TRANSPORTATION

Movement

of product from one

location to another from beginning
of supply chain to the customer
It is a significant component of costs
incurred by most supply chains
It is a significant link between the
various stages in supply chain
If affect cost as well as
responsiveness of supply chain

Key decision
Selection

of transportation
strategy: it involves 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.

To

practice effective, cost efficient

Logistics Management, an organization
must lay the foundation for
aresponsive,economicaltransportatio
n network. With a responsive,
economical transportation network, an
organization is able to implement
major strategic changes to reduce
costs and increase customer service
levels

Transportation

cost is influenced by
the demand-supply gap between the
points of origin and destination.
Nature of product and its demand
characteristics also affect supply
chain costs in a significant way.
The transportation cost for a given
mode of transport is a function of
the distance and the quantity of
goods shipped.

With

increasing distance the rate of

increase of transportation costs will go
down.
For longer distances travelled, the
related fixed costs at the points of origin
and destination are distributed over
more kilometers.
Longer the distances travelled, the
overall utilization of the vehicle is likely
to be higher. This is know as economies
of distance in transportation

Truck

operators always prefer

full-truck load (FTL) shipment.
With less than load (LTL)
shipment, the transport operator
will have to run the vehicle at low
capacity utilization or will have to
aggregate a number of small
shipments in one trip, which will
increase transaction cost for an
operator.

Transportation choice depends

on..
Transportation

cost structures
Nature of product
Inventory levels & carrying costs
Demand characteristics of
product
Demand uncertainty and safety
stocks

Modes of Transport
Rail
Road
Water
Air
pipeline

Rail

Ideal mode of transport for low-density

products which are not sensitive to time.
Long and unreliable lead times
Road

trucks dominant mode of transport

Expensive than rail
Responsive and reliable
Shorter delivery lead time
Congestions in transit

Water:

Extensively used for international cargo

Slowest among all transport modes
Delays at ports
High density goods
Air

fast and expensive

Time sensitive and high-value density goods
Pipeline

- used for crude and petroleum

products
Intermodal use of more than one mode of
transport to move a shipment to its destination.

Rail
Case

work
Study Indian railways network with
respect to their different region for
transportation (key points to be
covered are: length and capacity of
Indian railways, strength and
weakness of IR, revenue, goods,
cost, price, challenges etc.)
www. Indianrail.gov.in,
www.railnet.gov.in

Rail
(rail transport in India)
Use

in long distance freight

High fixed cost (rail, locomotives, cars,
yards, trip related labor and fuel)
Idle time is expensive in case of powered
Idle time occurs due to track congestion,
exchange of coaches
Major goal is to utilize track and trains
Used for long distance, heavy, non time
sensitive materials
Pricing strategy matters lot

Water
Ocean

carriers are limited to certain

areas
Inland waterway system and coastal
waters
Suited for very large loads at low cost
Used for bulk commodity shipments
(cheapest- slowest mode), significant
delays at ports and terminals
Dominant mode in global trade
Containerization is latest trend used

Water shipment

Multimodal

transport is generally
considered as most efficient way of
transportation
Among the choices of transportation
available, each one is having its own
advantages and disadvantages.
Multimodal allows providers to
combine in one voyage the advantages
of each mode, such as flexibility of
road and cost advantage of rail.

Comparison of modes
transportation on SC performance
Freight

cost: water is least expensive mode and

air is the most expensive mode
Lot size: bigger lot sizes via water mode and
small lot sizes via air mode. Bigger lot sizes
results in bigger cycle-inventory.
Delivery time : through water it is longest and
air shipment is shortest. It affects the lead time
and safety stock.
Delivery time variability : variability in lead time
is highest in water mode and lowest for air.
Losses and damages : highest in rail and least in
water

Total

cost = transportation cost +

cycle-stock inventory carrying
cost + safety-stock inventory
costs + cost of losses and
damages

Design options for transportation

network
Direct

shipment network
Direct shipping with milk runs
All shipments via central DC
shipping via DC using Milk runs
Tailored network

Direct Shipment
Ship

directly from each plant to

each market
Advantage of eliminating
intermediaries, warehouses, and
simplicity in co-ordination and
operation.
High volumes and low degree of
demand uncertainty
FTL shipments for economies of
scale

Direct shipments network

Suppliers

Buyer Locations

Aggregate demand across depots

and using milk run from each plant
Aggregating

product-wise demand
across all 3 depots.
Each truck starts from a plant and
visits depots X,Y, and Z in sequence
and comes back to plant to the plant
Depots gets served more often
Increases transportation cost but
reduces cycle-stock inventory
Depots should relatively in close
proximity

Ship via Distribution

centre
Involves

putting additional
facility, and inventory at the DC
Additional loading and unloading
costs at DC

Tailored Network
Suitable

combination of options
that reduces cost and improves
responsiveness of supply chain.

Hub and Spoke Model

All

destinations in the region are interconnected through a central hub

Bicycle wheel- routes are similar to spokes
and the centre in the wheel acts as the
hub
FedEx pioneered the idea of Hub and
Spoke model
Sorting is centralized at hub
New cities to network are easily added
N cities are connected through (N-1) routes
and every city is connected to hub city.

Cross-Docking
Goods

unloaded from incoming

vehicles at the DC are
straightaway loaded on to trucks
that originate from DC.
No inventory at the warehouses
This results in transit of full truck
loads of goods and frequent
delivery of supply, without being
invested in physical DC.

Trade- offs in Transportation

design
All

designs should take in to

account
-Inventory cost
-Facility and processing cost
-cost of coordinating operations
-level of responsiveness provided
to customers