Transportation

[Ref. Bowersox page 311] The most visible of all functions of logistics and high contributor to logistics cost Transportation functionality: Functions of transportation 1. Product movement: * What is moved? Raw Material, Semi Finished items, WIP, Finished goods, packaging material, rejected material- movement is required up or down the supply chain
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How is this done? What resources are used? Resources used by transportation: a. Temporal Costs - product is locked up during transit, hence inaccessible b. Financial Costs several cost elements like Admn. Costs, salaries, maintenance costs are incurred. Loss on account of product loss and damage also needs to be accounted for. Cost of fuel for prime mover c. Environmental Costs fuel guzzler, eats up natural fuels
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67% of all domestic fuel used in the US is for transportation. Creates congestion, air pollution and noise pollution. Environmental cost is tangible and substantially intangible. As transportation utilizes temporal, financial and environmental resources items must be moved only when product value is raised 2. Product Storage: a. temporary storage when loading

and unloading is more expensive than

c. Vehicles kept moving on circuitous route. Product storage is expensive in a transport vehicle. But some times keeping overall cost in mind this is adopted. Principles of transportation 1. Economy of scale Bulk shipping brings down per unit transportation cost 2. Economy of distance cost per unit kilometer decreases as the distance moved increases Principles of transportation are fundamental in evaluating transportation strategies.
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Participants in transportation decisions Who are participants in most of the commercial decisions? What makes transportation environment different? Who are the participants in transportation decisions? Who is a shipper? Who is a consignee? Who is a carrier? The government & public Roles and perspective of each party Shipper and consignee: What do they want? Predictable and minimum transit time, minimum cost, specified pick up and delivery times, 2/14/2014 5

zero loss and damage, timely exchange of information and invoicing Carrier: What does he want? Revenue maximization and cost[labor, fuel and vehicle costs] minimization. Flexibility in pick up and delivery times to consolidate moves Government: keen interest, flourishing national economy and transportation Soviet Union and the break up Hunger deaths in India Vs self sufficiency in food production
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 Government control on carrier rates and licenses Government owned carrier service Government support - net work of roads, Airports and ATC, Ports and Harbors Public What do public want? Public as consumers trigger transportation activity by demanding products Easy accessibility transport Goods and services from all over the world at minimum cost
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 Safety - accidents of various kind, oil spills Environmental Concerns atmosphere, water, noise When these parties with separate and distinct interests interact transportation environment is created What is transportation mode? Mode identifies transportation method or form Rail, Road, Water, Air, Pipeline & Ropeway Impact of transport mode & transport time on costs of transportation inventory
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 transit capital obsolescence packaging insurance - air, high insurance breakage What constitutes Transport infrastructure[Transport elements]? What Factors affect the smooth functioning of transport? Terminal facilities - well maintained loading unloading facilities, space for movement of vehicles, platforms, railway yards Vehicles- trucks, ships or wagons. Their size, shape & speed
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 rights of way- passage. Rails, roads, airways, limitations on speed, weight, height Prime movers Routs and sectional capacity Transit Time Weigh bridge facility Distribution Pattern Nature of product Carrier organizations

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What are various features of modes or modal characteristics? How do we measure relative importance of each mode? System mileage, traffic volume, revenue, nature of traffic composition Rail Net Work: Stands out in terms of tonne kilometres moved 226 billion tonne kilo metres and 55.8% of total tonne kilo meters moved in 1982 in India In US 37.4% of ton miles moved were by rail in 1990 Facing very stiff competition after II World War
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 High capital investment due to right of way, switching yards, terminals but low operating costs Focus on specific products than on broad range. Raw material extractive industries away from water ways. Customer friendliness Inter modal transport through alliances and acquisitions in US Development of Specialized Equipment Enclosed tri-level automobile car Cushioned appliance cars

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 Unit trains - entire train carrying a single product that can go directly to the customer articulated cars - flexible unit with extended chasis that can hold ten containers double stack containers- containers in two levels Advantages and disadvantages Road Transport High flexibility and speed ultimate mode of transport rapid growth, post war low capital cost as compared to railways 179.2 billion tonne kilometres and 44.2% of total tonne kilo metres moved in 1982 in India 2/14/2014 13

 Operating costs are higher Ideal for small shipments over short distances Highly labor intensive Occasional fuel shortages Disputes with government Vehicle availability Maintenance and spares costs and availability of service facilities Octroi Old MVA Bad and unsafe road conditions Restrictive permits

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Developments in this area Entry of several manufacturers of trucks Trailers National grid of highways Water transport Sailing vessels, steamships-1800, diesel driven ships-1920 Deep water transport and navigable inland water transport Domestic water transportationlakes, rivers, canals Main advantage of water transportation is its capacity to move extremely large shipments
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 Deep water vessels-designed for ocean and lakes limited to deep water ports Diesel towed barges- high flexibility, disadvantages are range of operation and speed Inland water Transport is not used to its full potential in India although we have used Mechanized IWT since early 1800. Lack of policy, clarity in thinking, receding water levels in the rivers, & tough competition appear to be the hurdles
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Pipelines What is transported in a pipe line? Liquids - oils, crude, petroleum products, In India, extensively used for transporting crude and petroleum products. More than 5,000 km of pipeline exists in India for crude and petroleum products Slurries - coal slurry, iron ore, lime, huge quantity of water is necessary which is a concern for environment. In India pipe line is used for transporting iron ore. Gases and vapors- natural gas, LPG, in India LPG pipe line is in existence
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 Pulverized dry bulk material cement by hydraulic suspension Main features of this mode of transport Reliable all weather means of transport Low energy consumption Pipeline being under ground space occupation is minimal Pipe line operates all the time except when it is shut down for maintenance No empty container or wagon to be brought back
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 Highest fixed costs, right of way and laying of pipeline, and lowest operating costs [ not labour intensive] Not flexible by nature. Pipe lines are stationary Physical state of the commodity is a limitation. This is mode of transport can release capacity of Other modes for transport of essential commodities Rope ways & their suitability hilly and otherwise inaccessible area steep gradients cause minimum ecological imbalance
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 Point of supply and demand can be connected by shortest route. Air transport Speed of transport is highest Fixed costs are lower than rail or road or pipe line. But operating costs are highest Air transport brings distant markets closer - perishables market in gulf countries Overcomes the hassle and cost of setting up depots and service centers overseas Full potential of peak seasonal demand can be taken Moving entire facility & R/M to meet peak demand Test marketing is easy. Products can be shipped directly from the factory 2/14/2014 20

Freight rate structure

Principle of freight rates: 1. Cover actual cost of transportation Factors influencing cost of transportation a. Fixed costs: interest on capital depreciation insurance premium administrative overheads and expenses on fixed facilities b. Semi fixed costs: salaries of the staff miscellaneous maintenance expenses directly related to running
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c. Variable costs: Cost of fuel and lubricants Maintenance directly attributable to a particular trip Damage to the vehicle and also the cargo. Eg. hilly roads, bad roads, war effected sea routes d.Vehicle utilization: Carrier likes to gain maximum mileage out of his vehicle Run the vehicle at top speed to cover max. distance at min time Quote higher rates if following are not conducive to the above Road conditions
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 Terminal detentions [ congestion, formalities, loading/unloading etc.] Obtaining a return load [market factors] Nature of goods, hazardous, corrosive [liability, insurance] Density, consignment light by weight Stowability, shape and size of the product 2. Traffic Bearing Capacity: Value addition by transportation. Transportation cost should not upset the value added
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3. Public use: items to satisfy basic needs of common man should be moderately charged 4. Government Policy: freight rates are controlled by the state for promotion of certain type of trade development of certain type of industry freight rates are hiked or depressed by state 5. Profit: freight rate should cover costs of operation, capital investment and margin for reasonable return on investment
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 entrepreneurial time and efforts funds for future development of business Selection of Carrier constitution of the carriers organization business turn over area of operation branch offices or associates offices strength of fleet list of current clients, for # ascertaining reliability # nature and volume of business # normal transit time quoted by carrier # record of claims settlement by carrier
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 reference from shippers banks, carriers association Inland Container Depots I C Ds are dry ports connect major ports [able to handle container ships] to hinterland facilitate customs clearance, export import formalities ICD to be located after ascertaining export import potential and good road net work serve as consolidation facility and should have handling equipment. Facility to group small consignments goods transfer from road to rail and otherwise increase the export potential of industries in the hinterland decongest major ports
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Transportation policy Components of transportation decisions Mode of transportation Air - most expensive, but very fast Road - relatively quick and inexpensive, highly flexible Rail - An inexpensive mode for large quantities Water - the slowest but most economical for large overseas consignments Pipeline - primarily for oil and gas Route and network selection route is the path the product takes and network is locations and routes along which a product can be shipped 2/14/2014 27

COMPARISON OF TRANSPORTATION MODES

RAIL

ROAD

WATER

AIR PIPE LINE

CAPITAL EX OPERATING COST SYSTEM KM

II III

IV II

III IV

V I

HIGHEST I V

15,03,000 KM

5000 KM

TONNE KM

226

179.2

Billion Billion Tonne Tonne KM SPEED III KM II I IV IV I III V V

AVAILABILTY II [ABILITY TO SERVE A SET OF LOCATIONS]

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DEPENDABILI III TY [MINIMUM DEVIATION FROM SCHEDULE, WEATHER, CONGESTION & OTHER PROBLEMS] CAPABILITY [ CAPACITY TO TACKLE ANY SIZE OF THE LOAD] FREQUENCY [QUANTITY OF SCHEDULED MOVEMENT] IV II

II

IV

III

IV

II

III

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Transportation network options Carrier in house or out sourced whether product owner performs the function or out sources it. Trade off situations - cost of transportation and cost of inventory - cost of transportation and cost of responsiveness to customer A logistics managers options for scheduling and routing decisions are Direct shipment network - From shipper directly to retailers. Features: 1. Warehouses are eliminated 2. Long route, hence low cost
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3. Simplicity of operation 4. Time of transportation is short 5. Decision points are quantity and mode 6. Decisions are on dispatch to dispatch basis 7. Inventory costs and receiving costs are high Direct shipping with milk runs: 1. Single supplier to a number of retailers - deliver like a milkman. 2. From a number of suppliers deliver to a single retailer eg. Toyota plant in US Features: 1. Movement consolidation 2. Truck utilization 3. Transport cost reduction
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 All shipments via Central Distribution Center suppliers to Distribution center and Distribution center to retailers Features: 1. Supply chain costs reduction when distances are large. 2. DC stores inventory and acts like a transfer point 3. Economies of scale in inbound transportation to DC. Outbound transportation cost is low as retailers are close to DC Shipping via Distribution Center Using Milk Runs small lot sizes to large number of retailers from DC.
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1. Consolidation of small lots reduction of outbound Features: transportation cost Tailored Network Tailor made to the company needs Features: 1. Matches the needs of the company 2. Coordination is complex

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DESIGN OPTIONS FOR A TRANSPORTATION NETWORK

Supplier

ALL SHIPMENT S VIA DC

DIRECT SHIPMENT

DIRECT SHIPMENT WITH MILK RUNS

Retail stores Supplier

MILK RUNS FROM DC

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NETWORK STRUCTURE DIRECT SHIPPING

PROS

CONS HIGH INVENTORY SIGNIFICANT RECEIVING EXPENSE INCREASED COORDINATION COMPLEXITY INVENTORY COSTS INCREASED HANDLING INCREASED COORDINATION COMPLEXITY INCREASED COORDINATION COMPLEXITY INCREASED COORDINATION COMPLEXITY STILL HIGER COORDINATION COMPLEXITY

NO DC COORDINATIO N EASY DIRECT LOWER SHIPPING WITH TRANSP COSTS MILK RUNS SMALLER INVENTORY ALL SHIPMENTS MOVEMENT VIA DC WITH COSOLIDATION INVENTORY STORAGE ALL SHIPMENTS LOW VIA DC WITH INVENTORY CROSSDOCK MOVEMENT COSOLIDATION ALL SHIPMENTS LOWER VIA DC WITH OUTBOUND MILK RUNS TRANSORTATI ON COSTS TAILORED TRANSPORTAT NETWORK ON SUITES TO INDIVIDUAL NEEDS

Fig.no.22

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Intermodal Transportation Intermodal movements combine the cost and/or service advantages of two or more modes in a single product movement The more popular combinations are TOFC [Trailer On Flat Car] and COFC [Container On Flat Car]. Benefits of long haul, short time & flexibility are optimized for achieving overall cost reduction

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RAIL

COMMON PIGGY BACK

ROAD

COMMON, CONTRACT, EXEMPT, PRIVATE COMMON, CONTRACT, EXEMPT, PRIVATE COMMON, CONTRACT, EXEMPT, PRIVATE

FISHY BACK

WATER

TRAIN SHIP

AIR

AIR TRUCK [BIRDYBACK]

WATER OR AIR

LAND BRIDGE LAND [RAIL OR ROAD]

WATER OR AIR

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