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• 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)
• 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
• 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
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
• 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
• 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
– 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)