TRANSPORTATION MANAGEMENT

DECISION MAKING
MODE AND CARRIER
SELECTION
TRANSPORTATION MANAGEMENT
•Transportation management; describe the functional area
dedicated to shipper network strategy.
•Traffic management;
•used for the tasks of obtaining and controlling transportation
services for shippers or consignees or both.
•applied to a position or an entire department in almost any
extractive,raw material,manufacturing, assembling, or
distribution firm.
•Transportation management replaced traffic management
•Applied to purchase and control of transportation services in
some organizations.
•The transportation manager develops strategies to address the
procurement of transportation in general, as well as small,bulk
and inbound shipments.
 Transportation is often one of the largest cost
elements and decisions in this are can be favorably
or negatively impact the total distribution
performance.
 Example, slow but low-cost transportation can have
an adverse impact on;
 customer service
 inventory levels.
 minimize transportation cost,
 inventory levels might need to be much higher to
accomodate longer transit times.
 These higher stocking levels, with the resultant
increase in inventory-carrying costs, might be more
than any saving in freight charges.
Transportation Management

1. Mode of transport
2. Method of selection
3. Transportation costs
4. Fleet sizing and configuration
5. Routing and scheduling
6. Futuristic direction in transportation
Selection of transport
 Transportation-Related Service
Elements

Speed: time-in-transit
Availability: accessible to customers when they want it
Dependability: pick-up and delivery time variability
Flexibility: adjustment to shipper’s needs
 Selection of Mode of transport.

Speed Frequency Dependability Payload Points served

Air Pipeline Pipeline Water (sea) Road
Pipeline Road Road Rail Rail
Road Air Rail Road Pipeline
Rail Rail Water (sea) Air Air
Water (Sea) Water (sea) Air Pipeline Water (sea)
 Method of selection
The selection procedure for the transport mode could vary from
the simple decision either to identify one feasible method of
distribution.
 Judgment: Identification of the important factors affecting the
transport problem by the transport manager, and the transport mode
from a list of alternatives available, so that the important features of
the transport requirements are met.
 Cost- trade-off: It is where the impact of transport is calculated
in relation to immediate terminal objectives and activities, and
the total cost of distribution system is optimized.
 Distribution models: This identifies and explains the
interrelationships between the components of the distribution
system at various levels of daily, weekly or monthly demands.
 Transportation costs
Transport costs vary;less than 1% (for
machinery) to over 30 % (for food) of the
recommended selling price of products,
depending upon the nature of the product range
and its market.
The average transport costs is between 5 to 6% of
the recommended retail price of a product.
With inflation, transport costs also rise because
the major components are the workforce, fuel,
spare parts and overall operating costs.
 Fleet sizing and configuration
Fleet size can be regulated and minimized by
 Utilizing standard size pallets and transport containers
 Vigorously monitoring fleet utilization levels periodically
 Maintaining total fleet visibility, including loading times,
unloading, transit times and maintenance times.
 Choosing low-use periods to conduct routine
maintenance
 Monitoring and charging for demurrages for fleet
detention by suppliers, customers, port authorities and
carriers.
 Utilizing alternative coverage means during super peak
periods to avoid carrying the burden of an oversized
fleet.
 Routing and Scheduling
Goals:
 find best path a vehicle should follow through networks of
roads, rail lines, shipping lanes, and air routes
 determine best pattern for stops, multi-vehicle use, driver
layovers, time of day restrictions
Benefits:
 greater vehicle utilization
 improved and more responsive customer service
 reduced transportation expenses
 reduced capital investment in equipment
 Principles for Good Routing/Scheduling

 load trucks with deliveries for customers closest to each

other
 stops on individual days arranged together
 start routes with farthest stops first
 circular routes - don’t cross paths
 use largest vehicles first if can be filled
 mix pickups in with deliveries, not at end
 if one stop far from other, use other truck
 avoid narrow stop time windows, or handle separately
 Routing and scheduling
Delay in delivery due to routing problems increase
costs of goods manifold.
Efficient versus inefficient routing can save
tremendous amount of money in fuel, labor, capital
expenditures and significantly enhance customer
satisfaction.
The objectives of routing and scheduling to
minimize.
Total route costs
Number of routes
Distance travelled
 Routing and scheduling

The constraints are

 Customer requirements and time available
 Balancing of the route for the driver, to avoid
overtaxing
 Maximum route time
 Vehicle capacity
 Start & Stop points enroute
 Infrastructure constraints
 A basic routing problem looks for the best path for a delivery
vehicle around a set of customers.
 There are many variations on this problem, all of which are
notoriously difficult to solve.
 Real problems are much more complicated.
 competing aims
 uncertain costs
 variable delivery times
 varying speeds caused by traffic conditions
 customers with different importance and conditions for
deliveries
 incompatible products
 different logistics facilities
 Transportation Strategy
Transportation Strategy is concerned with the purchase
and control of transportation services.
Transportation purchasing decisions include;
modal selection,
consolidation,
private transportation,
intermediaries and contracting.
The strategies in guiding the transportation decisions
are concerned with controlling transportation.
Transportation strategies have been seperated into
those that apply to all types of shipments, including
small and bulk shipments.
Transportation Strategy
Management Strategy:
Six Factors

1. Proactive Management Approach

2. Reducing the Number of Carriers
3. Negotiating with Carriers
4. Contracting with Carriers
5. Consolidating Shipments
6. Monitoring Service Quality
 Management Strategy:
Proactive Management Approach
 Absence of the regulatory safety net encourages
logistics mangers to take a proactive management
approach to identify and solve transportation
problems.
 Creativity in problem solving no longer restricted by
fixed regulations.
 Positive attitudes result in using transportation to
solve company problems in many functional areas.
Proactive Management
 Elimination of economic regulations to control
transportaiton rates and services, the transportation manager
is able to develop innovative approaches to a company’s
transportation problems.
 The transportation manager relies on basic management
techniques to seek innovative transportation systems that
will provide the company with a competitive price or
service advantage in the marketplace. 
 The thrust of proactive managament strategy is problem
solving.
 Today the transportation manager must rely on his/her
ability and creativity to design a transportation system that
permits product differentiation and a competitive advantage.
 Management Strategy:
Reducing the Number of Carriers/Limit
Number of Carriers
 By reducing the number of carriers it uses, a shipper
increases its market power and therefore ability to
effectively negotiate with its carrier.
 Consolidation of freight increases the shippers leverage
with the remaining carriers.
 Being one of a carrier’s largest customers gives the
shipper increased negotiating power.
 Shippers become more important to the carriers as they
funnel larger volumes to fewer carriers.
Management Strategy:
Reducing the Number of Carriers
 Improved service from the remaining carriers
decreased its inventory by $30 million.
 Supply chain strategic alliances are also created
through consolidation.
 Disadvantage of limiting the number of carriers
used is the increased dependency on the carriers
that are used.This risk must be balanced against the
benefits.
 Management Strategy:
Negotiating with Carriers
 Before deregulation, carrier negotiation was almost
nonexistent. With the market free of economic regulation
all carrier rates and services are matters for negotiation
 With rate negotiation a common outcome of deregulation,
consolidation provides the leverage to successfully
negotiate more favorable terms of carriage.
 Market power; the shipper’s ability to negotiate acceptable
rates and services.To increase market power shippers use
the strategy of limiting the number of carriers.
 A shipper’s market power and negotiating strength also
determined by the characteristics of its freight.
 Management Strategy:
Contracting with Carriers
 Elevating the carrier to partnership status in the supply
chain philosophy assists in assuring a win-win
arrangement between the partners.
 As in any contract, special and/or custom services such as
JIT can be negotiated.
 Contracting widely adopted by rail; rates, types of
equipment, service levels and minimum quantities are
subject to contract terms.
 Contracting out the entire distribution function and the
related information function
 Subcontracting specific logistics activities to a third-party
specialist service provider.
Management Strategy:
Consolidating Shipments
 Small shipment strategies consist of freight consolidation, using
drop-off carriers and pooling services and avoid using private
motor carrier.
 The strategic thrust for small shipments is to reduce the
inherently high transportation costs associated with small-sized
shipments.
 Shippers are often rewarded with lower rates as the amount
shipped increases.
 Contracts may be written with minimum shipment size per
shipment or for annual cumulative shipment size.
 Quantity/rate discounts are real savings that the carriers pass on
to shippers, from 30-50%.
Management Strategy:
Monitoring Service Quality
 Product movements that are consistent, timely, and
undamaged can be a competitive advantage for a
customer.
 Trade-offs between speed and cost of service must be
analyzed to provide the service customers need
without paying for speed that might not be required.
 Examine the Carrier Evaluation Report; usually on a
quarterly basis. Used to assure that carriers are
providing the service quality that is demanded or
specified by agreement.
Decision Making

1.Step: Mode Selection

2.Step: Carrier Selection

3.Step: Mode and carrier assignment

 Mode/Carrier Selection
step 1

step 2
Modal Choice
basic mode Specific Carrier step 3
intermodal legal type Transport
individual carrier provider
Examples of Information Flows
Transportation Decision Making in an Integrated Supply Chain

Macro Understand total network flows Strategic

Understand individual lane flows

Decision Flow
Decision Scope

Understand current
carrier usage patterns

Make mode/carrier
decisions
Routing/Scheduling,
Load Planning, etc.

Micro Operational
Inbound Outbound

Supplier Manufacturer Customer

 Choice of Mode
Choice of mode depends on a variety of
factors.The main ones are the nature of materials to
move, the volume and distance.
Other factors include:
Value of materials Reputation and
Importance stability of carrier
Transit times, Security, loss and
Reliability damage
Cost and flexibility to Schedules and
negotiate rates frequency of
delivery
The Carrier Selection Decision:
Various modes of transportation should be
considered.
Choose a carrier or carriers within the selected
mode, if there is a choice.
Carefully examine the service capabilities of the
carrier as services can vary widely between
carriers.
Carrier Selection Determinants:
 Cost
 Transit time and reliability
Can be a competitive advantage
Lowers customers’ inventory costs
Capability
Accessibility
Security
Carrier Selection Determinants
and User Implications
The Pragmatics of Carrier Selection:
Transit time reliability
Negotiated rates
Consolidating shipments among a few carriers
Financial stability
Sales rep
Special equipment