Transportation Systems Chapter 4: The Customer

• Chapter 4 focuses on the customer and level-of-service in transportation systems.
• It is fundamental to consider the transportation system's customers, such as air passengers or coal executives, as well as what's important to them from the services transportation organizations provide.

Defining the Market Opportunity

• Hamel and Prahalad define the market opportunity as fundamental to the transportation enterprise.
• Drucker stresses that all results are external to the organization, and the business's main purpose is to create customers.

Two Kinds of Transportation Customers

• Freight transportation customers.
• Traveler transportation customers.

Supply Chain Management

• Transportation providers, such as railroads, become an integral part of the customer's logistics, ensuring reliable delivery and pickup of goods throughout the supply chain.

Kinds of Freight

• Different kinds of freight require different levels of service.
• High-value manufactured goods.
• Bulk Commodities like coal and agricultural products.

Level-of-Service Variables for Freight

• Price.
• Travel Time.
• Reliability of Service.
• Availability of Specialized Equipment.
• Probability of Loss and Damage.

Freight Transportation in 1993

• Railroads accounted for 34.8% of ton-miles.
• Trucks accounted for 24.5%.
• Water transport accounted for 21.9%.
• Pipelines accounted for 18.5%.
• Air transport accounted for 0.3%.

Traveler Transportation Customers

• Urban Traveler Transportation.
• Intercity Traveler Transportation.
• International Transportation.

Trip Purposes

• School.
• Job.
• Social Activities.
• Medical needs.

Modes

• Automobile/Highway.
• Bus/Highway.
• Railroads.
• Air.
• Ships/Ferries.

Level-of-Service Variables for Travelers

• Price.
• Travel Time.
• Service Frequency.
• Comfort.
• Reliability.

Customer Choice

• Customers, whether they are freight or traveler, have modal choices and base these choices on the level of service provided by competitors.
• Level-of-service (LOS) is a complex, multidimensional concept, where the transportation provider needs to understand LOS as the customer perceives it.

Level-of-Service as Dynamic

• The level-of-service provided by a carrier changes based on the volume being carried.
• Federal Express found that people value information about their shipment.
• People desire reliability, travel time, and information.

Formula to Reduce Multi-Dimensional Level-of-Service to a Uni-Dimensional Variable

• An example formula is V= a₀ + a₁tₜ + a₂tₐ + a₃t𝓌 + a₄F + a₅H.
• V is the "utility" of a traveler choice in "utils."
• tₜ equals travel time in minutes.
• tₐ equals access time in minutes.
• t𝓌 equals waiting time in minutes.
• F equals Fare in $.
• H equals "Comfort" in "Hugs."

Mode Choice

• Suppose there are three modes of travel from Boston to New York -- air, train, and auto. The utility of each mode, Vair, Vtrain, and Vauto could be calculated. The mode with the highest utility would be chosen.
• Modern literature in utility theory suggests a probabilistic approach, the probability a traveler selects the air mode can be expressed as P(air) = eVair / (eVair + eVtrain + eVauto).

Mode Choice Details

• The probabilistic approach is intended to reflect that people have different utilities.
• This approach also reflects that all level-of-service variables may not be captured in the formulation.
• If the market size is known, mode volumes can be approximated by multiplying market size by the probability a particular mode is chosen.

Travel Time Reliability

• Travel time reliability depends on the variability in travel time between origin and destination.
• Compared two distributions, the average travel time going through the tunnel is lower than the average travel time avoiding the tunnel
• However, if one had a plane to catch, they might choose the higher average but lower variation route to assure they can make their air connection."

Reliability Definition

• Variability in travel time is called service reliability.
• Service reliability in travel time can be as important as average travel time.
• Railroad and truck systems for moving freight differ both on a reliability dimension and on an average travel time dimension.