SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Chapter 8: Shipper / Carrier Network Strategies Objectives: • Discuss Shipper and Carrier Transportation and Network Strategies • Explain the Concept of Traffic Management • Define the Terminal as a Basic Transportation Component • Examine Distribution Strategies and Networks • Appreciate Transportation Routing
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Table of Contents Chapter 8: Shipper/Carrier Network Strategies ...............................................................................................1 Objectives: ...................................................................................................................................................1 1. Introduction............................................................................................................................................3 2. Shipper Transportation Strategies.............................................................................................................3 3. Carrier Negotiation ..................................................................................................................................6 4. Small Shipments Strategy .........................................................................................................................7 5. Carrier Transportation Strategies............................................................................................................13 6. Pros and Cons of Hub-and-Spoke System.................................................................................................18 7. Stop-off Strategy (Road and Rail) ............................................................................................................20 8. Stop-Off Point Strategy (For Rail Mode)...................................................................................................22 9. Carrier Truck Strategy ............................................................................................................................22 10. Challenges Affecting Carrier Management...............................................................................................24 11. Terminal – The Basic Transportation System Component..........................................................................24 12 Design Options For A Transportation Network .........................................................................................26 13. Tailored Networks .................................................................................................................................34 15. Tradeoffs in Transportation Design .........................................................................................................37 16. Conclusion ............................................................................................................................................41 17. Tutorial Questions.................................................................................................................................41 18. References:...........................................................................................................................................42
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 1. Introduction Both shippers and carriers utilise strategies to manage their respective networks. The shipper strategy is focused on purchasing and managing services while the carrier strategy is focused on the efficient use of resources while maximising the Returns On Investments (ROI) coupled with competitive service. Each have different goals and objectives but must work together to achieve a common result. This chapter presents many of the techniques used by both groups to effectively manage their networks. 2. Shipper Transportation Strategies 2.1 Factors Affecting Shipper Decisions Shipper’s decision includes the design of the transportation network, choice of means of transport and the assignment of each customer to a particular means of transport. A shipper’s role is to minimise the total cost of fulfilling a customer order while achieving the responsiveness promised. The shipper must account for the following costs when making transportation decisions. • Transportation Cost This is the total amount paid to various carriers for transporting the products to the customers. It depends on the prices offered by different carriers and to the extent that the shipper uses inexpensive and slow or expensive and fast means of transportation. Transportation costs are considered variable as long as the shipper does not own the carrier. • Inventory Cost This is the cost of holding inventory incurred by the shipper’s supply chain network. Inventory costs are considered fixed for short term transportation decisions that assign each customer shipment to a carrier. Inventory costs are considered variable when as shipper is designing the transportation network or planning operating policies. • Facility Cost This is the cost of the various facilities in the shipper’s supply chain network. Facility costs are considered fixed for short term transportation decisions but considered variable when making strategic or planning decisions.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 • Processing Cost This is the cost of loading/unloading and is considered variable for all transportation decisions. • Service Level Cost This is the cost of not being able to meet to a service or delivery commitment. In some cases, it may be clearly defined in the contract, whereas in other cases, it may be reflected as a customer’s satisfaction index. This cost is considered at operational, strategic or planning scenarios. A shipper generally must make a tradeoff among all these costs when making a transportation decision. A shipper’s decision is also affected by the responsiveness it seeks to provide to the customers and the margins generated for different products and customers. 2.2 Transportation Decision The transportation function is just one element in a total logistics function. The strategies and operating decisions used in Traffic Management must support the objectives of the logistics function if the company. Transportation is one of the largest cost elements of the logistics setup and can impact the overall logistics performance and cost. A trade off between inventory and transportation costs is only one example of the impact of transportation on logistics. Transportation purchasing decisions can include: • Modal Selection • Consolidation • Private Trucking • Intermediaries • Contracting With the elimination of economic regulation of transportation in US, traffic management was able to adopt a pro-active stance. The thrust of pro-active management is problem solving and taking steps to prevent a problem from arising. Carriers were no longer restricted in what services they could offer and shippers could integrate carriers into their operations to create synergy and value added services. The current competitive environment requires that the transportation manager focus on customer service and competitive strategies. The manager must develop and design a transportation system that permits product differentiation and competitive advantage.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Figure 8-1: Shipper Transportation Strategies Part of the success of major discount retailers has been attributed to their success in increasing inventory turns while reducing distribution costs. The ability to implement such practices as “Just-In-Time” (JIT) and “Efficient Customer Response” (ECR) rely on cost effective and sophisticated transportation methods Core Carrier The “Core Carrier” concept is about the shipper reducing the number of motor carriers used from 100 to say 10. The advantage is increased buying power through volume leverage and closer working relationship. A disadvantage is increased dependency of fewer carriers, which could make finding replacements difficult. This could result in more costly anticipated transport costs and customer service disruptions The concept of a core carrier is to build a working relationship with a small number of transportation providers. Historically, shippers followed the practice of spreading their transportation requirements across a wide variety of carriers to assure equipment supply. During the regulated era, few differences in price existed between carriers. As a result, shippers often conducted business with hundreds of different carriers. Examples exist where shippers have reduced carriers from 400 to 500 down to 20 or even as few as The concentration of volume in a few core carriers seeks to establish a business relationship that standardises operational and administrative processes.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Mutual planning and acknowledged dependency between a shipper and carrier result in dependable equipment supply, customised services, improved scheduling, and more efficient overall administration. In a number of situations, the core carrier relationships are directly between the shipper and the transportation provider. A recent development is the use of Integrated Service Providers (ISPs) to establish and maintain business relationships with core carriers. In such situations, the ISP facilitates administration and consolidates freight across a wide variety of shippers. In other situations, core carriers serve as coordinators by arranging the services of several, even competitive, carriers to satisfy the shipment requirements of key customers. The range of relationship models is ever-changing as service providers devise new and better methods of identifying and integrating transportation requirements. However, at the end of the day, it remains a fundamental responsibility of transportation management to assure a firm is supported by reliable and economical transportation. This fundamental responsibility cannot be delegated. 3. Carrier Negotiation Carrier negotiation is now a Standard Operating Procedure (SOP) and market power determines the shippers’ ability to achieve acceptable rates and service. Attributes such as: • Density • Value • Directional Flow • Volume • Support Service can all influence the shippers’ ability to achieve the desired level of pricing. Issues such as “Driver Friendly” freight is becoming more important in light of driver recruitment and retention challenges. Deregulation has allowed motor and rails contracting to become common place. These contracts: • Stabilise pricing • Insure an adequate supply of equipment • Define service requirements • Insure carrier a long term stable volume • Help carrier in future planning In the US, Private Trucking is under review as deregulation has created many new opportunities for carriers to offer services which are not only competitive but also may be lower than before.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 4. Small Shipments Strategy We will look at 2 strategies for small shipments. They include: 4.1 Pooling Individual shipments can be brought to a central location or pooled, creating large shipments suitable for economy-of-scale transportation modes such as truckload or rail carload (Figure 8-2). Figure 8-2: Concept of Pooling Shipments 4.2 Freight Consolidation Generally speaking, consolidation means bundling. Freight consolidation refers to a transportation option that combines a number of frequent, small shipments destined for a similar geographical region into a single large shipment in an effort to reduce per-unit shipping cost. It aims to capitalise on various freight-rate discount programs. Consolidation can be especially effective when large freight-rate differentials exist between small (less-thantruckload or LTL) and large (truckload or TL) shipments. This effectiveness depends to some degree upon the strategy employed. Since these strategies are varied and complex, the logistics manager should carefully choose a proper form of consolidation strategies relevant to given situation. There are three basic consolidation strategies: • Spatial Spatial consolidation is primarily concerned with determining which customers and vehicle routes are to be aggregated to combine small shipments into a single large shipment. • Temporal Temporal consolidation aggregates small orders across time to balance both good customer services and higher inventory costs against lowering shipping costs.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 • Product Product consolidation is concerned with combining different types of products in one shipment in order to increase the quantity sent to each customer per delivery and works as a combination of Spatial and Temporal Consolidations. This is what we refer to as the LCL mode for which we are accustomed to. Spatial and Temporal Consolidation strategies are part of the shipper's discretion while Product Consolidation strategy is frequently evaluated by the carrier. We will look at the 1st two strategies here and leave the 3rd when reviewing the carrier transportation strategy Combinations of these strategies may maximise the benefit of consolidation. Unfortunately, problem complexity limits the ability to simultaneously consider all of these strategies. Let us take an example of shipments moving from China to USA We will consider the spatial and temporal consolidation strategies under this scenario so as to better grasp the concept. We will look at 4 spatial consolidation cases (See Figure 8-3). Factory Consolidation. Also known as the Direct Shipment Option • Origin Port Consolidation • Destination Port Consolidation • Full Consolidation. Also known as Origin and Destination Ports Consolidation Figure 8-3: Spatial Consolidation Cases There will be 4 nodes in the model and they are: • Factory (F) • Origin Port (OP) • Destination Port (DP) • Distribution Centre (DC) There will be 3 segments in the model and they are: • Factory to Origin Port
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 • Origin Port to Destination Port • Destination Port to Distribution Centre Factory Consolidation (Figure 8-3) Figure 8-3: Origin Port Consolidation There is no consolidation. Factories ship to the port nearest it in China. From China, the products are moved to the USA port closest to the distribution centre. This is similar to different people meeting at the post offices in China and shipping directly to the same person in the USA. Factories shipped their products to their assigned consolidation port in China (in this case, Shanghai in South China and Shenyang in North China). From China, the products are moved to the USA port closest to the distribution centre. This is similar to different people meeting at the same post office in Northern or Southern China and bundling their shipments before shipping directly to the same person in the USA.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Figure 8-4 : Original Port Consolidation Case
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Destination Port Consolidation (Figure 8-5) Factories ship to the port nearest it in China. From China, the products are moved to the assigned USA consolidation port, in this case Los Angeles. From LA, the products are moved to the distribution centre. This is similar to different people meeting at the post offices in China and shipping directly to the same person in the USA who then re-distributes to other people in USA. Figure 8-5: Destination Port Consolidation Case
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Full Consolidation (Figure 8-6) Factories shipped their products to their assigned consolidation port in China (in this case, Shanghai in South China and Shenyang in North China). From LA, the products are moved to the distribution centre. This is similar to different people meeting at the same post office in Northern or Southern China and bundling their shipments before shipping directly to the same person in the USA who then re-distributes to other people in USA. Figure 8-6: Full Consolidation Case With the Spatial Consolidation options outlined, the Temporal Consolidation rules will examine the element of Time. Regardless of the spatial rules, we always have the option to wait. As such the Temporal Consolidation rules determine: • Maximum Wait Time - How long are we willing to wait? • Cut-off Value - What are we waiting for? For example, we can set Temporal Consolidation rules for the above scenarios so that the factory ships to the origin ports only if:
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 • Any factory inventory is > 7 days • The factory inventory is > 10,000kgs In this case, the factory maximum wait time is 7 days and the cut-off value is 10,000 kg. 4.3 Bulk Shipments Strategy For bulk shipments, commonly adopted strategy includes: • Contracting • Balanced Loads • Partnership In many cases, the shipper will work with the carrier to develop Balanced Loads. This allows the carrier to spread the cost over a loaded round trip rather than a loaded front-haul and an empty backhaul. This requires co-operation from all parties concern but can have mutual benefits for all. A possible complication of this strategy is when the commodity being transported requires special equipment. Under such circumstances, an empty backhaul may be unavoidable. Managers today realise that the terms of the sale can have drastic ramifications on the total costs. By changing the freight terms from FOB Destination to FOB Origin, the transportation manager can gain control over the inbound movement. This traffic can be added to other freight flows to maximise market power and secure more favourable pricing by virtue of increased volume. 4.4 Reverse Logistics Strategy Reverse logistics is one of the latest developments in the logistics area. The strategy can include both returns and repair items and also recalls. 3rd party firms have begun to offer this service and some have created separate operations to cater to increased demands 5. Carrier Transportation Strategies 5.1 Principles of Transportation Transportation firms experience the same laws of economics that production firms experience but these manifest themselves in different ways. Transportation is a service, not a product, and other than personal travel for pleasure, it is subjected to the principles of derived demand. Transportation service cannot be stored but must be available when called upon.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 These factors explain some of the pricing and incentive actions taken by carriers. The rule of efficiency states that it is most efficient to move in a continuous and direct route whenever possible. The rule can be observed in many areas of rail and motor carrier movements. Air and water carriers have limitations and these influence their operations. Some of the basic principles governing Carrier Transportation Strategies include: • Maximised Capacity At Each Run. Costs are relatively fixed as related to each specific run so maximising load is likely to generate higher revenue. Therefore, carriers seek to fill capacities to offset the under-utilisation of the shippers. It is not uncommon for carriers to offer incentives to encourage the deployment of idle assets. • Consolidation and break bulk services should be used for long haul. • Empty kilometres should be minimised. Carriers strive to maintain empty kilometres to less than 10% or less of total travel. • Movements should be scheduled and dispatched. This ensures maximum efficiency on the utilisation of resources. • The more expensive the long haul vehicle, the faster the loading/unloading must be carried out. This ensures that the most expensive asset is constantly being utilised in revenue generation. • The more products are being moved, the less is the unit cost. • The more capacity per unit, the lower is the labour cost per vehicle. Transportation firms are constantly looking at getting higher capacity trucks approved for normal haulage in order to realise efficiency. • The fastest speed is not always the best. Costs increases as speed increases because as the speed doubles, the fuel consumption and horsepower requirements are squared. Shippers want consistent services and not just the fastest on occasional basis. • Vehicle weight should be minimised in relation to gross weight. The less the vehicle weighs, the more it can carry. • Equipment should be standardised as it reduces maintenance costs and allows for a faster turnaround especially in the area of technical competence and spare parts cannibalisation. Carriers generally use two types of route systems; the Hub and Spoke or Point to Point systems. Airlines use the Hub and Spoke concept while the LTL motor carriers have moved more towards the Point to Point systems. Airlines use the Hub and Spoke system to concentrate passenger lanes and improve equipment utilisation and size aircraft to the market. The motor carriers seek to reduce the number of terminals and number of handling of LTL shipments.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 5.2 Hub and Spoke Strategy The Hub and Spoke transport concept originated with Federal Express’s courier service operated out of Memphis and was then adopted by passenger airlines. Under a hub and spoke transport arrangement, parcels, freight, and/or persons are transported to a central “hub” facility, then onward to interacting nodes via a network of “spokes”. Most of the passenger airlines in operation use a Hub and Spoke network to route their plane traffic. The words "hub" and "spoke" create a pretty vivid image of how this system works. A hub is a central airport that flights are routed through, and spokes are the routes that planes take out of the hub airport. Most major airlines have multiple hubs. They claim that hubs allow them to offer more flights for passengers. The hub-and-spoke system became the norm for most major airlines after the U.S. federal government deregulated the airlines in 1978. Under the direct route, or point-to-point, system used prior to deregulation, airlines were forced by the federal government to fly directly between two small markets. This resulted in many flights that were routinely half empty, which resulted in airlines losing money. Today, most airlines have at least one central airport that their flights have to go through. From that hub, the spoke flights take passengers to select destinations. A good example of a hub-and-spoke system is that of Delta Airlines, which has its hub at Hartsfield Atlanta International Airport. Let's say you are in Charleston, SC, and want to go to Memphis, TN. There's probably not a lot of demand for a Charleston-to-Memphis flight, so the airline flies you from Charleston to Atlanta, and then from Atlanta to Memphis via a connecting flight. See Figure 8-7. The purpose of the hub-and-spoke system is to reduce cost and give passengers better routes to destinations. Aircraft are an airline's most valuable commodity, and every flight has certain set costs. Each seat on the plane represents a portion of the total flight cost. For each seat that is filled by a passenger, an airline lowers its break-even price, which is the seat price at which an airline stops losing money and begins to show a profit on the flight. Not all airlines use the hub-and-spoke approach. For example, Southwest Airlines is one of the exceptions to the hub-and-spoke network system. It uses the old-fashioned point-to-point system, hauling people short distances with few connecting flights. However, Southwest offers very few non-stop flights on longer routes. At the turn of the century, Southwest served approximately 306 one-way, non-stop city pairs. It's a point-to-point system provides a more direct route than a hub-and-spoke airline can offer. Hubs existed before deregulation in the United States, but the removal of restrictions on market entry and exit, along with looser policies towards airline mergers, freed surviving carriers to consolidate nationwide hub-and-spoke networks feeding traffic to and from strategically located hubs. Prior to deregulation movements, many airline services were taking place on a Point To Point basis. A fair amount of direct connections exists, but mainly at the expense of the frequency of services and high costs (if not subsidised). Also, many cities are serviced, although differently, by the two airlines and connections are likely to be inconvenient.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Figure 8-7: Example of Hub and Spoke for Air Services With deregulation, a system of hub-and-spoke networks emerges as airlines rationalise the efficiency of their services. A common consequence is that each airline assumes dominance over a hub and services are modified so the two hubs are connected to several spokes. Both airlines tend to compete for flights between their hubs and may do so for specific spokes, if demand warrants it. However, as this network matures, it becomes increasingly difficult to compete at hubs as well as at spokes, mainly because of economies of agglomeration. As an airline assumes dominance of a hub, it reaches oligolopolistic (if not monopolistic) control and may increase airfares for specific segments. The advantage of such a system for airlines is the achievement of a regional market dominance and higher plane loads, while passengers benefit from better connectivity (although delays for connections and changing planes more frequently) and lower costs. See Figure 8-8. Figure 8-8: Schematics of Point to Point and Hub & Spoke Networks
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 The shipping industry has also seen the emergence of massive hub ports at a variety of locales around the world, serving smaller regional “feeder” ports, particularly in the context of container shipping. The hub-and-spoke transport concept is predicated on transhipment of commodities (from one marine vessel to another) and “feedering” of commodities via marine transport to other regional ports. Figure 8-9 provides an overview of the marine hub and spoke concept. Figure 8-9: Example of Hub and Spoke for Marine Services Hub-and-spoke feeder service is different from a “regional short sea” service in terms of markets served, routes, and operations. Figure 8-10 summarises some of the key characteristics differentiating the two services. Figure 8-10: Comparison between Feeder and Regional Short Sea Services There are several examples of successful international hub-and-spoke feeder services, including the “classic” hub-and-spoke network, such as the Port of Hamburg, which serves as a hub for traffic destined to the Baltic (as well as a gateway to mainland Europe); and the “pure” transhipment hub, such as Gioia Tauro in Italy, which has a transhipment incidence of over 95 percent with little or no gateway business. Drawing on international examples, a number of key success factors for the development of hub-and-spoke networks and related feeder services were identified:
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 • There must be a critical mass of feeder traffic from/to a hub(consistency and reliability of volumes) • Reliable, year-round access to feeder routes that serve key markets • Competitive advantage of sea routes relative to alternative rail and road routes • Low trans-shipment and handling fees at hub and feeder ports • A regulatory environment that is conducive to investment in marine transport Ultimately, the success of a hub-and-spoke network is contingent upon the commercial viability of the individual feeder services operating between hub and end markets. In some cases, where feeder service start-up risks are high or cost-prohibitive, support programs or others, such as recent investment support for short sea-related infrastructure in British Columbia, can act as a catalyst to promote the development of new feeder services. 5.4 Regional Short Sea Services Regional short sea shipping is characterised by the movement of regional cargo (as opposed to transhipped, feeder cargo) by sea between two regional points. Such services are typically predicated on precise schedules and often provide service from door to door (rather than port to port, as with feeder service). Regional short sea service can also cater to intercompany or industry supply chain-related movements. There are several international as well as eastern Canadian examples of successful regional short sea services. In the Baltic, for example, the Danish company Det Forenede DampskibsSelskab offers both regional short sea door-door container services, and Roll-on / Roll-off (RoRo) network services. In eastern Canada, Oceanex is the best known example, providing regional short sea services (as well as feeder services) for the movement of containers between Montréal and St. John’s and between Halifax and St. John’s. Examples of “industrial” applications of regional short sea services include the McKeil Marine’s tug-and-barge service between Sept-Îles and Trois-Rivières for the movement of aluminium ingots for one customer, Alouette. Unlike feeder service, the viability of a regional short sea service is not tied to the success of a transhipment hub, or shipping line calls. Nevertheless, many other factors that make regional short sea shipping viable are similar to those for feeder services. 6. Pros and Cons of Hub-and-Spoke System The advantages of hub-and-spoke and regional short sea operations include the following: • Lower transport costs per tonne/kilometre than road transport • Additional (or better utilisation of) transport capacity, particularly where competing road transport experiences capacity constraints • Feeders offer wider market coverage for a gateway
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 • Feeders can offer container service to markets not big enough to be served by direct call Less long-haul trucking required (in the case of regional short sea services), and related wear and tear on roads • Lower environmental impacts and social costs The disadvantages for hub and spoke and regional short sea shipping include the following: • Longer transport times by virtue of the speed of sea transport relative to road and rail • Seasonality of the St. Lawrence Seaway between Montreal and the Great Lakes which closes this sea route during the winter months • Transhipment and double handling costs • Generally not competitive with rail transport • Perceived as unreliable by many shippers and shipping lines • Delays of mainline vessels can affect feeder schedules Labour costs and related restrictions at unionised ports
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Figure 8- 11: Needs and Concerns of Stakeholders in Hub and Spoke Setup (Marine) Some carriers have expanded the Hub and Spoke concept through combining with a Cross Dock setup to realise better efficiency and faster turnaround. As example of this is shown in Figure 8-12 of a Hub and Spoke and Cross Dock Combination Setup in a Marine Carrier Plan. 7. Stop-off Strategy (Road and Rail) Another strategy is the Stop-Off Service or Privilege. This is more applicable to truck movements through Terminals (Terminals will be covered later). Here, the shipper loads the truck in a stop sequence and the carrier delivers each shipment on a Peddle Run. A Peddle Run is a local pickup and delivery operation where the freight is usually hauled from the terminal to separate destinations in the nearby areas. The freight is also picked up along the way and brought back to the terminal. The reverse of this technique is also used for supplies from vendors when they are clustered in a common area. A corollary of the Stop-Off can be seen in LTL carriers. The carrier normally operates Peddle Runs between terminals during which shipments and delivered and pickup. There are two elements in a peddle run:
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 • Stem Time - Time expended by the truck moving from the Terminal to its 1st delivery • Peddle Time - Time actually spent performing pickups ad deliveries The dispatch operation is critical to the operating efficiency of the peddle operation. The dispatcher must be familiar with the geography of the peddle runs and the capacity of the vehicles in used along with the volume of each run. See Figures 8-13 and 8-14 for an illustration of peddle runs. Figure 8-13: Example of a Peddle Run Setup Through Altoona Terminal Figure 8-14: Example of a Small Terminal And Long Peddle Run Setup
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 8. Stop-Off Point Strategy (For Rail Mode) Rail carriers and, to a lesser extent, road hauliers have established a special service that permits shipments to be stored before moving to a final destination. A shipment, for rate purposes, is treated as if it moves directly from an origin point to a destination point and the freight charge is composed of the through rate from the origin to destination plus a small additional charge for the stop. Without such an in-transit privilege, shippers would pay the sum of the through rate from the origin to the stop-off point plus the through rate from the stop-off point to the final destination point. This will generally be higher than the Transit Privilege Rate. This privilege clearly reduces locational disadvantages of processors and allows the carrier to better meet competition by committing to the shipper to using the carrier for both segments of the haul. A related service is the Stop-Off Privilege to complete loading or partial un-loading. To complete loading, a shipper may request that the carrier stop at an intermediate point between the origin and destination points, though the intermediate point need not be on a direct path between the two points. The advantage of this privilege is that the shipper can obtain a rate on the shipment as if it is originated entirely from the starting point plus a nominal Stop-Off charge. This is less than the sum of the individual rates. See Figure 8-15. Figure 8-15: Stop-Off Privilege Illustration 9. Carrier Truck Strategy The US Department of Transport offers the following strategies to Road Hauliers in the US to improve efficiency and improve the environment: • Install Idle Reduction Mgt Systems • Install Automatic Tyre inflation Systems
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 • Install Single Wide Based Tyres - Single wide-base tyres save fuel by reducing vehicle weight, rolling resistance and aerodynamic drag. These tyres can also improve tank trailer stability by allowing the tank to be mounted lower • Improve Aerodynamics Of The Truck - Tractor aerodynamics can be improved by adding integrated roof fairings, cab extenders, side fairings, and air dams. New truck buyers can purchase aerodynamic models with streamlined profiles. Trailer aerodynamics can be improved by minimising tractor-trailer gap, adding side skirts and rear air dams, and arranging cargo and tarpaulins as low, taut and smooth as possible. Single-unit trucks can be improved with air deflector bubbles or by purchasing new streamlined models • Enhance Driver Training • Improve Freight Logistics - Improved logistics include load matching, more efficient routes and delivery schedules, and improved shipping and receiving practices. A carrier may employ low-cost options like triangular routing, coordinating loads with other fleets, and checking electronic load boards, or it may purchase freight broker services and logistics software • Use Low Viscosity Lubricants - Low-viscosity synthetic or semi-synthetic lubricants flow more easily and withstand the extreme pressure of engine, transmission, and drive train systems better than conventional mineral oil blends. The operator of a typical line-haul truck can save up to $500 annually by switching to low-viscosity lubricants, with additional savings possible due to reduced wear and maintenance of truck systems • Use Advance Materials To Reduce Unladen Weight - Aluminium alloy wheels, axle hubs, clutch housings, and cab frame can trim hundreds of pounds from a truck tractor. Downsizing to a smaller engine can also provide significant weight savings. Thousands of pounds can be reduced from a truck trailer using aluminium roof posts, floor joists, upright posts, and hubs and wheels • Use Hybrid Powertrain Technology - Hybrid vehicles have two propulsion power sources, making it possible to capture energy otherwise lost during braking and provide boost to the main engine which in turn can run more efficiently. Most hybrid vehicles use an internal combustion engine for the main power source with various secondary power and energy storage configurations, including electric and hydraulic systems While manufacturers produce a product, transport firms produce a service. This intangibility of a service makes it more difficult to sell and purchase. This makes the marketing of the carrier services extremely important to the profitability of the firm and knowledge of marketing concepts critical to success. Consistent and reliable service is often more desirable than the fastest possible service. Surveys have reflected this and a later but reliable service is preferred to a faster but unreliable service. Both early and late deliveries incur cost penalties. Shippers will generally select a carrier with a day longer service but a high degree of consistency.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 10. Challenges Affecting Carrier Management Transportation firms face some conditions, which are not always the same as those which confront manufacturers. For example, transportation firms are geographically dispersed and this made supervision difficult. The firms dispersion are compounded by the fact that the firms’ assets and manpower are in constant motion. Carriers today are investing more in motivating and training of their employees as they realise the key front line workers is key to customer retention. In addition, this fact recognises that workers, particularly drivers, have to be better recruited and trained in order to realise a higher retention rate. Transportation employees are often minimally supervised because of geographical dispersion of transport firms. To overcome this, most firms have invested in strong communications networks in order to ensure that contact is adequately maintained. The task of efficiently managing a transportation firm can create a “monolithic” management structure. This has caused carriers to organise their workers by job or skills. This kind of vertical management has been found to be a poor alternative to other management structures. In so doing, transportation firms continue to encounter resistance and problems in attempting to recruit young talent into the industry. Industry rejuvenation is a critical matter that needs to be addressed. 11. Terminal – The Basic Transportation System Component The physical flows of carrier equipment and personnel are linked to location and activities of the Terminal Networks. While all transport use terminals, we will direct our attention on the Less-Than truck-Load or LTL thru the Hub and Spoke methodology. A Terminal is any point in a carrier network where the movement of freight and passengers is stopped so that some form of value added activity may be performed. One of these activities is Consolidation, which refers to the grouping of shipments together to a common destination to provide an economy of a scale by increasing the utilisation of the carriers’ equipment. The downside of Consolidation is that it can cause delays while shipments are being held up to achieve optimal loads.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 In contrast to Consolidation, Break-Bulk or Dispersion allows deliveries to be made with equipment that is suitably sized for shipments See Figure 8-16 for an illustration. Figure 8-16: Consolidation vs. BreakBulk Shipment services are also performed at the terminals. They include: • Storage • Sorting • Segregation Terminals can represent a high level of fixed investment within the carrier network. If the terminal is owned by the carrier, it will incur fixed costs like interest payments and depreciation, which will not vary with throughput. As volume increases through the terminals, these fixed costs per allocation unit will decrease. Carriers used different types of terminals in their networks: • Hump or Marshalling Yards - Used by Rail carriers to sort and classify cars by destination or connecting carriers • Trans-loading Terminal - Used by Rail carriers as transfer points to load/unload intermodal or piggyback trailers • Water Carrying Terminals - Ports or harbours with warehouses etc • Air Terminals - Airports etc with passenger services viz. restaurants etc. • Pipeline Terminal - Storage facilities with ability to transfer products to other modes like rail or truck • Truckload Carrier Terminals - Maintenance facilities for trucks or rest point for intransit drivers
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 • Pickup and Delivery Terminals (PUD) - For LTL carriers. These cab be either satellite or end of runs terminals. For Consolidation or Break Bulk activities. Typically involve peddle runs • Break-Bulk Terminal - Cargo segregation or sorting before forwarding to the next destination. Each Break Bulk terminal may have a number of PUD terminals associated with it and will have drivers attached to the Terminal to facilitate the movement of trailers by allowing a round trip between the PUD terminal and the Break Bulk Terminal. Designed to facilitate a higher utilisation of vehicles. the disadvantage is that it slows transport time, adds handling and reduces reliability • Relay Terminals - For LTL carriers as a layover point between break bulk facilities 12 Design Options For A Transportation Network The design of a transportation network affects the performance of a supply chain by establishing the infrastructure within which operational transportation decisions regarding scheduling and routing are made. A well designed transportation network allows supply chain to achieve the desired degree of responsiveness at a low cost while adhering to the adopted Distribution Strategy of the organisation. 12.1 Distribution Strategies Distribution strategies are concerned with making goods available to customers at the least cost while maintaining a high level of service. The strategies are concerned with that part of the supply chain which typically originates from the manufacturer and ends up with the retail outlets. In principle and in practice, any mode or a combination of transport modes can be employed to manage distribution. The predominant mode in use for distribution is, however, road. Road vehicles provide the flexibility of door to door transportation and are absolutely essential for distribution management. At the same time, it must be appreciated that rail and waterways play an important role in distribution of many products, and that air freight of time sensitive high value products is increasingly used for distribution in markets where the intervening distances are great. We need to be manly concerned with distribution and the integrated role of warehouses and transport units, mainly road vehicles. We are aware of the basic inventory decisions and role of warehouses in supply chain management. The capacity and use of warehouses and the average inventory level in each is dependent on the distribution strategies. Effective distribution strategies must cater to emerging trends in the industry. Recent trends in the industry suggest that companies are, in an effort to reduce their inventory levels, pushing inventory back to the suppliers with more frequent and smaller size orders. Another recent trend is e-commerce or Internet-based sales of such products as books or CDs. These direct to consumer orders require a distribution centre designed and arranged for individual item picking and systems to effectively manage large numbers of small orders. These trends are driving shipment size even smaller and increasing frequency of shipment.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 One reason for the rise is the shift of firms to more costly LTL (less than truck load) shipments to manage the distribution of these smaller and more frequent shipments. These new trends present considerable challenge to transportation management as these imply increasing costs of transportation and distribution due to more transactions, increased handling and smaller freight moves. There are several strategies available to offset some of the cost increases. We refer to three distinct distribution strategies in wide use today: • Direct Shipment • Warehousing • Cross Docking See Figure 8-17 for an illustration of these strategies. Figure 8-17: Distribution Strategies (a) Direct Shipment; (b) Warehousing and (c) Cross Docking We will look at Direct Shipment and Cross Docking concepts here as part of the transportation evaluation. Warehousing strategy will not be discussed here 12.2 Direct Shipment Network (DSN) (See Figure 8-18) In this case, the manufacturer ships directly from the manufacturing plant to the retailer without using a distribution centre or a warehouse.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 The approach appears reasonable as it apparently would reduce costs associated with warehousing or intermediate distribution centres. The time related to order processing will also be reduced when goods are shipped directly to retail stores. This is a valid approach provided the supplier is able to respond quickly and cost effectively. This distribution strategy is suitable if retail stores are large enough to make optimal replenishment lot size close to a truckload size. Using LTL carrier, the cost and transit time both increase. Figure 8-18: Direct Shipment Network With the DSN option, the retail chain structures its transportation network to have all shipments come directly from suppliers to retail stores (See Figure 8-9). With DSN, the routing of each shipment is specified and the Supply Chain Manager only needs to decide on the quantity to be delivered and the mode of transportation to use. This decision involves a trade-off between transportation and inventory costs. The major advantage of a DSN is the elimination of intermediate warehouses and in its simplicity of operation and co-ordination. The shipment decision is completely local and the decision made for one shipment does not influence another. The transportation time between supplier to retail store will be short because each shipment is direct. A DSN is justified if retail stores are large enough such that optimal replenishment lot sizes are close to a truckload from each supplier to each retailer. With small retail stores, the DSN, however, tends to have high costs. If a TL carrier is used for transportation, the high fixed cost of each truck results in large lots moving from suppliers to each retail store causing high inventory cost. If an LTL carrier is used, the transportation cost and delivery time increases though inventories are lower. With direct deliveries from each supplier, receiving costs will be high to cater to separate deliveries.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 12.3 Milk Run There is another strategy which is a variation of the direct shipment model designed to reduce costs of distribution. This is known as milk run or drop shipping. A milk run is a route in which a truck delivers products from a supplier to a number of retail outlets. This allows reduction in cost by eliminating the need for direct small shipments using LTL shipments. Toyota uses milk runs both in Japan and in the USA to support its JIT manufacturing. To address the high delivery cost for small loads, a variation of the DSN, called the Milk Run (MR) can be explored. This is illustrated in Figure 8-19. A MR is a route in which a truck either delivers product from a single supplier to multiple retailers or goes from multiple suppliers to a single retailer. When using this option, a Supply Chain Manager has to decide on the routing for each MR. DSN provide the benefits of eliminating intermediate warehouses and MR lower transportation cost by consolidating shipments to multiple stores on a single truck. This offers better utilisation of the truck and reduces cost/trip. Figure 8-19: Milk Runs From Multiple Suppliers or to Multiple Retailers
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 12.4 Cross Docking (Figure 8-20) Figure 8-20A: Typical Inbound Logistics Flow with Cross Dock This is a strategy made famous by Wal-Mart. The concept of cross docking is built on utilising the economies of scale in transportation without raising the level of inventory at any intermediate stage. When a plant or supplier receives orders from a single retailer but the size does not allow direct shipment to that retailer, cross docking perhaps is the best alternative as the response time to order is not significantly affected; and similarly there is no adverse effect on the level of inventory. In fact, for the particular commodity, the warehouse is nothing more than a transfer point. In many manufacturing organisations that have purchasing/ procurement de-centralised (as well as a mixed structure), there are varying criteria used for deciding truckload shipments. In addition, because of the problem of not having the correct information, an analysis revealed that a good percentage of shipments moving as FTL were actually LTL shipments. This pointed to potential consolidation opportunities (of LTL shipments) gone a begging. Lack of visibility into which suppliers are ready to ship and the actual quantity being shipped was one of the main reasons for the above problem.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 In part, the problem can also be traced to lack of education/ training on the benefits to be realised from freight consolidation. An interesting scenario is created by the use of crossdocking locations used as inbound supply chain network solutions (See Figure 8-20A and 8- 20B). In technical terms cross docking covers any distribution method that avoids putting product into storage before sending it on to retail stores or other outlets. Instead, the goods move from the receiving dock to the shipping dock, or are held in a temporary staging area before moving to the outbound dock. Cross docking makes two of the four warehousing functions, storage and order picking, redundant. A cross dock is a trans-shipment facility at which trucks arrive with goods that must be sorted, consolidated with other products, and loaded onto outbound trucks bound for a retailer. A major benefit of Cross Docking is that little inventory needs to be held and product flows faster in the supply chain. Cross docking also saves on handling cost because product does not have to be moved into and out of storage. Successful cross docking, however, does require a significant degree of co-ordination and synchronisation between incoming/outgoing shipment. We will explore more about Cross Docking in a later session. Cross docking is suitable for products with large, predictable volumes and requires that DCs be setup such that the economies of scale in transportation can be achieved in both the inbound and outbound sides. Wal-Mart has successfully utilised this technique to decrease inventories in the supply chain without incurring excessive transportation costs. Figure 8-20B: Cross Docking 12.5 All Shipment via Central Distribution Centres (DC) In DC scenario, suppliers do not send shipments directly to the retailers. The retail chain divides stores by geographical regions and a DC is constructed or located to serve each region. Suppliers send their shipments to the DC and the DC then forwards these shipments to the respective retail outlets. See Figure 8-21.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 The DC is an extra layer between suppliers and retailers and can serve two roles. One is to store inventory and the other as a transfer location. In either case, the presence of a DC can help reduce supply chain costs especially when suppliers are located far from the retail stores and transportation costs are high. The presence of a DC allows economies of scale for inbound transportation to a point close to the final destination because each supplier sends a large shipment to the DC containing products for all stores that the DC serves. Because DC serves stores located nearby, the outbound transportation cost is generally not high. Figure 8-21: All Shipments Vide Distribution Centre If transportation economies require very large shipments on the inbound side, DCs hold inventory and send products to retail stores in smaller replenishment lots. If replenishment lots for the stores served by the DC are large enough to achieve economies of scale on inbound transportation, the DC does not need to hold inventory. In this case, the DC can cross dock products arriving from different suppliers on inbound trucks by breaking each inbound shipment into smaller shipments that are then loaded onto trucks for different suppliers or retail stores. 12.6 Distribution Centre Consolidation vs. Decentralisation Fundamental decisions in supply chain design include the number, location, sizing, and product configuration of distribution centres. Figure 8-22 illustrates two basic strategies: consolidated distribution (fewer but larger distribution centres) and decentralised distribution (more but smaller distribution centres). Customers can be served from smaller, regional distribution centres or from larger, centralised distribution centres.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Figure 8-22: Consolidation and Decentralised DC Concept Figure 8-23 illustrates the decision tradeoffs involved in the consolidation of distribution centres. Note also that an increased number of distribution centres allows closer positioning of inventory to customers, reducing delivery time to customers Figure 8-23: Cost and Service Trade-off For Consolidating DC
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 12.7 All Shipment via Central Distribution Centres Using Milk Runs (DCMR) As shown in Figure 8-24, DCMR can be used if lot sizes to be delivered to each retail store are small. DCMR reduce outbound transportation costs by consolidating small shipments. For example, 7-Eleven Japan cross dock deliveries from its fresh food suppliers at its DCs and sends out Milk Runs to the retail outlets because the total shipment to a store from all suppliers does not fill a truck. When a firm serves a very high density of customers close to the DCs, it is often best for the firm to own a fleet of trucks that are used for the Milk Runs to supply these customers because this scenario makes very good use of vehicles. If customer density is high but distance from the warehouse is large, it does not pay to send Milk Runs from the warehouse because trucks will travel a long distance empty on the return trip. In such a situation, it is better to use a public carrier with large trucks to haul the shipments to a cross-dock centre close to the customer area. There, the shipments are loaded onto smaller trucks for deliveries vide Milk Runs. As customer’s density decreases, using a LTL or 3rd part carrier performing Milk Runs is more economical. Customer density and distance should also be considered when the firm decides on the degree of temporal aggregation to use when supplying customers. Priority should be given to areas with high density because these areas are likely to offer economies of scale in transportation. 13. Tailored Networks The tailored network option is a suitable combination of previous options that reduces the cost and improves the responsiveness of the supply chain. Here, transportation uses a combination of cross docking, Milk runs, TL and LTL carriers along with package carriers. The goal is to achieve synergy through the use of the appropriate options. High volume products to high volume retail stores may be shipped directly while low volume products or shipments to low volume retail stores are consolidated to/from DC. The complexity of managing this transportation network is high because different shipping procedures are being used for each product or retail outlet. Operating a tailored network requires a significant amount of investment in IT infrastructure to facilitate the co-ordination. Such a network will allow for the selective use of shipment method to minimise transportation and inventory costs.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Figure 8-25 summarises the pros and cons of the various transportation networks discussed 14. Tailored Transportation Tailored transportation is the use of different transportation networks and modes based on the customer and product characteristics. 3 basic principles are applied here. 14.1 Tailored Transportation by Customer Density and Distance Ideal transportation options under this principle are shown in Figure 8-26. Figure 8-26: Transportation Options Based On Customer Density and Distance
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 14.2 Tailored Transportation by Size of Customer Firms must consider customer size and location when designing transportation networks. Very large customers can be supplied using large TL, whereas smaller customers will require a LTL carrier or Milk Runs. When using Milk Runs, shippers incur two types of costs: • Transportation cost based on distance from the warehouse • Delivery cost based on number of deliveries The transportation cost is the same whether going to a large or small customer. If a delivery is to be made to a large customer, including other smaller customers en-route and on the same truck may reduce the overall transportation cost. For each small customer though, the delivery cost/unit is higher than for large customers. Therefore, it is not optimal to deliver to small and large customer customers with the same frequency at the same price. One option is charge a delivery charge for small customers compared to large ones. Another option is to tailor Milk Runs at higher frequency to large customers and lower frequency to smaller customers. Segregating customers into Large (L), Medium (M) and Small (S) categories may offer better visibility in the implementation of a tailored plan. 14.3 Tailored Transportation by Product Demand and Value The degree of inventory aggregation and the modes of transportation used in a supply chain network should vary with the demand and value as depicted in Figure 8-27. Figure 8-27: Impact of Value and Demand of Product on Aggregation
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 The cycle inventory for high value products with high demand is dis-aggregated to save on transportation costs because this allows replenishment orders to be transported at less cost. Safety inventory for such products can be aggregated to reduce inventories and a fast mode of transportation used if the safety inventory is required to meet customer’s demands. For high demands of low value products, all inventories should be dis-aggregated and held close to the customer to reduce transportation cost. For low demand, high value products, aggregation is preferred to save transportation costs. For low demand, low value products, cycle inventories should be held close to the customer and safety inventories aggregated to reduce transportation costs while taking some advantage in aggregation. Cycle inventories are replenished using an inexpensive transportation mode. 15. Tradeoffs in Transportation Design All transportation decisions in a supply chain network must be made taking into account their impact on inventory, facility, processing and coordinating operations costs in consideration to required level of responsiveness to the customer. For example, Dell’s use of package carriers for delivering PCs to customers increases transportation costs but allows Dell to centralise its facilities. If Dell wants to reduce transportation costs, the company must either sacrifice responsiveness or increase facilities and resulting inventories to move closer to the customers. The cost of coordinating operations is generally difficult to quantify. Firms should evaluate different transportation options in terms of various costs and revenues and then rank them according to coordination complexities. A Manager can then make appropriate transportation decisions. Managers must consider the following tradeoffs when making transport decisions: • Transport and Inventory Cost Trade-off • Transportation Cost and Customer Responsiveness Trade-off Vehicle Routing Any organisation involved in transport has to consider many types of problem. There are always operational details to consider. The number of vehicles needed, type and size, special features required, routes used, assignment of loads and customers to vehicles, schedules, maintenance schedules, measures of service and quality, and so on. We can illustrate some principles by looking at the question of routing vehicles. 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. You can see this in the basic travelling salesman problem. Imagine a salesman who has a number of customers to visit before returning home, and he or she wants to find the shortest journey (illustrated in Figure 8-1). This seems like a simple problem, until you think about the huge number of possible routes that have to be considered and compared.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 The number of possible routes is n × (n–1) × (n–2) × (n–3) … 3 × 2 × 1, where n is the number of customers to visits. For a problem of any size, it is impossible to imagine the huge number of possible routes, let alone compare them and find the best. Figure 8-28: The Travelling Salesman Routing Schematics The travelling salesman problem is the basic routing problem, and real problems are much more complicated. They typically contain factors such as a fleet of different types of vehicles, multi-compartment vehicles, incompatible products, different logistics facilities, time windows for deliveries, varying speeds caused by traffic conditions, customers with different importance and conditions for deliveries, competing aims, variable delivery times, special equipment needed for some deliveries, uncertain costs, separate schedules for vehicles and drivers, and so on. Many methods have been suggested for tackling routing problems but, like location, there are two general approaches. The first uses geographical arguments to look for the best routes, regardless of the actual roads. The second looks at the road network and finds shortest routes through it. Because of the increasing sophistication of electronic maps, the second of these is probably becoming more popular. The following list suggests some specific methods that have been proposed. Negotiations Finding acceptable routes is so complicated, with many subjective factors and people affected, that the best approach is often to negotiate a solution. This may not give the best technical answer, but it has the support of everyone concerned.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Adjust Previous Plans Many routing problems are fairly stable, like postmen delivering letters. Then a useful approach has an experienced router reviewing present circumstances and updating previous routes to allow for any changes. This has the benefit of being relatively easy and causing little disruption. It also uses a well-understood procedure and experts can give results that are trusted by the organisation. Unfortunately, the results can also be of variable and uncertain quality, the routes may take a long time to design and they rely solely on the skills of a router. Other Intuitive Methods These include a range of methods that use the skills, knowledge and experience of routers, who typically use a series of heuristic rules that have been successful in the past. Maps Schedulers often find it easier to work with some form of diagrams, and the most popular are simple maps of key features. Then schedulers can draw routes and iteratively improve them. There are many guidelines to help with this, such as forming routes that are more or less circular, non-intersecting, no doubling back, and so on. Graphical approaches have the advantages that they are easy to use and understand, but they are really only one step better than an intuitive method. Spreadsheet Calculations Using maps can show overall patterns, but they lose some of the details. An alternative is to concentrate on spreadsheet calculations and look at the patterns in the numbers. Simulation Simulation is one of the most flexible approaches to solving problems. It gives a dynamic view by imitating real operations over a typical period. Suppose that you want some information about proposed routes. You could sit in cabs and watch the process for some time, and see what was happening. This might give a good idea of the normal operations, but it would take a long time to get results and people may not work normally while there is someone watching. An alternative is to simulate the process. You use a computer to generate some typical features of the journey, and follow progress through the process. Expert Systems These specialised programs try to make computers duplicate the thinking of a skilled scheduler. The basic skills, expertise, decisions and rules used by experts are collected in a knowledge base.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 A router then passes a specific problem to an inference engine, which is the control mechanism. This looks at the problem, relates this to the knowledge base and decides which rules to use for a solution. Expert systems have been developing for many years, and some organisations report useful results. An example of this is the TMS setup discussed earlier. Mathematical Models Most of the previous approaches rely, at least to some extent, on the skills of a router. More formal mathematical approaches give optimal or near optimal solutions without any human intervention. In practice, routing has to include so many subjective and non-quantifiable factors, that optimal solutions in the mathematical sense may not give the best answers for the organisation. The most common mathematical approach uses linear programming. These methods are rather complicated, so they are generally limited to small problems. If, however, you have a problem where small changes in routes may give significant difference in costs, it is certainly worth looking at mathematical approaches. Figure 8-2 shows an example of a solution to The Travelling Salesman problem using a propriety package.
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 Figure 8-29: The Travelling Salesman Routing - A Possible Solution 16. Conclusion This chapter has attempted to introduce some shipper and carrier strategies especially within the present landscape of increased security awareness. While the determination to eliminate all security risks is optimistic to say the least, ignoring the risks will not made them go away. In developing and implementing network strategy, one must be wary of such treats and the impact on total costs and business profitability. On one side are those seeking perfect security and the other are those who believe the treat is grossly exaggerated. Finding a balance in support of strategies is not an easy matter. 17. Tutorial Questions 1. When a Traffic/Transportation Manager evaluates potential carriers, what factors are taken into consideration in making a final decision 2. Discuss the general strategy used by Transportation Managers for small shipments vs. bulk shipments. Why are they different? 3. Traffic Management is often referred to as a special type of purchasing or procurement function. Why? 4. Describe the process used to monitor carrier service quality 5. Explain the economic rationale for having an efficient communication system in today’s transportation systems 6. Describe the hub and spoke system. What operations are prone to make extensive use of this system?
SCM2 International Transport Management Chapter 8 Shipper and Carrier Network Strategies ©Global Maritime Learning Solutions Page 1 v 2021 18. References: 1. Logistics An Introduction To Supply Chain Management, 2003, by Donald Waters. Published by Palgrave MacMillan 2. Business Logistics Management, 4th Edition, 1992, by Ronald H. Ballou. Published by Prentice Hall International 3. Transportation Strategies, A Review and Forecast, Proceedings of The Council of Logistics Management, Vol. 1, 1986, by Michael S. Galardi 4. Logistics Management, In It For The Long Run, Jan 1997, by Peter Bradley 5. Transportation and Distribution, Make Time An Ally, by Helen Richardson 6. Logistics Online. www.logisticsonline.com 7. Cargo and Supply Chain Security Trends 2005, August 2005, by Laura Goddard. Published by eyefortransport. www.eyefortransport.com 8. Study on Potential Hub and Spoke Container Transhipment Options in Eastern Canada for Marine Movements of Freight (Short Sea Shipping) - TP 14876E, 2009, by Department of Transport, Canada 9. Overview of Carrier Strategies for Road Hauliers, 2004, by The Department of Transport, USA 10. Technology Innovation and Global Supply Chain Logistics by Keebong Kang, Naval Postgraduate School, USA 11. Shipper/Carrier Strategies for the Reset Economy, 2009, by Dan Goodwill. Published by Canadian Transportation and Logistics 12. Supply Chain Logistics Management, 2002, by Donald J. Bowersox, David J. Closs and M. Bixby Cooper. Published by McGraw Hill 13. Logistics Composite Modelling, 1996, by Donald Ratliff and William Nulty, Techical White Paper Published by The Logistics Institute Of Georgia Tech 14. Consolidation Terminal Location Allocation and Consolidated Routing Problems, 1996, by Min Hokey. Published in Journal Of Business Logistics 15. Inbound Freight Consolidation - A Simulation Model To Evaluate Consolidation Rules, 2001, by Daniel Ford Junior. MIT END OF MODULE