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CHAPTER 4

4. MULTIMODAL TRANSPORTATION AND SUPPLY

CHAIN MANAGEMENT

4.1. INTRODUCTION

Multimodal transportation plays a key role in transporting goods in international

supply chain. A supply chain (SC) is a network of facilities and distribution options that

performs the functions of procurement of materials, transformation of these materials into

intermediate and finished products, and the distribution of these finished products to

customers. A supply chain means a flow of goods and services through different sites.

Supply chains exist in both service and manufacturing organizations, although the

complexity of the chain may vary greatly from industry to industry and firm to firm and

information plays an important role in these flows. Supply chain management (SCM)

encompasses logistics that studies material and information flows, purchasing, and selling

in terms of operative questions such as transportation, ordering and packing, as well as

strategic questions such as competition. Thus, supply chain management deals with

material and information flows from raw-material production to final product retailing.

Supply-chain management is somewhat larger than logistics, and it links

logistics more directly with the user’s total communications network and with the firm’s

engineering staff (Yung-Yu TSENG et al, 2005). Under logistics, decisions such as

transport mode selection, selection of ports and optimal transportation strategy are to be

made.

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Supply Chain Management (SCM) has been a. melting pot of various aspects,

with influences from logistics and transportation, operations management and materials

and distribution management, marketing, as well as purchasing and information

technology (IT). In the current competitive scenario supply chain management assumes a

significant importance and calls for serious research attention, as companies are

challenged with finding ways to meet ever-rising customer expectations at a manageable

cost. To do so, businesses must search out which parts of their supply-chain process are

not competitive, understand which customer needs are not being met, establish

improvement goals, and rapidly implement necessary improvements. Previously

manufacturers were the drivers of the supply chain - managing the pace at which products

were manufactured and distributed. Today, customers are calling the shots, and

manufacturers are scrambling to meet customer demands for options/styles/ features,

quick order fulfillment, and fast delivery. Manufacturing quality – a long-time

competitive differentiator - is approaching parity across the board, so meeting customer’s

specific demands for product delivery has emerged as a critical opportunity for

competitive advantage. Companies that learn how to improve management of their

supply chain will become the new success stories in the global market place

(Jinesh Jain, et al., 2010)

4.2. SUPPLY CHAIN MANAGEMENT

Supply chain management is the combination of art and science that goes into

improving the way your company finds the raw components it needs to make a product or

service, manufacture that product or service and deliver it to customers (Koch

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Christopher, 2002). Traditionally, marketing, distribution, planning, manufacturing, and

the purchasing organizations along the supply chain operated independently. These

organizations have their own objectives and these are often conflicting. Marketing's

objective of high customer service and maximum sales dollars conflict with

manufacturing and distribution goals. Many manufacturing operations are designed to

maximize throughput and lower costs with little consideration for the impact on inventory

levels and distribution capabilities. Purchasing contracts are often negotiated with very

little information beyond historical buying patterns. The result of these factors is that

there is not a single, integrated plan for the organization---there were as many plans as

businesses. Clearly, there is a need for a mechanism through which these different

functions can be integrated together. Supply chain management is a strategy through

which such integration can be achieved.

Supply chain management is typically viewed to lie between fully vertically

integrated firms, where the entire material flow is owned by a single firm, and those

where each channel member operates independently. Therefore coordination between the

various players in the chain is key in its effective management. Cooper and Ellram (1993)

compare supply chain management to a well-balanced and well-practiced relay team.

Such a team is more competitive when each player knows how to be positioned for the

hand-off. The relationships are the strongest between players who directly pass the baton,

but the entire team needs to make a coordinated effort to win the race. Fig 4.1 shows an

example of a very simple supply chain for a single product, where raw material is

procured from vendors, transformed into finished goods in a single step, and then

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transported to distribution centers, and ultimately, customers. Realistic supply chains

have multiple end products with shared components, facilities and capacities. The flow of

materials is not always along an arborescent network, various modes of transportation

may be considered, and the bill of materials for the end items may be both deep and

large.

Transportation management focuses on the transportation services such as

trucking, rail freighting, air freighting, inland waterways, marine shipping and pipelines

transshipment and warehousing services. Material management considers other activities

related to the movement of materials in the manufacturing of commodities in all the

stages of production along a supply chain (Ogunsiji A.Sola, 2010).

Figure 4.1 Simple supply chain

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The following are five basic components for supply chain management.

1. Plan - This is the strategic portion of supply chain management. A strategy is

needed for managing all the resources that go toward meeting customer demand

for the product or service. A big piece of planning is developing a set of metrics

to monitor the supply chain so that it is efficient, costs less and delivers high

quality and value to customers.

2. Source - Choose the suppliers who will deliver the goods and services that needed

are to create the product or service. Develop a set of pricing, delivery and

payment processes with suppliers and create metrics for monitoring and

improving the relationships. And put together processes for managing the

inventory of goods and services that received are from suppliers, including

receiving shipments, verifying them, transferring them to your manufacturing

facilities and authorizing supplier payments.

3. Make - This is the manufacturing step. Schedule the activities necessary for

production, testing, packaging and preparation for delivery. As the most metric-

intensive portion of the supply chain, measure quality levels, production output

and worker productivity.

4. Deliver - This is the part that many insiders refer to as "logistics." Coordinate the

receipt of orders from customers, develop a network of warehouses, pick carriers

to get products to customers and set up an invoicing system to receive payments.

5. Return - The problem part of the supply chain. Create a network for receiving

defective and excess products back from customers and supporting customers

who have problems with delivered products (www.supply-chain.org).

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4.2.1. COMPONENTS OF SUPPLY CHAIN MANAGEMENT

Supply chain management is a set of approaches used to efficiently integrate

suppliers, manufacturers, warehouses, and customers so that merchandise is produced

and distributed at the right quantities, to the right locations, and at the right time in order

to minimize systemwide costs while satisfying service-level requirements. Fig.4.2 shows

the components of a Supply Chain. Efficient Supply chains demand rapid flow of

information and hence IT plays a big role in SCM.

BUSINESS BOUNDARY

SUPPLIER PLAN SOURCE MAKE DELIVER CUSTOMER

RETURN

Figure 4.2 Components of supply chain

The use case reference model of the International Supply Chain as proposed by

United Nation Centre for Trade Facilitation and Electronic Business (UN/CEFACT) is as

shown in Fig.4.3 and the actors & the use can structures in the supply chain are shown in

Fig.4.4.

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Figure 4.3 Part of a use case diagram of international supply chain

Figure 4.4 Actors and and use case structure

Proper implementation of an SCM system, along with accurate and timely data,

can streamline operations and lead to business opportunities. The supply chain

management are of closed-loop type aiming to possess the characteristics such as realistic

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plans, predictable performance and reliable commitments, synchronized “agile” supply

chain with co-dependency, self correcting based on continuous improvement. The best

practices in closed loop SCM include plan driven management, remove silos, design for

speed, treat root cause-not the symptoms and measure for accountability and continuous

learning. Supply chain management requires parallel control of physical goods, logistics

information, payments and ownership rights (Fig.4.5).

Figure 4.5 Parallel controls in SCM

4.3. SUPPLY CHAIN DECISIONS

Supply chain decisions have been classified based on their temporal (strategic,

tactical, and operational) and functional consideration (procurement decisions,

manufacturing, distribution, logistics, global decisions) as shown in Fig.4.6 Supply chain

decision making is a complex process and some of the important reasons mentioned in

the literature for the complexity of the decision making process are: large scale nature of

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the supply chain networks, hierarchical structure of decisions, randomness of various

inputs and operations and dynamic nature of interactions among supply chain elements.

Decide
Location

Decide
Procument
Make
Strategic
Decisions

Decide
Inventory
MAKE
DECIDE Make
SUPPLY CHAIN
SUPPLY Tactical
DECISIONS
CHAIN Decisions
Decide
Manufacturing

Make
Operational
Decisions
Decide
Distribution

Decide
Logistics

Figure 4.6 Decisions of supply chain management

Strategic decisions are made typically over a longer time horizon. These are

closely linked to the corporate strategy, and guide supply chain policies from a design

perspective. On the other hand, operational decisions are short term, and focus on

activities over a day-to-day basis. The effort in these type of decisions is to effectively

and efficiently manage the product flow in the "strategically" planned supply chain.

There are four major decision areas in supply chain management: c location,

d production, e inventory, and ftransportation (distribution), and there are both

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strategic and operational elements in each of these decision areas. The decisions that are

important to this work are transport decision.

4.3.1. Transportation Decisions

The mode choice aspect of these decisions is the more strategic ones. These are

closely linked to the inventory decisions, since the best choice of mode is often found by

trading-off the cost of using the particular mode of transport with the indirect cost of

inventory associated with that mode. While air shipments may be fast, reliable, and

warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may

be much cheaper, but they necessitate holding relatively large amounts of inventory to

buffer against the inherent uncertainty associated with them. Therefore customer service

levels and geographic location play vital roles in such decisions. Since transportation is

more than 30 percent of the logistics costs, operating efficiently makes good economic

sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and

scheduling of equipment are key in effective management of the firm's transport strategy

(Ref.: Ram Ganeshan, Terry P. Harrison, an Introduction to Supply Chain Management

1995).

4.3.2. Importance of Mathematical Modeling and Optimization Techniques

The planning (design) and management of the supply chain calls for mathematical

modeling and optimization techniques from operations management area. Mathematical

modeling include: Optimization Models (Linear Programming, Integer Linear

programming and Dynamic programming), stochastic models (Markov chains, Queueing

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networks, etc.), statistical models, game theory, simulation, machine learning and

auctions and mechanism design. The analysis techniques such as sensitivity analysis,

Monte Carlo analysis, risk analysis, break even analysis and Bayesian analysis,

correlation and regression play an important role. Decision process models built based on

these techniques specify various production and operations management decisions that

are made throughout the entire chain. Examples include:

• Material selection: Which material is the best to choose for various products?

• Location selection: Which supplier is the best to produce and distribute?

• Inventory planning: Where and how much inventory should be stored?

• Load planning: How workload handled by each supplier?

• Capacity planning: How much production capacity do suppliers need to meet

demand?

• Production scheduling: Which suppliers should produce and associated due dates?

• Distribution planning: When and how much volume of end products or

component parts should be transported?

4.3.3. Supply Chain Performance Measures

Supply chain performance measures can be classified broadly into two categories:

qualitative measures (such as customer satisfaction and product quality) and quantitative

measures (such as order-to-delivery lead time, supply chain response time, flexibility,

resource utilization, delivery performance, etc.). Improving supply chain performance

requires a multi-dimensional strategy that addresses how the organization will service

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diverse customer needs. While the performance measurements may be similar, the

specific performance goals of each segment may be quite different. Quantitative metrics

of supply chain performance can be classified into two broad categories: Non-financial

and financial as given in the following table 4.1.

Table 4.1 Quantitative measures of SC performance

Non-Financial
Performance Measures
i. Cycle time
ii. Customer Service Level
iii. Inventory Levels
iv. Resource utilization
Financial
Performance Measures
• cost of raw material
• revenue from goods sold
• activity-based costs such as
material handling, manufacturing,
assembling, etc.
• inventory holding costs
• transportation costs
• cost of expired perishable goods
• penalties for incorrectly filled or
late orders delivered to customers
• credits for incorrectly filled or late
deliveries from suppliers
• cost of goods returned by customers
• credits for goods returned to
suppliers

There are several fixed and operational costs associated with a supply chain.

Ultimately, the aim is to maximize the revenue by keeping the supply chain costs low.

Costs arise due to inventories, transportation, facilities, operations, technology, materials,

and labor. The financial performance of a supply chain can be evaluated by looking into

the following items: cost of raw material, revenue from goods sold, activity-based costs

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such as material handling, manufacturing, assembling, etc., inventory holding costs,

transportation costs

4.3.4. Resource utilization

A supply chain network uses resources of various kinds: manufacturing resources

(machines, material handlers, tools, etc.); storage resources (warehouses, automated

storage and retrieval systems); logistics resources (trucks, rail transport, air-cargo

carriers, etc.); human resources (labor, scientific and technical personnel); and financial

(working capital, stocks, etc.). The objective is to utilize these assets or resources

efficiently so as to maximize customer service levels, minimize lead times, and optimize

inventory levels. Under logistics, the decision that are to be made are:

• Logistics mode selection: What transport modes and lanes should be used to

move products throughout the network? (strategic)

• Selection of ports: Which ports should be used to bring product into and out of a

country? (strategic)

• Direct delivery: Which products should move directly from manufacturing

centers to customers? (strategic/tactical)

• Optimal transportation strategy: What are the cost and service tradeoffs of

alternative transportation strategies? (tactical)

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4.4. CASE STUDY

An apparel export company based in Tirupur has been considered for case study. In

Tirupur, the companies concentrate mainly on two categories of business: domestic

market and export market. The turnover of Tirupur exports amounts to Rs. 12000 Crores

per annum and this is equivalent to 2.5 billion US$. The transportation cost amounts to

approximately 10% of the cost. The apparel export company concentrates only on

transport of garments and the cotton garments are exported from Tirupur to European

countries through various modes of transport.

TRANSPORT OF APPARELS

The supplier decides the logistics for domestic markets and the customer decides

the logistics for exports.

The goods are sent from Coimbatore to Bangalore through Erode, Salem

and Hosur. For exports, the major transportation route occurs is Tirupur Æ

Tuticorin Æ Colombo Æ European countries. The various modes of transport available

are road, sea air and railways. If the goods are to be sent from the route Coimbatore

Æ Chennai and the destination is Delhi or Bombay then the optimum mode of

transportation is rail (Fig.4.7).

Figure 4.7 A transport route for apparel export

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Since the Chennai airport is specifically used only for automobile transportation

and also there are no frequent flights from Colombo to other European countries, the

customers preferably choose only sea as the mode of transportation.

VEHICLES OR SHIPS

There are 2 types of vessels or ships called feeder vessel and mother vessel. The

feeder vessel is the one that carries the goods from land to a big ship called mother

vessel. In this case study, the feeder vessel is used to transport garments from Tuticorin

to Columbo.

CONTAINERS

The containers are vessels that carry goods and there are three types of containers:

20 feet container that can hold - 30,000 pieces of T-Shirt, 40 feet container that can hold

- 60,000 pieces of T-Shirt, 40 High Q container that can hold - 70,000 pieces of T-Shirt

(Fig.4.8)

There are three types of agents at Tuticorin port to clear the goods from truck to

the ship. They are, Customer House Agents (CHA), Shipping Agents called

Forwarders, and Called liners Ship Operators called liners. Leading Liners include:

Evergreen, and APL limited. At tuticorin port, the customer house agents are

responsible for the clearance of customs and similarly there will be customs broker at

Colombo port for similar work. The forwarder will look after the filling of containers

and when the goods are transferred to the container there will be a customs clearance at

CFS (Container Freight Station).

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Figure 4.8 Container types

Effective Filling

The containers in which the goods are stored and carried need to be effectively

filled in order to optimize the overall cost of the transportation. There are two methods

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of booking containers: Full Container Load (FCL) and Less Container Load (LCL). The

FCL and LCL are differentiated, in practice, on whether the 'whole container' or 'not the

whole container' is intended for the consignee. The FCL means the load reaches its

allowable maximum (or full) weight or measurement. In practice, however, the FCL in

the ocean freight does not always mean packing a container to its full payload or full

capacity. For example, an exporter books a 20' container that is intended for a consignee

at FCL flat rate of US$1,500. If the consignment occupies 500 cu. ft. and weighs 5,000

kgs. only, the case is still FCL and the exporter has to pay US$1,500. If an exporter

intends to pack a container to the full capacity or full payload with the consignments of

two or more consignees for the same destination, the case is LCL and the carrier will

charge the LCL freight rate on each consignment. In the LCL arrangement, the shipper is

required to deliver the cargo to the carrier's container freight station for containerization,

thus there is no guarantee that the two or more consignments from the same exporter will

share the same container. In some cases, the exporter is allowed to pack the container at

their premises in the LCL arrangement, and then the carrier uses that same container to

pack in more cargo from other shipper(s) to make a full container load at the container

freight station.

Normal containers do not return with vessel usually, when they are discharged.

But because of high rental of special containers, more cycle operations are accomplished

which include discharging laden containers, trucks transports to clients and unloading

cargoes, empty containers return and being loaded on the previous vessel, higher turnover

rate will be, furthermore, less rental. It is an optimization problem with many time

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windows to maximize cycle operations in the required time and meet the unloading time

requirements of clients in terms of minimize the operation costs (Tang Limin et al.,

2009).

DOCUMENTS INVOLVED

During clearance, three copies of single document is used, out of the 3 copies one

is kept by the customer as invoice, a copy is left with customs for further reference and a

similar copy will be sent to the destination port where the end customer will receive the

goods. The documents involved include: invoice, packing list and shipping bill. For

customs clearance, Invoice and Packing list are needed. There will be two copies of

shipping bill: the Exchange Control Copy(ECC) which is for exporter’s bank and the

other copy termed as export promotion copy is for the exporters. The other documents

used are: shipping instructions (Fig.4.9), Invoice, Packing list (Fig.4.10), Cargo,

Certificate of Origin, Generalised system of preferences (Fig.4.12) and Bill of Ladding.

Certificate of origin(Fig.4.11) is obtained from textile committee, Ministry of textiles

and this certificate is for “goods made in India” certification. Generalised system of

preference gets its input from Free Trade Agreements (FTA) and Foreign Trade

Regulation (FTR) to record imports duty and concession in duty.

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Figure 4.9 Sample of shipping instruction

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Figure 4.10 Sample of packing list

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Figure 4.11 Sample of certificate of origin

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Figure 4.12 Generalised system of preferences certificate of origin

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TIME INVOLVED IN TRANSPORTATION

It takes nearly 8 to 12 hours for the truck to travel from Tirupur to Tuticorin and

the travel from Tuticorin to Colombo through feeder vessel on sea is approximately

1 day. It takes two days transshipment at Colombo. To travel from Colombo to Europe

via Red sea and Mediterranean sea, it takes a minimum of 14 to a maximum of 21 days

(Table 4.2).

Table 4.2 Time involved in Transportation

Travel details Travel Time
Tirupur – Tuticorin + 1 day clearance 2 days
Tuticorin – Colombo 1 day
Transshipment at Colombo 2 days
Colombo to Europe 14 days to 21 days
Import clearance at Europe 2 days
Island Transport 2 days

Thus, it takes nearly 23 to 30 days for transport of goods from Tirupur exporter to

European customer via the route shown in Fig. 4.13.

Figure 4.13 Route for Mutimodal transportation of Apparels from Tirupur to

Netherlands

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COST INVOLVED IN TRANPORTATION

Since the volume of the vessel is large for accommodating the containers,

transportation cost is less compared to other modes of transport and hence, exporters /

customer prefer sea mode of transportation. The transportation cost depends upon two

factors namely weight and volume of the goods. Among the weight and volume,

whichever is higher is used for calculating the transportation cost. The formula used is

Length * Breadth * Height (in cms) / 5000 * Number of carton packages. The various

costs involved are: customs charges, handling charges, uploading and downloading

charges.

4.5. DISCUSSIONS

Even though there are methodologies to solve transportation problem, in reality,

to apply these methodologies, softwares for specific countries, especially for developing

countries need to be developed. Softwares such as Oracle Logistics Management (OLM).

include few of the features of the multimodal transportation problem as a part of the

enterprise resource planning packages. But they do not provide the answers for all the

logistics decision queries such as logistics mode selection, selection of ports, direct

delivery and optimal transportation strategy. Even the existing ERP packages that

include the module for logistics planning are very expensive and a middle level small,

medium enterprise cannot afford to procure them.

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In Indian environment, the details on the roads, rail paths, air routes and sea

routes are not completely digitized. Hence the software that may be available for the

western world cannot be directly applied to Indian environment. There is no automation

tool that supports decision making in logistics planning. Transport infrastructure are

continuously upgraded and the real time information on blockages of transport and new

enhancement of transports are not available over the web.

While applying mathematical models and optimization techniques for the

multimodal transportation problem, it has been found that there is no readymade

modeling technique that is available which can be readily used to represent the features of

multimodal transportation problem. For example, if a network structure is used to

represent the MMTP, then between two nodes, there exist four different modes of

transportation, thus leading to a maximum of four edges connecting two nodes

representing the cities. In case of more than one flight or one train connecting two cities,

this four edges may increase. Thus it becomes very complex to represent the MMTP in a

simple network structure. When a representation omits significant effects, then important

system behavior remains unexplained.

Multimodal transport can be viewed as “the chain that interconnects different

links or modes of transport – air, sea and land into one complete process that ensures an

efficient and cost-effective door-to-door movement of goods under the responsibility of a

single transport operator, known as Multimodal Transport Operator (MTO), on one

transport document”. Multimodal Transportation plays an important role in international

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supply chain. Supply chain management involves material and information flows from

raw material to final product retailing. Supply chain management involves strategic and

operational decisions on location, production, inventory and transportation.

Transportation is more than 30% of the logistics cost and hence it becomes necessary to

operate efficiently and effectively. Thus, there is a need for transporting goods in an

efficient and effective way. Towards this mathematical modeling and optimization

techniques are used.

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