CHAPTER 9

Decision Strategies in
Transportation
 Areas in the Supply Chain 9-2

Affected by Transportation

Planning Procurement Manufacturing Distribution

Network and asset Landed costs Interplant Load plans
rationalization movements
Lead times Inbound in-transit JIT and other Pick lists
inventory specialized
management services
Vendor sourcing Reduced raw Shipping
material and work- documentation
in-process preparation
inventories
Economic order Dock scheduling
quantity
Outbound shipment
management
Mode/carrier
selection

Source: Adapted from The Emergence of Third Party Logistics, White Paper no. 4 (Atlanta, GA:
McGraw-Hill/Irwin Copyright1998),
PricewaterhouseCoopers, © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
p. 5.
 Mode/Carrier Selection 9-3

• Problem recognition
• Search process
• Choice process
• Postchoice evaluation

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
 Cost Factors Often Considered 9-4 a

in Mode Carrier Selection

• Freight costs
• Inventory carrying costs
– inventory in pipeline
– cycle stock at the receiving location
– required safety stock at the receiving location
• Investment cost required to produce the
inventory to fill the pipeline

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
 Service Factors Often Considered 9-5b
9-4

in Mode Carrier Selection

• Perceived quality of customer service
• Shipment tracking and tracing capabilities
• Billing/invoicing accuracy
• Electronic data interchange (EDI) capabilities
• Potential to develop mutually beneficial long-term
partnership
• Cargo capacity limitations
• Ability to provide service that does not damage goods in
transit
• Customs clearance capabilities for international
shipments
• Impact on the shipper’s negotiating position/leverage on
other shipping activities Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
 10 Steps in Evaluating 9-6a
9-5

Private Carriage Option

1. Define the problem.

2. Develop transport objectives.
3. Collect pertinent information
4. Determine present cost.
5. Analyze present operations.

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
 10 Steps in Evaluating 9-7b
9-5

Private Carriage Option (cont.)

6. Develop alternatives.
7. Determine private fleet costs.
8. Consider indirect factors.
9. Summarize alternatives.
10. Make the decision.

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
 Financial Considerations 9-8a
9-6

in the Decision to Private Carriage

Capital Requirements

Cost of buying or leasing fleet

Cost of maintenance facilities
Cost of terminal facilities

Annual Cash Inflows

Savings over using public carriers

Reduction in lost sales

Reduction in inventory carrying costs

due to more efficient routing
Total

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
 Financial Considerations in the 9-9b
9-6

Decision to Private Carriage (cont.)

Annual Cash Outflows

Fuel
Labor - drivers
Labor - maintenance and terminal
Insurance - trucks
- drivers
-maintenance and
terminal facilities
License fees
Parts supply
Utilities
Supervision
Administrative- billing, telephone,
accounting
Total
Annual cash inflows - Annual cash outflows

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
 Steps in Logistics Alliance Formation 9-10
7-7

Objectives and Know your needs Logistics

and wants Phase 1 Need Alliance
selection criteria Phases
Define criteria awareness

Identify qualified Know the marketplace

vendors

Needs determination Articulate needs

and request for bids and wants PLAN
Evaluate bidders Phase 2
Identify partners Continuous
and select Planning and
Improvement
management Process
Integrate logistics
providers with Logistics IS
own systems Train partners

Implement and Cooperate in

manage the management and DO
relationship control

Measure performance Cooperate in Phase 3

and analyze deviations
CHECK
critical review Evaluation

Redefine goals and Revisit needs and ACT

objectives provider capability

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.