2. Transportation Management

After this unit you should be able to answer following questionsA. Concept Questions B. Short notes

1. Containerization

2. Nodal Points

3. Principles of transportation

4. Transportation policy

5. Freight rate structure

6. Inland Container Depots

7. Transportation infrastructure

8. Transportation modes

9. Material handling

10.Inter modal transport

11.Piggyback, fishy back, birdy back

12.TOFC, COFC

13.Unit train

14.Milkruns

C. Section II descriptive questions [10 marks each]

1. What is transportation mode? Describe various modes of transportation,

their advantages and cost elements.

2. Explain various pricing factors for transportation.

3. What is transportation performance? Distinguish between DRP & MRP.

4. What factors are required to be taken into account while selecting mode

of transport to achieve minimum cost? Explain.

5. What is an inland container depot [ICD]? What type of coordination

with transportation will be required?

6. Discuss principles and functions of transportation.

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7. What is transportation environment and who are the participants in

transportation decisions?

8. Explain transportation infrastructure.

9. What are nodal points? What is their significance in transportation

network?

10. Explain how Selection of Carrier is done?

11. How transportation policy is chalked out for a company?

Transportation

Transportation functionality

Transportation is the most visible of all functions of logistics and high

contributor to logistics cost. We can see trucks, containers and wagonloads of

material being moved from place to place as an activity directly associated

with trade and business. We should also appreciate that this is an activity that

adds highest amount of cost to the activity of making inputs and outputs

available to consumers. Transportation function moves the products to meet

customer expectations at minimum cost.

Functions of transportation

1. Product movement:

What is moved?

Raw Material, Semi Finished items, WIP, Finished goods, packaging material,

rejected material - movement is required up or down the supply chain.

How is this done? What Resources are used?

Resources used by transportation:

A. Temporal - product is locked up during transit, hence inaccessible. We have

to spend a positive amount of time in transporting the material. Time is a

resource [temporal resource] that is expended in transportation. During the

time the product is locked up costs are incurred in proportion to the time

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B. Financial - several cost elements like administration costs, salaries,

maintenance costs are expended. Loss on account of product loss and damage

also needs to be accounted for. Fuel consumed is a big cost in transportation

C. Environmental – this activity is a fuel guzzler, eats up natural fuels like oil,

directly and indirectly. - 67% of all domestic fuel usage in the US is by

transportation activity.

Creates congestion, air pollution and noise pollution. Environmental cost is

tangible and substantially intangible. As transportation utilizes temporal,

financial and environmental resources items must be moved only when product

value is enhanced

2. Product Storage:

Temporary storage in stationary vehicles or Vehicles kept moving on a

circuitous route - Product storage is expensive in a transport vehicle. But

some times keeping overall cost in mind this is adopted.

A. When unloading and loading is more expensive than storage

B. When storage space is limited. [Situation when inventory levels are very

high]

Principles of transportation

1. Economy of scale

It is common knowledge that per unit transportation cost comes down as the

bulk of the items transported increases. Hence in order to gain benefits in terms

of reduction in transportation costs logistician tries to consolidate the bulk and

then ship the consignment rather than shipping half truck loads or half

container loads. This benefit is Economy of scale

2. Economy of distance

The transportation cost per kilometer comes down as the distance moved

increases. Hence transportation is planned in a single long lap rather than

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number of short laps to reach the destination. The fixed costs and costs like

overheads of loading and unloading are spread over the distance through which

the load is moved.

When alternate transportation strategies are evaluated to meet customer service

expectation, economy of scale and economy of distance are fundamental.

Participants in Transportation Decisions

Normal commercial transaction has limited number of parties to the business

decision. They are seller, buyer and directly or indirectly government. But a

transportation decision has number of parties to the decision. These parties

have very important roles to play in transportation environment. Parties to a

transportation decision are those who have a stake in the transportation. They

are

1. Shipper: shipper is a party who wants to transport the goods to his customer

in a business transaction

2. Consignee is the party to whom the goods are sent

3. Carrier is the service provider who carries the consignment from shipper to

consignee.

4. Government has a role to play as they are keenly interested in transportation

and have a stake in it. Transportation makes business happen which is

fundamental to the economy of any society. Economic prosperity to the

society is the objective of the government of the day. Government also

collects tax on the transaction. Government represents general public whose

interest they have to protect.

5. General public is another party who has a large stake in the transaction

involving transportation. Public want goods produced at different parts of

not only country but also world. Their demand cannot be met without

transportation.

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Roles and perspective of each party

Shipper and consignee:

Predictable and minimum transit time, minimum cost, minimum taxation,

specified pick up and delivery times, zero loss and damage, timely exchange of

information and invoicing. These are the needs of the above parties. They look

at transportation from this angle. They are the basic elements of transportation.

Business between them initiates the need for transportation

Carrier:

What does he want? Revenue maximization and cost [labor, fuel and vehicle

costs, taxation] minimization. Flexibility in pick up and delivery times to

consolidate movement. Carrier facilitates the business between shipper and

consignee. He gets paid for his service. He adds value to the supply chain by

moving the material from supplier to the customer. Carriers’ strike in our

country is a repetitive phenomenon to protest against role of government.

Government: government while playing their role exercise control on all the

players. They want the business to flourish, at the same time benefits to reach

uniformly all over the country. They also have to provide the necessary

infrastructure to support transportation. It is said that one of the causes that

expedited the break up of Soviet Union was the weak infrastructure on account

of which products could not be transported to far-flung parts of the country.

Hunger deaths in India in spite of self-sufficiency in food production are

examples to illustrate the interest of the government. Government controls

carrier rates and licenses. Government owned carrier service is probably the

cheapest option for transportation available to business. Government supports

transportation by providing a network of roads, Airports and ATC, Ports and

Harbors. Government wants taxes to support above activities in national

interest. Ultimately the consumer, general public, has to bear the burden of tax.

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Public

What do public want?

• Public as consumers trigger transportation activity by demanding

products and services of high quality from all over the world at minimum cost.

They have concern for safety as accidents of various kind have been a bye

product of transportation. Degradation of the environment is another threat

about which public are concerned as transportation is at the root cause of many

such concerns. Eg. Degradation of atmosphere and water, rise of noise levels,

oil spills due tankers carrying cargo of crude oil.

When these parties with separate and distinct interests interact transportation

environment is created.

Conflict of interests raises issues that interrupt smooth transport of goods in the

country. Government as the main arbiter steps in to iron out these differences

in the interests of business.

What is transportation mode?

Mode of transport identifies transportation method or form. The vehicle used

indicates all other parameters of the mode. If ship is the vehicle used, then we

know that it is associated with other parameters of transport like water, ports

etc. There are several options available now for moving goods and services

from one place to another. These modes have emerged over a period of time

representing changes in technology and contemporary business environment.

Science & Technology have played major role in development of these modes

and relevant infrastructure. March of bullock cart mode to mode of aviation is

the contribution of Science & Technology to logistics performance. Mode

selection is an important decision in transportation strategy as it has an impact

on cost transportation. Rail, Road, Water, Pipeline & Air are well known

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modes of transport extensively used in logistics. Various important features of

these modes like transportation time are discussed elsewhere in these notes.

We can say such important features are, transit time, risk or liability,

smoothness of passage & flexibility

Impact of transportation mode on other costs associated with

transportation

Movement costs: cost of power to drive the vehicle of transport depends on

the mode selected

• Inventory costs: It is quite clear that inventory holding costs are

temporal costs and are directly proportional to the transit time. Longer the

inventory is in transit larger are the costs. Transit capital remains blocked

during transit time and unavailable for use. Mode of transport determines the

transit time and thereby influences these costs

• Obsolescence: Specially, when the transit time is quite large the

inventory can become redundant when it arrives at the point of use. We know

that in the changed environment, product life cycles are shrinking and hence

this cost becomes highly relevant. Other situations are product deterioration

time & expiration date of the product.

• Packaging: These costs are mode dependent as bad road condition

needs robust packaging and smooth transit does not need such packaging. This

will also depend on handling system.

• Insurance: This cost obviously proportional to risk of damage and loss

in transit as this is the liability of carrier.

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• Breakage: This depends on smoothness of transit and handling system

associated with the mode.

• Pilferage: This cost can be eliminated by switching to options like

container transport

Customer Service Costs: Shortage of product when demanded by the

customer leads to customer dissatisfaction and thereby loss of sale for the

company. So customer service should be raised to be able to meet customer

expectations. When we try to raise customer service level costs are incurred.

Conventionally, companies stockpile to raise service level. But the current

thinking is to reduce response time to customer need rather than increase the

stock, as costs of inventory are well understood. This is done by improving

information flow to anticipate demand and reduce transit time by changing to

faster mode of transport. The second method is cheaper than the

conventional. But rise in customer service beyond a certain level does not

result into increased revenue. In other words it is only cost and not value.

Transport infrastructure

Infrastructure is the main facilitator for any activity to take place. For

transportation to take place a strong infrastructure is primary. If this

infrastructure is inadequate transportation gets slowed down resulting into a

major obstacle in the growth of trade and business in that area.

Elements of transportation infrastructure

• Terminal facilities - well maintained loading unloading facilities, space

for movement of vehicles, platforms, railway yards

• Vehicles- trucks, ships or wagons depending on the mode. Their size,

shape & speed

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• Right of way- passage to move on. Rails, roads, airways, limitations on

speed, weight, height etc. If we use this particular passage.

• Prime movers – the powerhouses moving the vehicle of transport

shortage of which seriously affect transportation. Shortage of good

locomotives impairs the utility of railway as a mode of transport.

Carrier organizations – are the transportation service providers in business.

Transportation is their core business. Good service provides a vital fillip to

business and trade. Railways, roadways, airlines, shipping lines are service

providers.

What are various features of modes or modal characteristics?

Modal characteristics are features of a particular mode that indicate the relative

importance of that mode. By measuring these features one can determine the

relative importance of each mode.

How do we measure relative importance of each mode? We measure

relative importance of each mode as of now or over a specific time span by

measuring the modal characteristics. Importance is the popularity or wide

spread usage of this mode in business. Modal characteristics are System

mileage, Traffic volume, nature of traffic composition and revenue.

System mileage: Mileage covered by the modal net work. Like total length of

roads in the road network in miles or kilometers is System mileage for road as

a mode. This measure explains to what extent road is being used or how

popular in business as a mode of transport today.

Traffic volume: is the amount of ton kilometers moved by a mode. This is a

better measure as this indicates the tonnage shipped by this mode as well.

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Revenue: is the amount of transportation business in rupees or dollars

transacted by a mode. In simple terms how many rupees worth material is

shipped in this mode.

Nature of traffic composition: what variety of goods are moved by this mode

is a measure to indicate the spectrum of goods handled. This speaks of the

flexibility of the mode.

RAIL NET WORK

Rail network is fully owned and operated by the government in India. This a

major step for facilitating movement of goods through out the country at a very

low cost for promoting trade & business in the country. Rail net work stands

for maximum tonne kilometers moved in India now, thereby being an

important mode of transport in the country. Rail network accounts for 226

billion tonne kilometres and 55.8% of total tonne kilometers moved in 1982 in

India. If we try to compare these figures with US a much more prosperous

economy, we find that 37.4% of ton-miles moved were by rail in 1990. Post

world war business experienced auto boom and rapid spread of road network in

the US. As a result rail net work is facing very stiff competition there. This

trend is quite relevant in India too which has forced the railways to assume a

friendly posture in terms of service offered to customers who were taken for

granted by the administration until now.

Rail network needs a high capital investment due to right of way, switching

yards, terminals but it operates with low running costs. To capitalize on this

basic advantage railways focus on specific products rather than on broad range.

Wooing raw material extractive industries that are away from waterways is an

example of this customer friendly policy. In the US, inter modal transport by

railways through alliances and acquisition is practiced to provide hassle free

service to customers. We can see an example of this practice in courier

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business. Various modes of transport are used for taking the parcel to the

addressee by this business.

Development of Specialized Equipment: as a result of above change in

thinking several special equipment are developed to attract customer in an

environment of competition. All of these are in vogue in the US and some can

be seen in India. It will not be very long before we see all of them here.

• Enclosed tri-level automobile car

• Cushioned appliance cars

• Unit trains - entire train carrying a single product that can go directly to

the customer without getting shunted off in marshaling yards.

• Articulated cars - flexible units with extended chassis that can hold ten

containers.

• Double stack containers- containers in two levels

Nodal points in distribution system

[ref. KKK, pages [343 to 350]

In the context of Indian economy, in spite of liberalization, state exercises

immense influence on the national economy. Bulk of material transported is

either produced or in some form controlled by the state. Such materials are

coal, steal, fertilizer, cement etc that are to be made available at consumption

centers. On the other hand, state also has the responsibility to distribute

essential commodities through the public distribution system [PDS]. Hence the

responsibility for logistics of those items falls on the state. State also owns the

network of railways that encompasses entire country. Rail network is the

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cheapest mode of transport for hauling bulk material in the country. In the

value chain of such commodities, if the state develops some facilities or nodes,

large amount of benefit may be derived by way of movement consolidation.

State owned rail network could link these nodes to the best advantage of state

and thereby to that of national economy. Problems of our distribution system

are well known what is produced never reaches the consumer in time and in

good shape. Hunger deaths in a country that is self sufficient in food

production is the indicator of our national logistical performance.

Some characteristics of nodal points are as under.

1. Nodal points should be closer to consumption points.

2. Number of nodal points would depend on volume of distribution. Too many

would be costly and too less would not make the desired change.

3. Nodal points should be well connected by rail network. Terminal and

shunting facilities are required at these places. There should be facilities for

loading, unloading, necessary facility for inter modal handling. Shipments

from the nodal points would be by road in trucks or bullock carts

4. Nodal points should be connected to consumption centers by roads

5. Normally, nodal points are district headquarters where necessary

operational support can easily be available.

6. Nodal points service an area with a radius of 100kms. So, generally 200kms

separate one nodal point from another.

Development of such nodal points in the country would give a shot in the arm

to logistical operations in the country for essential commodities and bulk

materials.

ROAD TRANSPORT

Road transport is rapidly pulling the carpet from under the feet of railways, as

we saw earlier, post world war. Its popularity is growing everyday. In India,

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roadways moved 179.2 billion tonne kilometers in 1982. This is 44.2% of total

tonne kilometres moved by all modes as against 55.8% by railways. Important

features of this mode of transport are discussed below.

High flexibility and speed: this is the strength of roadways. No other mode

can connect any given pair of shipper & consignee as roadways. Nor any other

mode can handle the variety as roadways do. As there is no need for shunting

and waiting for, as in railways road transport reaches the goods to the

consignee very fast.

Ultimate mode of transport: irrespective of the mode chosen ultimately the

consignment reaches the doorsteps of the customer by road

Low capital cost as compared to railways: railways obviously need huge

amount of capital for setting up the infrastructure needed for movement of

goods by rails.

This feature along with flexibility forms the formidable strength of this mode.

Operating costs are higher: due to fuel requirement and higher labor

requirement. This feature makes roadways ideal for small shipments over short

distances.

Occasional fuel shortages: as the fuel is not available in full measure in the

country internally, scarcity is experienced once in a while.

Disputes with government: on account of conflicting interests between the

parties to transportation decision. We have experience of transportation

contractors or carriers going on strikes to project their problems with the

government.

Vehicle availability: limited availability of trucks poses a constraint. Now as

more and more truck manufactures have come into business this difficulty is

likely to be short lived.

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Maintenance and spares costs and availability of service facilities: as the

road network is quite extended and reaches deep in the rural India non-

availability of such services is a problem.

Octroi: is a long-standing grouse of carriers. Octroi posts are notorious for

delays and harassment of carriers

Old Motor Vehicles Act: the legislation that controls movement of vehicles

on the roads is an important law for this business. There is a feeling that this

law is now outdated and new legislation should made to tackle the challenge of

current business environment

Bad and unsafe road conditions: pathetic condition of our roads a major

stumbling block for business which causes delays, accidents and damage.

Restrictive permits: carriers resent restrictive regime of permits and licenses

imposed by the government all over the country.

Developments in this area

Entry of several manufacturers of trucks and trailers is relieving the strain from

this business. Construction of expressways and a national grid of highways is

another important step in this direction.

WATER TRANSPORT

This mode is the link between countries separated by water. Business is known

to have existed between far off lands for a long time in the past. Sailing vessels

existed since far away times. Mechanized water transport came into being in

the form of steamships since 1800, diesel driven ships came into existence

since1920. Water transport is classified into deep-water transportation and

navigable inland water transportation or domestic water transportation on

lakes, rivers or canals. Main advantage of water transportation is its capacity to

move extremely large shipments at a very low cost. Inland water Transport is

not used to its full potential in India although we have used mechanized Inland

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Water Transport [IWT] since early 1800. Lack of policy, lack of clarity in

thinking receding water levels in rivers and tough competition offered by other

modes of transport appear to be the hurdles. Main features of water transport

are the following.

Low capital costs and low operating costs

Low speed

Capacity to carry huge bulk

Limitation due to availability of harbor

Maneuverability is low due to size

Deep-water ships designed for ocean and lakes are limited to deep-water

ports

Shallow water vessels like diesel towed barges are flexible but are limited

by their range of operations and speed

PIPELINES

What is transported in a pipeline? Generally liquids like oils, crude, petroleum

products are transported in a pipeline. In India pipelines are extensively used

for transporting crude and petroleum products. More than 5,000 km of pipeline

exists in India for crude and petroleum products. In addition to the products

above slurries, gases, vapors and solids in powder form are also transported in

pipelines.

Slurries - coal slurry, iron ore, lime, huge quantity of water is necessary which

is a concern for environment, In India pipeline is used for transporting iron ore.

Gases and vapors - natural gas, LPG, in India LPG pipeline is in existence.

Pulverized dry bulk material - cement by hydraulic suspension

Main features of this mode of transport

Reliable all weather means of transport

Low energy consumption

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Pipeline being under ground space occupation is minimal

Pipeline operates all the time except when it is shut down for maintenance

No empty container or wagon to be brought back

Highest fixed costs, due to right of way and laying of pipeline, and lowest

operating costs [not labor intensive].

• Not flexible by nature. Pipe lines are stationary

• Physical state of the commodity to be transported is a limitation.

• This mode of transport can release capacity of other modes for

transport for essential commodities

ROPE WAYS

Used for transporting materials in hilly and otherwise inaccessible area. Fruits

produced in hilly area are brought to the low land for further transportation to

consumption centers. This mode is good when gradients are steep as road or

rail would take a very long route to negotiate the gradient. Rope way causes

minimum ecological imbalance. Rope way connects point of supply and

demand by shortest route.

AIR TRANSPORT

Generally, this transport mode is used in emergency rather than in normal

times.

Speed of transport is highest

Fixed costs are lower than rail or road or pipe line. But operating costs are

highest

Air transport brings distant markets closer - perishables market in gulf

countries

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Overcomes the hassle and cost of setting up depots and service centers

overseas

Full potential of peak seasonal demand can be exploited.

Moving entire facility to meet peek demand.

Test marketing is easy. Products can be shipped directly from the factory

as time is of high importance

Freight rate structure

Freight rates are transportation rates charged by carriers for shipping the goods

to the consignees premises. These rates are structured round some principles.

Some of the principles are commercial nature and some of them are structured

by the state.

Principle of freight rates:

1. Should cover actual cost of transportation: fundamental principle is that

the rate should cover the cost without fail.

Factors influencing cost of transportation

A. Fixed costs:

• Interest on capital invested in the fleet

• Depreciation

• Insurance premium

• Administrative overheads and expenses on fixed facilities

B. Semi fixed costs:

• Salaries of the staff

• Miscellaneous maintenance expenses directly related to running of the

transport vehicle.

C. Variable costs:

• Cost of fuel and lubricants

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• Maintenance directly attributable to a particular trip. Damage to the vehicle

and also the cargo. E.g. Hilly roads, bad roads, war effected sea routes

2. Vehicle utilization: Carrier likes to gain maximum mileage out of his

vehicle. If vehicle is idle it is a big loss to the carrier organization. Hence the

carrier would like to run his vehicle at top speed to cover max. Distance at min

time. While structuring the rates carrier would like to charge more if

opportunity for maximum utilization is limited.

Quote higher rates if following are not conducive to the above

• Road conditions are bad. Hence vehicle can not be driven fast.

• Terminal detentions [congestion, formalities, for loading unloading

(handling) etc.]: a delay at the terminal brings down vehicle utilization as the

vehicle is idling. If the destination is known for this kind of delays carrier

would charge higher rates.

• Obtaining a return load [market factors]. If the destination does not offer

opportunity for a return load carrier asks for a higher rate as would not be able

to utilize his vehicle during return trip. Normally if the destination is a

production center one would always find return trip to consumption center. But

the other way round probability of return load is very low. O

• Nature of goods, hazardous, corrosive[liability, insurance]. Such goods are

detrimental to the safety of the transport vehicle and operating staff. Hence

rates are high when such goods are shipped.

• Density, consignment light by weight: when the consignment is light by

weight the truck becomes full without full load being loaded. Hence the carrier

doesn’t get paid for the full load. So he hikes his rates when the consignment is

light.

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• Stowability, shape and size of the product. When the load has an odd shape

speed of the vehicle is reduced to accommodate the center of gravity. This

brings down the utilization apart from being risky.

3. Traffic Bearing Capacity: transportation adds value by making the

product available to the customer. But the cost incurred by the shipper while

transporting should not outweigh the value added. The carrier structures rates

keeping this principle in mind.

4.

Public use: state introduces the principle that the transportation of essential

commodities should be done at a lower rate.

5. Government Policy: freight rates are controlled by the state for promotion

of certain type of trade and development of certain type of industry as per the

industrial policy prevalent at that time. Freight rates are hiked or depressed by

state the to meet the objectives of the policy.

6. Profit: Freight rate should cover costs of operation, capital investment and

margin for reasonable return on investment. It should also compensate

entrepreneurial time and efforts.

Business should generate enough funds to provide for future development of

business. The freight is expected to generate enough money to cover all these

requirements.

Selection of Carrier

Following care is to be taken while selecting a carrier for shipping the

consignment to the consignee.

Shipper should carefully see constitution of the carrier’s constitution to

assess what kind of an organization he has to deal with. Is it professional?

Family or proprietorial?

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Volume of business or business turns over, to get an idea of the

infrastructure the company can afford to provide for business.

Area of operation, the length and breadth of business, the extent to which

the carrier can reach the goods in the country.

Branch offices or associates’ office. Check if the carrier can manage his his

operations at far away places through the network of own offices or the offices

of associates.

Strength of fleet. The size of fleet owned by the carrier which can be

committed to business at any given time.

Ask for up to date clients list for seeking the opinion of other clients of the

carrier.

Ask specifically for list current clients, for ascertaining reliability.

Type of business the carrier is doing will indicate if the carrier is suitable

for the shipper.

The average transit time quoted by the carrier for some well known

destination.

Record of claims settlement by carrier to know how good or bad the carrier

is whenever there is a claim settlementReference from other shippers’ banks,

carriers’ associations as a measure of confidence.Transportation policyBefore

one tries to formulate transportation policy for his company one should

understand components of transportation decisions. Transportation decisions

weigh cost/benefit with respect to these components before finalizing the

choice which would ultimately formulate the policy. Components of

transportation decisions Mode of transportation

Air - most expensive, but very fast

Road - relatively quick and inexpensive, highly flexible

Rail - An inexpensive mode for large quantities

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Water - the slowest but most economical for large overseas consignments

Pipeline - primarily for oil and gas

Transportation decision here is selection of mode for transportation of goods

from our company

• Route and network selection

Route is the path the product takes and network is locations and routes along

which a product can be shipped. In this case, the transportation decision is

selection of network.

• Carrier in house or out sourced

whether product owner performs the function or out sources it.

Trade off - customer service efficiency & growth in business

Improvement in customer service level cost money to the company. But

improved service level ensures customer loyalty and growth in business. But

improvement beyond a certain level may not result into benefits

proportionately. We have to identify this level and should not expend resources

for improvement beyond this point.

• Trade off - cost of transportation and cost of inventory

Transportation decision is about establishing the trade off point between cost

of transportation and cost of inventory. Increased transportation cost results in

savings in inventory cost as increased transportation cost crashes transportation

time. But the benefit ceases after a point if you go on increasing the

transportation cost. This is the point of trade off which should be identified and

we must stop increasing transportation cost beyond this.

Above decisions form the core of transportation policy

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Transportation network options

NETWORK STRUCTURE

PROS CONS

DIRECT SHIPPING

NO DC COORDINATI

ON EASY

HIGH INVENTORY

SIGNIFICANT RECEIVING EXPENSE

DIRECT SHIPPING WITH MILK

LOWER TRANSP COSTS

INCREASED COORDINATION

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Supplier Retail stores

Retail stores

Suppliers

Supplier Retail stores

Supplier

Retail stores

DIRECT SHIPMENT

DIRECT SHIPMENT WITH MILK RUNS

ALL SHIPMENT SVIA DC

MILK RUNS FROM DC

DESIGN OPTIONS FOR A TRANSPORTATION NETWORK

supplierRetail stores

RUNS SMALLER INVENTORY

COMPLEXITY

ALL SHIPMENTS VIA DC WITH INVENTORY STORAGE

MOVEMENT COSOLIDATION

INVENTORY COSTS

INCREASED HANDLING

INCREASED COORDINATION COMPLEXITY

ALL SHIPMENTS VIA DC WITH CROSSDOCK

LOW INVENTORY

MOVEMENT COSOLIDATION

INCREASED COORDINATION COMPLEXITY

ALL SHIPMENTS VIA DC WITH MILK RUNS

LOWER OUTBOUND TRANSORTATION COSTS

INCREASED COORDINATION COMPLEXITY

TAILORED NETWORK

TRANSPORTATON SUITES TO INDIVIDUAL NEEDS

STILL HIGER COORDINATION COMPLEXITY

A logistics manager’s options for scheduling and routing decisions are –

Direct shipment network - From shipper directly to retailers.

Features:

1. Warehouses are eliminated, as the dispatch goes directly to retailer

warehouses are redundant, inventory in the warehouse and warehouse costs are

gone

2. Long route, hence low cost, as the distance is long cost per unit is expected

to be low.

3. Simplicity of operation, as the network is simple as it consists of only

shipper and retailer management of operation is simple.

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4. Time of transportation is short, in the absence of warehouse product moves

directly.

5. Decision points are quantity and mode, no other decisions are relevant.

6. Decisions are on dispatch to dispatch basis, directly connected to customer’s

schedule. Mode and quantity decisions can be changed from dispatch to

dispatch

7. Inventory costs and receiving costs are high, inventory will have to be held

at customer’s place to cover transportation lead time. Customer also will have

to receive consignments directly from the supplier.

• Direct shipping with milk runs:

1. Single supplier to a number of retailers - deliver like a milaakman.

2. From a number of suppliers deliver to a single retailer

E.g. Toyota plant in US

Features:

1. Movement consolidation

2. Truck utilization

3. Transport cost reduction

• All shipments via Central Distribution Center

Suppliers send the supplies to Distribution centers and Distribution center

caters to the needs of retailers.

Features:

1. Supply to DC with movement consolidation results into supply chain costs

reduction when distances are large.

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2. DC stores inventory and acts like a transfer point for supplies to individual

retailers

4. Economies of scale in inbound transportation to DC.

5. From DC Outbound transportation cost is low as retailers are close to DC

• Shipping via Distribution Center Using Milk Runs

Small lot sizes to large number of retailers from DC.

Features:

1. Consolidation of small lots - reduction of outbound transportation cost

• Tailored Network

Tailor made to the company needs. This may be a new network synthesized

from above models. Or for some logistical mission one model and for some

other mission another model.

Features:

1. Matches the needs of the company

2. Coordination is complex. As the tailored network is synthesized

management may involve several decisions.

Inter-modal transportation:In addition to the five basic modes of transport, a

number of intermodal combinations are available to the shipper. The more

popular combinations are TOFC [Trailer On Flat Car] and COFC [Container

On Flat Car]. Intermodal movements combine the cost and/or service

advantages of two or more modes in a single product movement. Benefits of

long haul, short time & flexibility are optimized for achieving overall cost

reduction

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RAIL COMMONPIGGY BACK

Containerization

[kkk pages 350 to 362]

Containers were introduced in US during 1955 and in India during 1960

Features of a container:

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ROAD COMMON, CONTRACT, EXEMPT, PRIVATE

WATER COMMON, CONTRACT, EXEMPT, PRIVATE

AIR COMMON, CONTRACT, EXEMPT, PRIVATE

FISHY BACK

TRAIN SHIP

AIR TRUCK[BIRDYBACK]

WATER OR AIR WATER OR AIR LAND BRIDGELAND [RAIL OR ROAD]

1. Robust but still light to ensure several handlings during unbroken transport

of goods by several modes

2. Equipped with fittings to facilitate safe and easy handling

3. Easily be stuffed or unstuffed in a short time

4. Water tight and air tight outer shell

5. Internal lining that doesn’t buckle under temperature and can be easily

cleaned

6. Watertight flooring, air tight door seals and locks

7. Insulation to protect refrigerated cargo. Interior washable to required

hygienic standard

8. Construction to allow circulation of air around cargo. Potential areas for

containerization are food stuff

Universal advantages of container as a packaging unit

1. Reduction in loss, pilferage and damage of goods

2. Reduction in paper work

3. Expedites door to door pick up and delivery

4. Eliminates multiple handling of contents as this is shipped as a single unit

5. Consolidation of movement of small lots

6. Standardization of handling methods and equipment

7. Reduction in packaging cost as container itself acts like a package

8. Optimizes the services of various modes. Container can easily be

transshipped.

Benefits of owning containers by product owners

1. Ensures supply of containers

2. Product specific internal fittings can be provided

3. Reduction in transportation costs if the traffic is two way

4. Control of internal cleanliness as per product need

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5. It can be used for delivery after arrival

6. Good storage system

Major benefits of containerization to business

1. Integration of various modes of transport

2. Reduction in handling time and thereby turn around time of vehicles

3. Standardized size of containers reduces reduce capital as well as

operational costs

4. Reduction in packaging cost as container itself is a robust packaging

5. Need for enclosed warehouses redundant

6. Regularity and reliability of transport service

Infrastructure of containerization

1. Deep water ports

2. Mechanized handling equipment

Roll On/Roll Off [RORO]

High cost of lifting a container from the truck and loading on to a ship made

logisticians look for a new idea. Concept of RORO is driving the truck loaded

with the container directly on to the deck of a ship and driving off the deck on

reaching the destination. Truck loaded with container uses the ship as a mobile

bridge! You may have seen passenger buses rolling on to ferries and rolling off

after crossing the river.

LASH [Lighters Aboard A Ship]

All ports are not accessible to deep water vessels. The deep water ships stand a

long way off on sea. Cargo from shallow ports is loaded on the barges, the

barges are towed to the ship. The huge crane of the ship lifts the entire barge

and places it on the deck. After reaching the destination barge is placed on

shallow waters to reach the port.

Inland container depots

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Inland Container Depots [ I C Ds ]

ICDs are dry ports. Dry ports at a distance far away from the shoreline handle

all the import export formalities. ICDs act like deep-water ports installed

inland or interior where the natural benefit of shoreline is non-existing. This a

large warehouse where containerized cargo is accepted for export. The

exporter books his cargo at an ICD and completes all export formalities.

Thereon ICD moves the containers by movement consolidation to natural port.

Cargo crosses the dock and goes into the waiting ship.

• connect major ports [able to handle container ships] to hinterland. Hinterland

is deprived of natural deep water ports because of geography. This hinders

exports. Congestion gets created at natural deep water ports when export cargo

arrives from hinterland. Deep water ports being limited in number suffer

congestion as deep water ships carrying export cargo dock only at deep water

ports.

• facilitate customs clearance, export import formalities. ICDs ensure that

businessperson does not have to go to the deep water ports with his cargo for

clearing import/export formalities.

• ICD to be located after ascertaining export import potential and good road

network. One of the objectives of creating ICDs is to facilitate harnessing

export potential of hinterland. Hence this location analysis is essential.

• Serve as consolidation facility and should have handling equipment. Facility

to group small consignments and create container loads needs handling

equipment.

• goods transfer from road to rail and otherwise. Inter modal transfer is a

major operation in an ICD. ICD consolidates consignments arriving by trucks

and transfer the cargo in containers to another mode, say rail for onward

movement to a natural port.

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• increase the export potential of industries in the hinterland and also simplifies

import of goods by hinterland.

• Decongest major ports. This is another benefit provided by ICDs which is of

immense importance for a country with weak infrastructure like ours.

Benefits of containerization can be fully exploited only when we have a

good net work of ICDs [Inland Container Depots]

While most of the bulk goods are transported by rail, all other goods are

transported by road.

Although Rajasthan is a land-locked state, four inland container depots

(ICDs) at Jaipur, Jodhpur, Bhiwadi and Bhilwara, along with an air

cargo complex at Jaipur's Sanganer Airport act as efficient and

convenient gateways for outbound cargo. The customs department,

shipping companies, handling agencies, surveyors for authentication of

stock, banks, customs house agents and clearing and forwarding agents

are all based at the ICDs.

The infrastructure at the ICDs has been strengthened with the

deployment of better equipment. This has resulted in the quicker

handling of containers, reduction of transit time from ICDs to ports. Of

the total export cycle time, the dwell time is down to 1.9 days, compared

to three days at other ICDs.

Tariff at the Jaipur and Jodhpur ICDs has been reduced by 20 per cent,

recently.

The air cargo complex provides facilities for customs inspection and

shipment of non-bulk goods for exports by air. To overcome the

problem of a limited lifting capacity of Indian Airlines, a scheme of

bonded trucks has been started.

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JNPT is directly connected to the following Inland Container Depots:

Ludhiana Delhi

Kerala Sabarmati

Nagpur Pune

Mumbai (Wadibunder) Hyderabad

Chinchwad (Pune) Visakhapatnam

Bangalore Muradabad (U.P)

Chennai Kolkata

Jaipur Pitampur (M.P)

Jodhpur Aurangabad

Baroda Kanpur

Mirage Malanpur

Kandla Agra

Mulund --

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