost Joint Cost Common cost

Summary Chapter 7
Functions and Principles of Transportation Factors influencing Transportation cost

Modes of Transportation
Classification of Carriers