Transportation in supply chain
Transportation refers to the movement of product from one location to another as it makes its way from the beginning of supply chain to the customers
7-eleven Japan
The objective is to carry products in its stores to match the needs of customers as they vary by geographic location or time of day.
7-eleven uses a very responsive transportation system that replenishes its stores several times a day so that the products available match customers’ needs.
Products from different suppliers are aggregated on trucks according to the required temperature to help achieve very frequent deliveries at a reasonable cost.
Factors affecting carrier decisions
Vehicle-related cost
The cost a carrier incurs for the purchase or lease of the vehicle used to transport goods.
Vehicles related cost incurred whether the vehicle is used or not.
Fixed operating cost
Cost associated with termninal, airport gates, and labor that are incurred whether vehicles are used or not.
Ex. Fixed cost of a trucking terminal facility that is incurred independent of the number of trucks visiting the terminal
Trip-related cost
Cost that is incurred each time a vehicle leaves on a trip and includes the price of labor and fuel.
Trip-related costs depends on the length and duration of trip but is independent of the quantity shipped.
Quantity related cost
These costs include loading/unloading costs and a portion of the fuel cost that varies with the quantity being transferred
Overhead cost
Costs of planning and scheduling a transportation network and investment information technology are included in this category
Factors affecting shipper’s decisions
Transportation cost
Total amount paid to various carriers for transporation products to customers. Transportation costs are considered variable for all shipper decision as long as the shippers does not own the carrier.
Inventory cost
Cost of holding inventory incurred the shipper's supply chain network.
Inventory costs are considered fixed for short term transportation decisions.
Inventory costs are considered variable while desigining the transportation network.
Facility cost
Costs of various facilities in the shipper's supply chain network.
Considered as a variable cost while making strategic design decisions
Considered as a fixed cost for all other transportation decisions.
Processing cost
Cost of loading/unloading orders and other processing costs associated with transportation.
Considered as a variable cost for all transportation decisions.
Service level cost
Cost of not being able to meet delivery commitments.
Sometimes can be considered in strategic, planning, and operation decisions.
Transportation network design
Direct shipment network
All shipments are made directly from suppliers to retail stores.
Routing of each shipment is specified
Supply chain managers have to decide on thequantity to ship and mode of transportation.
Advantages
No Intermediate warehouses
Simple to coordinate
Disadvantages
High inventories
Significant receiving expense as each supplier makes a separate delivery
Direct shipping with milk runs
A milk run is a route in which a truck either
delivers a product from a single supplier to multiple retailer
goes from multiple suppliers to single retailer
Advantages
Lower transportation costs by consolidating multiple shipments
Lower inventories
Disadvantages
Increased coordination complexity
All shipments via central distribution center
Distribution centers are built for each region
Suppliers send their shipments to DC and then DC forwards appropriate shipments to each retail store.
Distribution center can be used to ship inventory or for cross docking.
With inventory storage, lower inbound transportation costs are achieved through consolidation, but it also results in increase inventory cost and increased handling at DC.
With cross docking, the advantages are very low inventory requirements, and low transportation cost through consolidation. The disadvantage is increased coordination complexity
Distribution center design will result in economies of scales in the following ways:
On the inbound side, total lot size to all stores from each supplier fills trucks
On the outbound side, the sum of lot sizes from all suppliers to each retail store fills trucks.
Shipping via distribution center using milk runs
Milk runs can be used from DC if lot sizes to be delivered to each retail store are small
Example: 7-Eleven Japan cross docks deliveries from its fresh food suppliers at its distribution centers and sends out milk runs to retail outlets because the total shipments to a store from all suppliers do not fill a truck.
Advantage: Milk runs reduce outbound transportation
Disadvantage: Further increase in cooridination complexity
Information Technology in a Supply Chain
Importance of information in a supply chain:
Supplier Information
This includes details of product purchase such as product specification, price, delivery schedule, order status, modification, and payment arrangements
Manufacturing Information
This type of information answers such questions as what products can be made, in what quantities, and in what batch sizes
Distribution and Retailing Information
This includes details of products to be transported such as mode of transport, quantity per shipment, storage volumes, etc
Demand Information
This type of information answers such questions as who is buying what product, in what quantities, etc. This also includes forecasting and demand distribution information
Characteristics of information
Accuracy
Timeliness
Relevance
Role of information in supply chain success:
Information access leads to global scope for supply chain activities.
Global scope leads to good decisions.
Good decisions, in turn lead to supply chain success.
Making transportation decisions in practice
Transportation and competitive strategies
Manager should ensure that a firm's transportation strategy supports its competitive strategy.
Firms should evaluate the transportation cost, inventory costs affected by transportation decisions, and level of responsiveness achieved with customers
In house and outsourced transportation
Consider an appropriate combination of company owned and outsourced
Outsourced is a better option when shipments sizes are small
Owning a transportation fleet is better when shipment sizes is large and responsiveness is important.
E-commerce handling capability
Transportation system to the new economy should be very responsive.
Transportation system must be capable of exploiting every opportunity for aggregation to decrease the transportation cost of small shipments
Use of technology
Available technology should be used to decrease costs and improve responsiveness.
Transportation planning and model selection is helped by software from "i2 Technologies", "Caps logistics," and "Logility."
Available technology allows carriers to identify the precise location of and shipments in each vehicle.
Flexible design
Uncertainty regarding demand and availability of transportation should be taken into consideration. Including more expensive, flexible options will reduce the overall cost of providing high level of responsiveness.
Use of information in supply chain
Inventory
Information regarding demand patterns, cost of carrying inventory, costs of stocking out, and cost of ordering is needed to set optimal inventory policies
Transportation
Information regarding costs, customers locations, and shipment sizes is needed to make decisions which integrate operations of manufacturers with suppliers
Facility
Information on trade-offs between efficiency and flexibility, demand, exchange rates, taxes, etc. is required in making decisions regarding location, capacity, and schedules of facilities
Strategic stage | High level in oragization | Long time frame | Little low detail | Highly analytical |
Planning stage | Medium level in oragazation | MEDIUM TIME FRAME | Moderated level of low detail | Combination of transactional and analytical |
Operational stage | Low level in oganzation | Short time frame | Lots of low level detail | Mostly transactional |
Enterprise resource planning (ERP) system
ERP systems are operational information technology systems that gather information from across all functions.
ERP systems have many modules, each covering different functions within a company.
These modules are linked together so that users in each function can see what is happening in other areas.
Some important ERP modules are as follows:
Finance:
This module tracks financial information such as revenue and cost.
Logistics
This module is broken into several sub-modules, each covering a different logistic function such as transportation, inventory management, and warehouse management.
Manufacturing
This module tracks the flow of products through the manufacturing process, coordinating what is done to what part at what time.
Order fulfillment
This module monitors the entire order fulfillment cycle, keeping track of the progress the company has made in satisfying the demand.
Human resources
This module handles all sorts of human resources tasks such as the scheduling of workers
Supplier management
This module monitors supplier performance and tracks the delivery of supplier's products
All of the above modules allow the ERP system to track the status of orders, products, supplies, people, and dollars.
Advantages of ERP systems
ERP systems provide managers broad information availiblity,
ERP systems are good at giving real-time information,
ERP systems are good at using enabling technologies like the internet to share information.
Disadvantages of ERP systems
ERP systems have relatively weak analytical capabilities because of their focus is at the operational level
ERP systems are very expensive and difficult to implement.
ERP Vendors:
SAP
SAP has about 30% of the market. They are expanding their product offerings vertically by developing more analytical functions to be used in supply chain planning
Oracle
Oracle is the second largest vendor after SAP. This has most success with consumers packaged goods companies
PeopleSoft
This started with human resource applications. This company has acquired an analytical software firm in the supply chain area.
JD Edwards
This company started out with building cross-functional systems. It has purchased "NuMetrix," a supply chain software company.
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