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Transportation In A Supply Chain

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Raihaana Mohammed

on 28 March 2013

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Transcript of Transportation In A Supply Chain

Budapest San Francisco Transportation in a Supply Chain Role of Transportation in Supply Chain Modes of Transportation & their Performance Characteristics
1. Air
2. Package Carriers
3. Truck
4. Rail
5.Water
6. Pipeline
7. Intermodal Risk Management in Transportation Transportation Infrastructure & Policies Air Package Carriers Trucks Rail Water Pipeline Intermodal Role of Transportation
in the Supply Chain Entails moving inventory from point to point in the supply chain. It can take the form of many combinations of modes and routes, each with its own performance characteristics. Transportation choices have a large impact on supply chain responsiveness and efficiency. Also known as a driver of supply chain performance and one of the many tools of analysis. Design Options for a Transportation Network LEARNING OBJECTIVES 1. Understand the role of transportation in the supply chain
2. Evaluate the strengths and weaknesses of different modes if transportation
3. Discuss the role of infrastructure and policies in transportation
4. Identify the relative strengths and weaknesses of various transportation network design options
5. Identify trade offs that shippers need to consider when designing a transportation network Supply Chain Parties 1. Shippers

2. Carriers

3. Owners and operators transportation infrastructure

4. The bodies that set transportation policy worldwide Owners & operators
of infrastructure Carrier Shipper Bodies that set policy
worldwide Airlines have
3 cost
components

1. a fixed cost of infrastructure & equipment,
2. fixed labor and fuel cost independent of cargo & passengers, and
3. a variable cost that depends on the passengers or cargo carried The design of a transportation network affects the performance of the supply chain, a well designed transportation network allows a supply chain to achieve a desired degree of responsiveness at a low cost. Therefore three basic questions need to be considered when designing the transportation network between any two stages in the supply chain: Most of the cost of a flight is incurred when it takes off, therefore an important objective of an airline is to maximize the revenue generated per flight.

Hence, Air carriers offer a fairly expensive mode of transportation for cargo.

Small high valued items or time sensitive emergency shipments that have to travel a long distance are best suited for air transport. Roads, Seaports, Airports, Rails, and Canals are some of the major infrastructural elements along nodes and links in a transportation network In most countries, government has either taken full responsibility or played a significant role in building and managing of these infrastructure elements. Improved infrastructure has played a significant role in the development of transportation and the resulting growth of trade. 6 Design Options for a Transportation Network a. Direct Shipment Network to Single Destination
b. Direct Shipping with Milk Runs
c. All Shipments via Intermediate Distribution Center with Storage
d. All Shipments via Intermediate Transit Point with Cross - Docking
e. Shipping via DC using Milk Runs
f. Tailored Network Suppliers Buyer Locations a. Direct Shipment Network to Single Destination the buyer structures the network so that all shipments come directly from each supplier to each of their location b. Direct Shipping with Milk Runs Milk run to Multiple
Buyer Locations Milk runs from Multiple Suppliers S
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S A milk run is route on which a truck either delivers product form a single supplier to multiple retailers or goes from multiple suppliers to a single buyer location. c. All shipments via Intermediate Distribution Center with Storage DC S
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S Product is shipped from suppliers to a central distribution center where it is stored until needed by buyers when it is shipped to each buyer location. User Examples:

1. Frito Lay uses milk runs to make direct store deliveries to lower Transportation cost.

2. Toyota uses uses milk runs to support its’ JIT manufacturing system in both Japan and the US. User Example:

Wal-mart successfully uses cross-docking to decrease inventories without incurring excessive Transportation cost.
They build many large stores in a geographic area supported by a DC. As a result, the total lot size to all stores from each supplier fills trucks on the inbound side to achieve economies of scale. d. All shipments via intermediate Transit Point with Cross-Docking Suppliers send their shipments to an intermediate transit point (could be a DC) where they are cross docked and sent to buyers locations without storing them. The product flow is similar to the previous except that there is NO STORAGE at the intermediate facility or DC. e. Shipping via DC using Milk Runs Three main types of risks when transporting a shipment between two nodes:- 1. The risk that the shipment is delayed.
2. The risk that the shipment does not reach its destination because intermediate nodes or links are disrupted by external and/or unpredictable forces.
3. The risk of hazardous material -Are transportation companies such as FedEx, UPS, DHL, etc which carry small packages ranging from letters to shipments weighing about 150lbs.
-Use air, truck & rail for time-critical packages. Are expensive and cannot compete with LTL carriers on price for large shipments.
-Are the preferred mode of transport for online businesses such as Amazon & Dell.
-Process???? The trucking industry consists of two major segments:
1. Truckoad (TL)
2.Less than Truckload (LTL)

-is more expensive than rail but offers the advantage of door-to-door shipment and a shorter delivery time.
-TL operations have low fixed costs.
-The industry is characterized by shipments of about 10,000 lbs.
-the challenge in TL business is that most markets have an imbalance of inbound and outbound flows. The goal of a TL carrier is to schedule shipments that provide high revenue while minimizing truck's idle and empty travel time. This is best done by designing routes that pick up loads from markets where the outbound demand exceeds inbound supply. LTL is best suited for shipments that are too large to be mailed as small packages (less than 150 lbs), but constitute less than half a TL.
LTL operations are priced to encourage shipments in small lots. f. Tailored Network This option is a suitable combination of previous options that reduces costs and improves responsiveness of the supply chain.
Uses a combinatoin of cross-docking, milk runs,TL and LTL carriers, & package carriers.
The goal is to use the appropriate option in each situation - High demand products to high demand retail outlets may be shipped directly, while low demand products or shipments to low-demand retail outlets are consolidated to and from the DC. Milk runs can be used from DC of lot sizes to be delivered to each buyer location are small. Milk runs reduce outbound transportation costs by consolidating small shipments. S
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S Given the small size of packages and several delivery points, consolidation of shipments is a key factor in increasing utilization and decreasing costs for package carriers. They have trucks that make local deliveries and pick up packages. Packages are then taken to large sorting centers from which they are sent by full truck, rail or air to the sorting center. From the delivery-point sorting center, the package is sent to customers on small trucks making milk runs. -Water transport by nature is limited to certain areas.
-Primarily used for the movement of large bulk commodity shipments and is the cheapest mode for such loads.
-In global trade, water transport is the dominant mode. In 2001, merchandise trade valued more than $718 billion moved between the US & Foreign seaports.
-A significant trend in maritime trade
worldwide has been the growth in the use of
containers. This has led to a demand for
larger, faster, and more specialized vessels
to improve the economics of container transport. -The price structure and the heavy load capability make rail an ideal mode for carrying large, heavy, or high-density products over long distances. Transportation time however can be long
-Therefore, rail transport is more
preferable for low value shipments
that are not time sensitive. -Used primarily for the transport of crude petroleum, refined petroleum products, and natural gas.
-A significant initial fixed cost is incurred in setting up the pipeline and related infrastructure that does not vary significantly with the diameter of the pipeline.
-Given the nature of the costs, pipelines are
best suited when relatively stable and large
flows are required.
-Pricing Structure??? Pipeline pricing usually consists of two components:

1. a fixed component related to the shipper's peak usage, and,
2. a second charge relating to the actual quantity transported. -Is the use of more than one mode of transport to move a shipment to its' destination.
-Intermodal traffic has grown considerably with the increased use of containers for shipping and the rise of global trade.
-It creates convenience for shippers who now deal with only one entity representing all carriers that together provide the intermodal service. Strategic Questions:
1. Should transportation be direct or through an intermediate site?

2. Should the intermediate site stock product or only serve as a cross-docking location?

3. Should each delivery route supply a single destination or multiple destinations (milk run)? In each case it is important to identify the sources of risk and their consequences and plan suitable mitigation strategies.
Disruption of transportation links or nodes may occur because of natural events such as hurricanes or human-made events such as terrorism.
The best mitigation strategy in this case is to design alternative routings into the transportation network.
When considering both delay and disruption risk, it is important to identify sources that are likely to be correlated across the network.
Other mitigation strategies include using modified containers, and low risk transportation, selecting routes with low accident probability or reduced population, and environmental exposure. Risk Management in Transportation Questions &
Discussions Thank You Distribution & Supply Chain Management
Presentation By:

Raihaana Mohammed
Sherrine Christopher Milk runs lower transportation cost by consolidating shipments to multiple locations on a single truck. Milk runs make sense when the quantity destined for each location is too small to fill a truck but multiple locations are close enough to each other such that their combined quantity fills the truck. Eg: Frito Lay use milk runs to make direct store deliveries to lower Trans cost. Toyota uses milk runs to support its’ JIT manufacturing system in both Japan and the US.
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