Chapter1

Transportation Seventh Edition

Coyle, Novack, Gibson & Bardi

© 2011 Cengage Learning

Chapter 1Transportation:

Critical Link in the Supply Chain

1© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2

Introduction

• Chapter focus: The role transport plays in:– Fostering improved supply chain integration

• Integration is not achievable without effective transport

– Helping organizations to be more efficient and effective

• Chapter organization– Conceptual dimensions of transport– Fundamentals of supply chain management– Role of transport in the supply chain

IntroductionEconomics of Transportation

• Transportation– Pervasive element of daily life– Impacts citizens’

• Economic well being• Safety• Social interaction• Quality of physical environment• Quality of daily life

– Chapter focuses on the economic impact


3

IntroductionDemand for Transportation

• Regions or areas tend to specialize in certain economic activities

• This specialization creates physical gap between markets and areas of production for a given good

• This gap creates a demand for transport• Fundamental economic role of transport is to

bridge this supply-demand gap© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

4


5

IntroductionTransport Measurement Units

• Typical measurement units– Ton-miles (freight) and passenger-miles (people)– Caution: Both units are heterogeneous. Two units

may have• Very different costs of production • Very different service requirements

• Levels of measurement unit aggregation– Total transport output (freight or passenger) – Transport output by mode (mode share)– Transport output by carrier (market share)


6


7


8

Introduction Price Elasticity of Demand

• Sensitivity of demand to price change• Relative measure between price change and

quantity change. Measured as:

% change in quantity ¸ % change in price• Terminology

– Price elastic: demand is sensitive to price change– Price inelastic: demand is insensitive to price

change

© 2011Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

9


• If % change in quantity < % change in price, then demand is price inelastic (insensitive to price change)– Price increase leads to revenue increase– Price reduction leads to revenue reduction

• If % change in quantity > % change in price, then demand is price elastic– Price increase leads to revenue reduction– Price reduction leads to revenue increase


10


• Aggregate demand for freight transportation tends to be price inelastic– Cost for transport generally small % of

product’s landed cost• Demand for particular mode or carrier tends

to be price elastic– Often, substitutes are available

• Service elasticity


11

Freight TransportationDerived Demand

• Definition of derived demand– Demand for transport service to move a product

to a given location depends upon the existence of demand to consume (use) that product at that location• Remember, demand is a relationship between price

and quantity demanded– Aggregate demand for freight transport cannot

be easily affected by individual carrier actions


12


13

Value of (Transport) Service• Transport cost is a component of landed cost

– Landed cost includes:• Cost of production• Transport cost from production point to market

– Transport costs influence a producer’s landed cost advantage/disadvantage vs. competitors, thus determining the market value of the transport service• Similar to place utility concept (see Ch. 2)

– Landed cost also determines extent or range of a producer’s market area (Lardner’s Law) and thus the value of transport service


14


15


16

Value of (Transport) ServiceService Components of Freight Demand

• Critical service characteristics and related supply chain cost impacts– Transit time

• Volume and cost of holding inventory• Potential stockout and/or safety stock costs

– Reliability or consistency of transit time• Safety stock and/or stockout costs

– Accessibility: impacts transport cost and time– Capability: “special” service requirements– Security: safety stocks and/or stockout costs

Value of (Transport) ServiceLocation of Economic Activity

• Historically, transportation influences location of cities, particularly ports

• For firms, transport influences the location of manufacturing plants and distribution facilities– Influences very pronounced for firms producing or

marketing globally

• Influences are dynamic– As economic activity locations shift, the pattern of

transport demand also shifts and vice versa © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

17

Supply Chain ConceptDevelopment of the Concept

• Concept evolves in three phases– 1960s: physical distribution concept– 1980s: business logistics or integrated logistics– 1990s: supply chain management concept

• A systems approach to analysis and decision-making is common to all three phases


18


• Physical distribution concept– Focuses on physical distribution system costs and

tradeoffs– Objective was to find lowest total physical

distribution system cost– Example: transportation mode or carrier selection

• Involves tradeoffs between transport, inventory, materials handling, and packaging costs


19


• Business logistics concept– Adds analysis of inbound or sourcing side to the

outbound physical distribution side– Development facilitated by

• Economic deregulation of transport in U.S.• Rising degree of international or global sourcing• Both create additional opportunities for cost savings

through integrated management and coordination

– Notion that logistics contributes to customer service and revenue generation begins to emerge


20


• Supply chain management concept– Key underlying principles

• Systems analysis and management• 3 key flows: product, information, and cash• Integrated management of extended enterprise• Focus on ultimate consumer of end product

– Transport: most direct influence on product flow• Product flow is two way• Growing importance of reverse logistics systems


21


22


– Information flow• Sales trigger replenishment orders flowing upstream• Traditionally, replenishment orders used by upstream

supply chain members to forecast downstream demand– Long intervals between orders create demand uncertainty– Safety stocks used to buffer against uncertainty– Magnitude of uncertainty and safety stocks amplify upstream in

a phenomenon known as the bullwhip effect

• SC compression via improved two-way information flow reduces uncertainty and cost impact of bullwhip effect

– Transport carriers contribute to uncertainty reduction (reliable and fast deliveries) and improved two-way info flow (advanced shipment notices, bar codes, radio frequency tags)


23


– Financial or cash flow• Payments flowing upstream for goods ordered• If order and replenishment cycles shorten (orders

and product flow faster) then cash flows faster• Faster cash flow reduces working capital

requirements for financing operations and processes and contributes to improved profitability

– “free” cash flow cycle

• High transport service levels contribute to improved customer service and faster cash flow


24

Chapter1

Education

Transcript of Chapter1