Supply Chain Management PDF

\ 🫧 Chapter 1: Supply Chain Management: An Overview Chapter 2: Global Dimensions of Supply Chain Chapter 3: Role of Logistics in Supply Chain \ **Logistics Supply Chain Management (Introduction)** - **Logistics →** The process of planning, implementing and controlling the efficient and...

\ 🫧 Chapter 1: Supply Chain Management: An Overview Chapter 2: Global Dimensions of Supply Chain Chapter 3: Role of Logistics in Supply Chain \ **Logistics Supply Chain Management (Introduction)** - **Logistics →** The process of planning, implementing and controlling the efficient and effective flow and storage of raw materials, in process inventory, finished goods, related services and information from point of origin to point of consumption for the purpose of conforming to customer and organizational requirements - The Logistics Pipeline (Company Focused in the middle) - Goal of Logistics: - To provide an acceptable level of customer service at the lowest possible total cost - The (Customer Service) goal of logistics is to get the right products, to the right people, in the right place, in the right quantity, in the right condition, at the right time, for the right price **Key Logistics Activities** - Inbound (Materials Management) - Sourcing/Purchasing - Inventory Management - Transportation Management - Outbound (Physical Distribution) - Order Processing - Inventory Management - Transportation Management - Net Result of all Logistics Activities is Customer Service **Dimensions of Logistics** - What else does Logistics do? - Gives access to new markets - Increases economies of scale - Increases competition - Reduces prices to the consumer - Increases consumer choice - Allows companies to use comparative advantage to gain competitive advantage **Why has Supply Chain Management evolved?** - Changing Markets - Consumers are more sophisticated & demand better quality for a lower price - Time is valuable - Increased Competition - Technology - Lower cost and faster speed of information processing **Supply Chain Management** - Crosses company boundaries - Aims to make the entire channel operate as efficiently as possible (not just one company in the chain) - Substitute information for inventory all along the chain - Create win/win relationships with customers and suppliers **Six Major Change Drivers --- Globalization** - *Globalization creates more economic and political risk, shorter product cycle, and the blurring of traditional organizational boundaries* - **Inventory management challenges** - Faster duplicability of products & services - Faster reduction in demand - Requirement of new pricing policies - Higher risk of obsolescence - **Longer and more complex supply chain challenges** - Growth and increased scope of outsourcing **Six Major Change Drivers --- Technology** - *Technology is a facilitator of internal process and supply chain transformation. It is also a major force in changing the dynamics of the marketplace* - **The internet** - "Connected" 24/7 - **Social networks** - Impact on customer demand and the speed of information transfers - **The world's "knowledge pool" connection** - Opportunities for collaboration in supply chains **Six Major Change Drivers --- Organization Consolidation and Power Shifts** - *During the 1980s and especially in 1990s, economic power and the driving force in supply chains shift from product manufacturers to the retail end of the supply chain* - **More collaboration among organizations in supply chains** - Win-win, improved services such as - Scheduled deliveries - "Rainbow" pallets - Advance shipment notices (ASNs) shrink-wrapped pallets - Sharing of point-of-sale data to mitigate "bullwhip effect" **Six Major Change Drivers --- Empowered Consumers** - *Consumers are empowered by exponentially expanded access to product sources and related information and increased buying power due to high income levels* - Increased pressure on supply chain due to increased demands at the retail level in terms of: - Competitive prices - High quality in products and services - Tailored or customized products - Convenience and responsiveness --- 24/7 availability with a minimum of wait time - Flexibility --- Omnichannel distribution strategies **Six Major Change Drivers --- Government Policy and Regulation** - *More competitive environment is a result of the deregulation of several important sectors in the United States occured in the 1980s and 1990s* - **The transportation industry** - Expanded services beyond transportation with service providers' role evolving to outsourcing partners - **The financial sector** - More flexible and responsive to customer needs, making businesses more cognizant of supply chain management impact on efficiency and cash flows - **The communications industry** - A component of the information revolution, leading to dramatic improvements and opportunities in logistics and supply chains **Six Major Change Drivers --- Sustainability** - *The pursuit of sustainability is widely recognized as a key element of successful supply chain management. This is critical to effective risk management and achieving competitive advantage* - **Society** - Focus on people is a significant concern in the area of sustainability - **Environment** - The objective of being "green" is a key element of making positive contributions to improving our environment. There are many ways in which syply chains may help to achieve desired outcomes - **Economy** - Continued economic and financial sustainability is essential to making future positive impacts on society and the environment **Integrated Supply Chain --- Basics** - SCM is the art and science of integrating the flows of products, information and financials through the entire supply pipeline from the supplier's supplier to the customer's customer **Integrated Supply Chain --- Network** **Major Supply Chain Issues** 1. Supply chain networks 2. Complexity 3. Inventory deployment 4. Information 5. Cost and value 6. Organizational relationships 7. Performance measurement 8. Technology 9. Transportation management 10. Supply chain security 11. Talent management **Value-added Roles of Logistics** - Generally, **production/manufacturing** activities are credited with providing **from** utility; **logistics** activities with **time, place, and quantity** utilities; and **marketing** activities with **possession** utility **Factors Affecting The Cost & Importance of Logistics** - Customer Service as a Competitive weapon - Inventory Reduction - Order Cycle Speed - Information - Nature of the Product - Degree of substitutability, Cost of lost sales - Convenience, shopping, specialty - Weight/volume relationships, value - Risk of loss and damage **Summary Chapter 1** - The rate of change has been driven by a set of external forces including globalization, technology, organizational consolidation and shifts in power in supply chains, empowered consumers, and government policy and regulations. - Supply chains are extended enterprises which require managing four flows---products, information, financials (cash), and demand on a collaborative basis. - The global supply chains of the best companies must be adaptive, resilient, and responsive to meet the challenges of the global economy and develop mitigating strategies for disruptive forces. **Chapter 5: Sourcing Materials and Services** **Discussion Outline** - Strategic evolution of sourcing process (purchasing, procurement, and strategic sourcing) - Types of purchasing activity and quadrant technique - Strategic sourcing process - Total landed cost concept - E-sourcing, e-procurement, and e-commerce \ 🫧 Strategic evolution of sourcing process (purchasing, procurement, and strategic sourcing) \ **Purchasing vs. Procurement vs Strategic Sourcing** - Purchasing is an activity that follows conduct of a formal sourcing process, while procurement and strategic sourcing are best described as processes - **Strategic sourcing** → Managing procurement priorities such that they are well-aligned with goals and objectives of the supply chain and of the overall organization - **Procurement →** Managing a broad range of activities within the procurement process e.g. supplier selection, price negotiation, contract management, supplier performance management - **Purchasing** → Managing a firm's acquisition procedures and standards, involving largely transactional activity of the buying of products & services **Unique Aspects of Strategic Sourcing** 1. Consolidation / leveraging of purchasing power 2. Emphasis on value 3. More meaningful supplier relationships 4. Attention directed to process improvement 5. Enhanced team work and professionalism \ 🫧 Types of Purchasing Activity and Quadrant Technique \ **Types and Importance of Purchases --- The Quadrant Technique** Not all items/services purchased are of equal importance, requiring varying procurement strategies based on their value and risk - **Distinctives** --- High Risk / Low Value or Profit Potential - Engineered Items - Specialized Ingredients - **Criticals** --- High Risk / High Value or Profit Potential - Unique Items - Items Critical to Final Product - **Generics** --- Low Risk / Low Value or Profit Potential - Office Supplies - MRO Items - **Commodities** --- Low Risk / High Value or Profit Potential - Basic Production Items - Basic Packaging - Logistics Services **Three Types of Purchasing Activity** 1. Capital Goods 2. Rebuy 1. Standard 2. Modified 3. Maintenance, Repair, Operations (MRO) Note: The main focus of strategic sourcing decisions is in regards to the rebuy purchases → Things that you buy over and over again. \ 🫧 Strategic Sourcing \ **Five Core Principples** 1. **Assess total value** → Emphasis beyond acquisition cost, evaluating total cost of ownership and the value of the supplier relationship 2. **Develop individual sourcing strategies** → Individual spend categories need customized sourcing strategies 3. **Evaluate internal requirements** → Requirements and specifications thoroughly assessed and rationalized as part of the sourcing process 4. **Focus on supplier economics** → Suppliers' economics understood before identifying buying tactics (e.g. volume leveraging, price unbundling, price adjustment mechanisms) 5. **Drive continuous improvement** → Strategic sourcing initiatives as subset of continuous improvement process for procurement and sourcing organizations **Strategic Sourcing Process** - **Step 1) Develop Strategic Plan** - Create cross-functional planning committee - Identify key members of sourcing team - Agree on scope of sourcing processes - **Step 2) Understand Spend** - Refine understanding of sourcing needs of process-owners, with the nature of the requirement being represented by some tupe of measurable criteria - Perform spend analysis to - Understand spend by supplier, category, and internal user - Profile current sourcing approaches and areas for improvement - Address issues of make vs. buy - **Steps 3 - 5) Supplier Portfolio Screening** - Initial Supplier Research and Screening (Market Analysis & Alternative Supplier Evaluation) - Request for Information (RFI) - Request for Proposal (RFP) - Supplier Site Visits - Supplier Selection - **Step 6) Onboarding and Transitioning** - Finalize understandings and agreements with suppliers - Create management processes for new suppliers - Conduct transition and onboarding processes - **Step 7) Collaborative Process Improvement** - Regular Feedback and communications - Analyze net savings and compare with goals and objectives - Process improvement for both suppliers and customers \ 🫧 Total Landed Cost \ \ 🫧 E-sourcing, E-procurement, and E-commerce \ **E-sourcing and E-procurement Functionality** 1. Industry analysis and supplier identification 2. Analytical tools 3. management of RFI/RFP processes 4. Process automation 5. Online negotiations 6. Collaboration tools 7. Logistics procurement 8. Project management 9. Knowledge management 10. Contract management **Advantages and Concerns of Electronic Procurement** - Concerns - Cyber-security - Lack of face-to-face contact between the buyer and seller - Technology-related concerns (lack of standard protocols, system reliability, time & money investment) - Advantages - Lower operating costs (reduce paperwork & sourcing time, improve control over inventory & spending) - Improve procurement and sourcing efficiency (find new supply sources, improve communications, improve personnel use, lower cycle times) - Reduce procurement prices - Improve communications - Easier access to more suppliers **Four Basic Types of E-commerce Business Models** 1. **Sell-side" vs. "buy-side" system:** Whether e-Commerce capabilities are seller-centric or buyer-centric. 2. **B2B and B2C:** Online businesses selling to businesses or consumers, respectively. These are both "sell-side." - Examples include Delta Air Lines ([www.delta.com](http://www.delta.com/)), Barnes & Noble ([www.barnesandnoble.com](http://www.barnesandnoble.com/)), Amazon ([www.amazon.com](http://www.amazon.com/)), and Office Depot ([officedepot.com](https://www.notion.so/officedepot.com)). 3. **Online marketplace:** e-Commerce site where product or service information is provided by multiple third parties, whereas transactions are processed by the marketplace operator. - Examples include Amazon ([www.amazon.com](http://www.amazon.com/)), Expedia ([www.expedia.com](http://www.expedia.com/)), and Uber ([www.uber.com](http://www.uber.com/)). 4. **Online trading community:** A system maintained by a 3rd party technology supplier that provides buyers and sellers with a structured method for trading, bartering, or selling goods and services. - Examples include eBay ([www.ebay.com](http://www.ebay.com/)), Craigslist ([www.craigslist.org](http://www.craigslist.org/)), and NTE ([www.nteinc.com](http://www.nteinc.com/)). \ 🫧 Summary Chapter 5 \ - Different procurement and sourcing strategies devised based on the risk and value or profit potential from needed products/services that can be classified into: generics, commodities, distinctives, and criticals. - Strategic sourcing process includes: develop strategic plan, understand spend, evaluate supply sources, finalize sourcing strategy, implement sourcing strategy, transition and onboarding, and collaborative process improvement. - The concept of total landed cost is a highly-valuable element of the overall procurement process. - Advantages of e-sourcing and e-procurement include lower operating costs, improved efficiency, and reduced prices. - Four popular e-commerce model types are: "sell-side" vs. "buy-side;" B2B and B2C; online marketplace; and online trading community. \ 🫧 Discussion Outline \ - Importance of inventory in the economy and in the firm - Major types of inventory and reasons for carrying them - Major types of costs associated with inventory - Approaches to managing inventory - Inventory classification \ 🫧 Types of Inventory and Rationales \ 1. Procurement (purchase discounts), production (long production run), and transportation (freight rate discounts) 2. Demand- and supply-side uncertainties 3. Inventory costs associated with goods in motion during transportation time period 4. Inventory costs associated with goods in process during manufacture or assembly of a complex product 5. Seasonality in raw materials supply (e.g. production, transportation), in demand for finished product, or in both 6. Inventory hold in anticipation that an unusual event (e.g. strikes, significant price increase, extreme weather) **The Importance of Inventory in Other Functional Areas** *Objectives of the finance area might obviously conflict with marketing and manufacturing objectives. A more subtle conflict sometimes arises between marketing and manufacturing as the long production runs can cause shortages of some products needed by marketing* - **Marketing** --- In favor of holding sufficient, or extra, inventory to ensure product availability to meet customer needs and new product offerings for continued market growth - **Manufacturing** --- In favor of long production runs of a single product with minimal changeovers to lower labor and machine costs per unit, resulting in high inventory levels of the product - **Finance** --- In favor of low inventories to increase inventory turns, reduce liabilities and assets, and increase cash flow to the organization \ 🫧 Inventory Costs \ **Major Types of Costs** *Emphasis of inventory cost analysis should be placed on the variable components of these costs* 1. **Inventory Carrying Cost** --- Inventory carrying costs incurred by inventory at rest and waiting to be used - Four major components: - Capital cost - Storage space cost - Inventory service cost - Inventory risk cost 2. **Ordering and Setup Cost** - Ordering cost refers to expense of placing an order, excluding the cost of the product itself - Setup cost refers to the expense of changing/modifying a production/assembly process to facilitate line changeovers 3. **Expected Stockout Cost** - The cost associated with not having a product/materials available to meet customer/production demand - Most organizations hold safety stock or buffer stock, to minimize the possibility of a stockout and costs of lost sales 4. **In-transit Inventory Carrying Cost** - Generally, carrying inventory in transit costs less than in warehouses. But in-transit inventory carrying cost becomes especially important on global moves since both distance & times increase \ 🫧 Approaches to Managing Inventory \ - Managing inventory involved four fundamental questions: 1. **How much** should inventory be ordered? 2. **When** should inventory be ordered? 3. **Where** should inventory be held? 4. **What** specific line items should be available at specific locations? **Key Factors of Difference** 1. **Dependent vs Independent demand** - Independent demand is unrelated to the demand for other items - Dependent demand is directly related to, or derives from, the demand for another inventory item or product 2. **Pull vs Push** - The pull approach relies on customer orders to move product through a logistics systems - The push approach uses inventory replenishment techniques in anticipation of demand to move products 3. **System-wide vs Single-facility solutions** - A system-wide approach plans and executes inventory decisions across multiple nodes in the logistics system - A single facility approach does so for shipments and receipts between a single shipping and receiving point **EOQ Approach** *Two basic forms of the economic order quality (EOQ) model* 1. **Fixed Order Quantity** - Involves ordering a fixed amount of product each time reordering takes place - Also called two-bin model 2. **Fixed Order Interval** - Involves ordering inventory at fixed or regular intervals - Also called the fixed period or fixed review period approach - Generally, the amount ordered depends on how much is in stock and available at the time of review **Fixed Order Quantity EOQ Approach: Condition of Certainty** - In fixed order quantity EOQ model, inventory is reordered when the amount on hand reaches the reorder point. The reorder point quantity depends on the time it takes to get the new order and on the demand for the item during the lead time - Basic assumptions of the simple EOQ model: - Continuous, constant, and known rate of demand - Constant and known replenishment or lead time - All demand is satisfied - Constant price or cost that is independent of the order quantity - No inventory in transit - One item of inventory or no interaction between items - Infinite planning horizon - Unlimited capital - Given the assumptions, the simple EOQ model considers only 2 basic types of cost: inventory carrying cost and ordering cost **Additional Approaches: Just-in-Time (JIT)** - JIT systems are designed to manage lead times and eliminate waste. Many JIT systems place a high priority on short, consistent lead times. However, the length of the lead time is not as important as the reliability of the lead time - JIT commitment to short, consistent lead times and to minimizing or eliminating inventories is JIT principal differentiator from the more traditional approaches - JIT saves money on downstream inventories by placing greater reliance on improved responsiveness and flexibility - Success JIT applications: - Place a high priority on efficient and dependable manufacturing processes - Demand effective and dependable communications & information systems, and high-quality, consistent transportation services **Additional Approaches: Materials Requirement Planning (MRP)** - MRP deals specifically with supplying materials and component parts whose demand depends on the demand for a specific end product 1. Ensure the availability of materials, components, and products for planned production and for customer delivery 2. Maintain the lowest possible inventory levels that support service objectives 3. Plan manufacturing activities, delivery schedules, and purchasing activities - An MRP system is designed to translate a master production schedule into time-phased net inventory requirements and the planned coverage of such requirements for each component item needed to implement this schedule **Principal advantages of MRP-based systems** - Maintain reasonable safety stock levels and minimize or eliminate inventories whenever possible - Identify process problems and potential supply chain disruptions before they occur, allowing necessary corrective actions - Base production schedule on actual demand and forecasts of independent demand items - Coordinate materials ordering across multiple points in a firm's logistics network - Suitable for batch, intermittent assembly, or project processes **Principal shortcomings of MRP-based systems** - Computer-intensive applications, making changes difficult once the system is in operation - Might increase ordering and transportation costs as firms moving towards a more coordinated system of ordering product in smaller amounts - Not as sensitive to short-term fluctuations in demand as order point approaches - Frequently become quite complex and sometimes do not work exactly as intended **Additional Approaches: Distribution Requirements Planning (DRP)** - DRP systems accomplish for outbound shipments what MRP accomplishes for inbound shipments. DRP determines replenishment schedules between a firm's manufacturing facilities and its distribution centers. DRP is usually coupled with MRP systems to manage the flow and timing or both inbound materials and outbound finished goods **Additional Approaches: Vendor-Managed Inventory (VMI)** - Vendor-managed inventory manages inventories OUTSIDE a firm's logistics network, specifically inventories held in its customer's distribution centers - **How VMI Works:** 1. The supplier and its customer agree on which products are to be managed using VMI in the customer's distribution centers 2. An agreement is made on reorder points and economic order quantities for each of these products 3. As these products are shipped from the customer's distribution center. the customer notifies the supplier, by SKU, of the volumes shipped on a real-time basis 4. The supplier monitors on-hand inventories in the customer's distribution center, and when the on-hand inventory reaches the agreed-upon reorder point, the supplier creates an order for replenishment, notifies the customer's distribution center of quantity and time of arrival, and ships the order to replenish the distribution center **Principal advantages of VMI systems** - The knowledge gained by the supplier of real-time inventory levels of its products at its customer locations allow the shipper more time to react to sudden swings in demand to assure that stockouts do not occur **Principal shortcomings of VMI systems** - Suppliers' uses of VMI to push excess inventory to a customer distribution center at the end of the month in order to meet monthly sales quotas, resulting in the customer holding extra inventory, adding costs to its operations \ 🫧 Inventory Classification \ *Multiple product lines and inventory control require organizations to focus on more important inventory items and use more sophisticated and effective approaches to inventory management* **ABC Analysis** - ABC classification technique assigns inventory items to one of three groups according to the relative impact or value of the items that make up the group - A items are considered to be the most important, B items lesser importance, and C items least important **Pareto's Law (The "80-20" Rule)** - Pareto's Law 80-20 rule suggests that a relatively small percentage of inventory might account for a large percentage of the overall impact or value **Quadrant Model** - Quadrant model classifies finished goods inventories using value and risk to the firm as the criteria - Value is measured as the value contribution to profit - Risk is the negative impact of not having the product available when it is needed **Summary Chapter 9** - Principal types of inventory are: cycle stock, work-in-process, inventory in transit, safety stock, seasonal stock, and anticipatory stock. - Principal types of inventory costs are: inventory carrying, ordering and setup, expected stockout, and in-transit inventory. - Four major components of inventory carrying costs are: Capital cost, Storage space cost, Inventory service cost, and Inventory risk cost. - Choosing appropriate inventory model considers three key differences: Independent vs. dependent demand, Push vs. pull distribution system, and system-wide vs. specific facility decisions. - Two basic forms of the EOQ model are the fixed quantity model and the fixed interval model. The former is the most widely used. - JIT model aims to minimize inventory levels, emphasizing frequent deliveries of smaller quantities and alliances with suppliers or customers. - MRP and DRP are typically used in conjunction to manage the flow and timing of both inbound materials and outbound finished goods. - VMI is used to manage a firm's inventories in its customers' distribution centers. - Inventory classification is vital initial step toward efficient inventory management. \ 🫧 Discussion Outline \ - The role of transportation in SCM - Modes of transportation - Transportation planning and strategy - Transportation execution and control - Transportation technology \ 🫧 The Role of Transportation in SCM \ *Transportation provides the critical links between organization sin a supply chain network, permitting goods to flow between their facilities. Transportation also influences supply chain design, strategy development, and total cost management.* - Role Inhibitors - Offshore manufacturing - Changing customer requirements - Transportation capacity constraints - Transportation rate variation - Growing governmental requirements - Transportation Challenges - In 2018 (Major transportation challenges) - Qualified driver availability - 56% - Rising customer expectations - 48% - Managerial talent retention - 48% - Service capacity availability - 45% - Technology deployment cost - 42% - Operating cost volatility - 34% - By 2023 (The single most important challenge) - Rising customer expectations - 23% - Technology deployment cost - 16% - Qualified driver availability - 13% - Operating cost volatility - 13% - Capacity availability - 10% \ 🫧 Modes of Transportation \ **Five Basic and Intermodal** - The five basic modes of transportation and intermodal transportation each has different economic and technical structures, and each can provide different qualities of link service **Motor Carriers** - Motor carriage is the most widely used mode of transportation in the US domestic supply chain, and is useful for shipping goods to an adjacent countries like Canada and Mexico - Much of the freight moved by the trucking industry is regional in nature, moving within a 500-mile (805 kilometers) radius of the origin - Multiple equipment types and sizes allow motor carriers to transport a wide variety of commodities and shipment sizes - Trucking is a high-variable-cost, low-fixed-cost business - The trucking industry is highly competitive, comprising of 543,061 interstate carriers and intrastate hazardous materials carriers that range in size from single-truck, owner-operator service providers to conglomerate like UPS - For-Hire (54%) - Private (36%) - For-Hire/Private Hybrid (9%) - Others (1%) - Key challenges include: - labor - costs - competition **Railroads** - Railroads is a high ton0mile mode of transportation, moving nearly 1.8 billion tons of freight with average shipment length of 554 miles (900 km) annually - Railroad transportation is primarily used for long-distance movement of low-value goods. Railroads also handle some high-value goods, primarily automobiles and intermodal containers - Railroads cost structure consists of high fixed costs in proportion to variable cost due to a large investment in terminals, equipment, and trackage - Rail equipment can be organized into loads and transported in one of the three primary ways: - Mixed trans - Unit trains - Intermodal trains - There are 600 railroads in the US, but the industry is dominated by seven Class I railroads. No single rail carrier services the entire country. Carriers use interline agreements to provide coast-to-coast rail service - Key challenges include: - Captive shippers' demand for rate relief - External factors e.g. fluctuating economic conditions or severe weather events - Capacity **Air Carriers** - Air cargo transportation is specialized mode in terms of tonnage with US spending at \$76.5 billion in 2018 - Air transportation is used to ship small quantities of high-value, low-weight goods - The air carrier cost structure consists of high variable costs in proportion to fixed costs - Key challenges include: - Decreased demands for products previously moved in large volume via air - Mode-shifting of freight from air to ocean - New rail connection in Asia - near-shoring and on-shoring strategies - Air Carriers - Combination Carriers - Air Cargo Carriers - **Integrated carriers** (e.g. FedEx and UPS) provide door-to-door service, scheduled pickup and delivery windows, and expedited service through their hub-and-spoke networks. - **Nonintegrated carriers** provide on-demand, air-only service from airport to airport. **Water Carriers** - Globally, water carriers dominate all other modes, garnering approximately half of the international freight revenue and handling nearly all tonnage - The international ocean fleet includes approximately 53,000 merchant ships: 16,958 general cargo ships, 14,929 tankers, 11,379 bulk cargo ships, and 5,152 containerships - Domestic water carriers compete with railroads for long-distance movement of low-value, high-density, bulk cargoes - The fleet of US flagged fleet moves 6.9% of the nation's freight value - Water transportation is high variable cost business - Key challenges include: - Significant overcapacity in the container shipping sector - Congestion at major ports and transfer points for containers - Schedule reliability of liner service lagging behind other modes - Water Carries --- Widely used specialized ships include: containerships, bulk carriers, tankers, general cargo ships, roll-on/roll-off (RO-RO) vessels. - Private - For-Hire - Liner services - Charter services **Pipelines** - The US has the largest network of energy pipelines of any nation in the world - Pipelines is the most economical form of transport with the lowest cost per ton of any mode - Pipelines handled 5.6% of US freight tonnage, the vast majority of products moved are liquids and gases - Pipeline costs are predominantly fixed as pipeline operators must build their own right-of-way - The oil system is made up of three primary types of pipelines: - Gathering lines - Trunk lines - Refined product pipelines - The major difference of natural gas pipeline network from that of oil is the direct delivery of natural gas to homes & businesses via local distribution lines - Key challenges include: - Network capacity - Health and environmental safety - Pipeline Carriers - For-Hire: For-hire carriers of liquid products can move different products through their system at the same time - Private: Private carriers include petroleum & natural gas companies that use pipelines to move product to and from their facilities. Companies, like a power plant or a chemical plant, may operate a small pipeline system to move fuel or feed-stocks **Intermodal** - Intermodal transportation service refers to uses of two or more carriers of different modes in the origin-to-destination movement of freight - Primary Benefits - Greater accessibility - Overall cost efficiency without sacrificing quality or accessibility - Global trade facilitation - Importance & Volume Growth - Number of containers flowing through North American ports reached 65 million TEUs in 2017 - US rail system moved 14.5 million containers in 2018 - Growth Drivers - Development of standardized containers - Better information systems - New generations of ocean vessels, railcars, and truck trailers - The freight services provided by intermodal transportation can be viewed in terms of product-handling characteristics or the type of service used - Product-Handling Characteristics - Containerized freight is loaded into or onto storage equipment at the origin and delivered to the destination in or on that same piece of equipment with no additional handling - Transload freight involves goods that are handled and transferred between transportation equipment and mode multiple times - Types of Service Used - Pick up - Linehaul - Delivery \ 🫧 Transportation Planning & Strategy \ **Functional Control of Transportation** - In most organizations, responsibility for transportation decisions falls to one or more of the following departments: logistics, procurement, and marketing - Inbound --- controlled by purchasing department - Outbound --- controlled by marketing or logistics - Often this decision-making structure leads to missed opportunities to generate transportation efficiencies and service improvements **Decision to Outsource Transportation** - The organization with FOB freight control and procurement responsibility must analyze and choose between using a private fleet (the "make" option) and using service provides to move freight (the "buy" option) - **Private Fleet** - Accounts for nearly for half of all US freight transportation spending & more than half of miles traveled - A well-run private fleet can operate at costs competitive with for-hire carriers while providing greater scheduling flexibility and control over transit time - Intangible benefits: Promotional impact and prestige of having highly visible company trucks on the road - **External Service Providers** - For-hire carriers --- Using for-hire carriers avoids large capital cost of starting a private fleet, time needed to build transportation expertise, and challenges inherent in operating a private fleet - 3PLs --- Provide wide array of transportation services: 1. Dedicated contract carriage 2. Traffic management 3. Specialized international freight 3 PLS, notably International Freight Forwarders (IFF), Non Vessel-owning Common Carriers (NVOCC), and Customs Brokers **Carrier Selection** - **Modal Selection vs Carrier Selection** - Number of options available - Modal Selection: More options - Carrier Selection: Fewer options - Frequency of the decision - Modal selection: more long range - Carrier selection: more active & frequent - **Carrier Selection Factors** - Geographic coverage - Transit time average and reliability - Freight rates - Equipment availability and capacity - Product protection - **Core Carrier Strategy** --- Carrier selection strategy commonly focuses on concentrating the transportation buy with a limited number of quality carriers, while striving to a carrier-friendly "shipper of choice" - Advantages: - Helps the organization leverage its purchasing dollars for lower overall rates - Allows the company to focus its attention on other supply chain issues - Promotes strong relationships with the carriers that produce mutual understanding of requirements, coordination of processes, and service improvement - Give a company priority access to the carriers' limited capacity **Rate Negotiations** - Buyers' key negotiation issues: - Equipment availability - Freight rates - Service levels - Carriers' key negotiation issues: - Volume commitments - Shipment frequencies - Origin-destination combinations - Freight characteristics - Related cost issues - **Negotiation Approaches** - **Adversarial Approach** --- Seeks to minimize transportation cost regardless of the impact on carrier financial performance or long-term viability - **Collaborative Approach** --- Focuses on developing contracts with carriers for a tailored set of transportation services at rates that fairly compensate the carriers \ 🫧 Transportation Execution & Control \ **Transportation Execution and Control** 1. Shipment Preparation 2. Freight Documentation 3. Maintain In-Transit Visibility 4. Transportation Metrics 5. Monitor Service Quality \ 🫧 Transportation Technology \ **Buyers and Carriers** - Transportation buyers and managers leverage a variety of tools and technologies to support supply chain success. The carrier community relies on technology to coordinate the flow of customer freight - **Buyers** - Individual applications e.g. load planning optimization, freight rating, and load tendering - Integrated supply chain tools e.g. global trade management software, and transportation management systems (TMS) - **Carriers** - Routing and load planning tools promoting optimization of pickup, linehaul, and delivery - Dispatching software facilitating management of drivers, in-transit visibility, and regulatory compliance - Brokerage solutions helping to match loads with available capacity and transaction financial manage - Tracking and communication technology supporting visibility and control of freight - Others e.g. pricing strategy, documentation **Transportation Management System (TMS)** 1. Order ready to ship 2. Enter order info into cerasis rater 3. Integrate for order info automation 4. Hold freight services auction and choose the best carrier 5. Generate a bill of lading 6. Electronically request a shipment pickup 7. Automatically notify all parties 8. Electronically exchange shipping documents 9. Robust reporting and analytics 10. Shipments will be automatically allocated to carriers \ 🫧 Summary Chapter 11 \ - Four Transportation is the largest logistics cost in most supply chains that directly impacts fulfillment speed and service quality. - Fulfillment of supply chain demand can be accomplished through five modal options or the intermodal use of these options. - Most commercial freight moves under contractual rates that are negotiated directly between freight buyers and transportation companies. - Organizations must continue to manage freight after it has been tendered to carriers by maintaining in-transit visibility of shipments and monitoring carrier performance. - Transportation management systems and related tools are widely used to support effective planning, execution, and analysis of transportation processes.