Chapter 14 Shipper_Carrier Network Strategies

1、Chapter 14Shipper/Carrier Network Strategies7/1/20221Introduction Both shippers and carriers utilize strategies to manage their respective networks.The shipper strategy is focused on purchasing and managing transportation services to meet the needs of their external and internal customers.Carrier st

2、rategy is focused on the efficient use of resources to provide the economical and efficient service the shipping public desires.7/1/20222Shipper Transportation StrategyThe transportation function is one element of the total logistics function. The strategies and operating decisions used in transport

3、ation management must support the strategies and objectives of the logistics function and those of the company.Current management strategy focuses on optimization between the various elements within the logistics sector.7/1/20223Shipper Transportation StrategyTransportation is often one of the large

4、st cost elements, and decisions in this area can favorably or negatively impact the total distribution performance.For example, slow but low cost transportation can have an adverse impact on customer service and inventory levels. Although such methods may minimize transport cost, inventory levels ma

5、y need to be much higher to accommodate longer transit times. These higher stocking levels, with the resultant increase in inventory carrying cost, may more than offset any saving in freight charges.7/1/20224Shipper Transportation StrategyFigure 14.1(P.435), transportation strategy is concerned with

6、 the purchase and control of transportation services.Transportation purchasing decisions include modal selection, consolidation, private trucking, intermediaries, and contracting. The resources, organization, and trade terms decisions are concerned with controlling transportation. 7/1/20225General S

7、trategyProactive managementImprove informationLimit Carriers usedContracts for serviceNegotiateReview private truckingSmall ShipmentsConsolidateUse drop-off carriersPooling servicesAvoid private truckingBulk ShipmentsContractsBalanced loads for carrierPartnership Strategic DecisionsModal selectionCo

8、nsolidationPrivate truckingIntermediariesTrade termsContractingResourcesOrganization7/1/20226Proactive ManagementThe transportation manager relies on basic management techniques to seek innovative transportation systems that will provide the company with a competitive price or service advantage in t

9、he marketplace. Today the transportation manager must rely on his or her ability and creativity to design a transportation system that permits product differentiation and a competitive advantage.7/1/20227Proactive ManagementThe current competitive environment requires that the transportation manager

10、 focus on customer service and competitive strategies.Successful logistics strategies are seen as a true competitive advantage, requiring transport support that can respond to ever increasing demands for smaller inventory levels combined with immediate delivery.7/1/20228Improve InformationTo effecti

11、vely manage the transportation function, reliable and current information is a necessity. Without information, the manager in unable to plan and control the transportation activities on make sound decisions.Transportation costs, shipment volume, and carrier performance are the typical data collected

12、. These data are essential to carrier negotiation, freight consolidation, contracting, and private trucking decisions.7/1/20229Improve InformationA major source of transportation information is the bill of lading. The bill of lading indicates the customer or vendor, the shipment volume, origin and d

13、estination, date, and carrier.The carriers freight bill (invoice) provides similar data as well as the transportation cost for the shipment.Other sources include the purchase order, order entry system, invoice, and internal studies. Some companies use a third-party provider, such as a bank or freigh

14、t payment company, to pay freight bills, and most of these freight payment firms have the computer capabilities to provide transportation data reports in the format required by management.7/1/202210Carrier NegotiationNegotiating with for-hire carriers is standard operating procedure today.Market pow

15、er determines the shippers ability to negotiate acceptable rates and services. To increase market power, shippers use the strategy of limiting the number of carriers, thereby concentrating more of its economic power with a carrier and increasing the carriers dependence on the shipper.7/1/202211Carri

16、er NegotiationA shippers market power and negotiating strength also are determined by the characteristics of its freight. Freight that has low density, is hard to handle, is easily damaged, and moves in small volumes irregularly is undesirable freight for the carrier.Conversely, products that have h

17、igh density and high value, are difficult to damage, and move in large volumes regularly are more economical for the carrier to move.7/1/202212ContractingThe contracts allow the shipper to realize the lower rates and necessary service levels that are not attainable from a regulated carrier.During th

18、e term of the contract, the shipper is guaranteed the contracted rate and service. If properly written, the provisions of the contract take precedence over the bill of lading and transportation regulations.The transportation manager must take precautions to ensure that the contract provides desired

19、terms such as rates, services, equipment, and liability.7/1/202213Small Shipment StrategyThe strategic thrust for small shipments is to reduce the inherently high transportation costs associated with small-sized shipments.By increasing the size of the shipments, the shipper can take advantage of the

20、 carriers low rates for heavier shipments. Rate discounts from 30 percent to 50 percent or more are possible for heavier loads.7/1/202214Small Shipment StrategyA shipper consolidates its freight by using its order entry system. As customer orders arrive, a computer uses a three-digit zip code to mat

21、ch shipments going to the same general area.As discussed above, the need for information is critical to any freight consolidation program. The transportation manager must know the shipments that are shipped to a given area on a given date as well as delivery requirements.7/1/202215Small Shipment Str

22、ategyIf the consolidated load consists of many shipments going to different consignees in a general area, the shipper may use the pooling service offered by for-hire carriers. The pooling service charges the shipper the lower volume rate from one origin to one destination. Because the consolidated l

23、oad contains shipments for many consignees at different destinations, a warehouse or drayage firm is used to separate and deliver the individual shipment, and an added cost is incurred for this additional break-bulk and delivery service.7/1/202216Small Shipment StrategyAnother small shipment strateg

24、y is the use of stopping-in-transit (SIT) service provided by motor carriers. SIT permits the shipper to load a number of shipments on a vehicle and stop along the way to unload the individual shipments.Conversely, SIT can be used for inbound shipments by having the carrier stop along the way to loa

25、d additional shipments and deliver a consolidated row material shipment to the plant, warehouse, or retail store.7/1/202217Bulk Shipment StrategyThe primary strategy used in the transportation of bulk commodities is contracting. Most bulk raw materials are moved under long-term contracts with rail,

26、water, and motor carriers.The large volume of product moved gives the shipper the requisite negotiating and market power to realize lower rates and guaranteed service levels.7/1/202218Bulk Shipment StrategyThe sheer volume of transportation involved has caused both shippers and carriers to realize t

27、heir mutual dependency. If the carrier ceases operation, the shipper experiences serious disruptions in service, higher costs, and possibly a short-run closing of production because alternative transportation is not available. Likewise, the carrier is aware of the large percentage of its business th

28、at is accounted for by one shipper.7/1/202219Bulk Shipment StrategyGiven this mutual dependency, a shipper attempts to provide the carrier with a balanced load, that is, a load into the facility and one out of the facility.A balanced load eliminates the empty backhaul costs that the carrier must acc

29、ount for in the initial loaded move and enables the carrier to spread this round-trip cost over two commodity moves instead of one.7/1/202220Bulk Shipment StrategyTo accomplish the balanced load strategy, cooperation is required between outbound and inbound (purchasing) transportation and may necess

30、itate resourcing material purchases from areas where the carrier experiences empty backhauls.Recently, a major manufacturer contacted other shippers in an attempt to generate freight for its contract carrier to haul over an otherwise empty backhaul. This can be difficult if the commodity being trans

31、ported required dedicated or specialized trailers.7/1/202221Traffic ManagementTraffic management is the traditional term for the task of obtaining and controlling transportation services for shippers or consignees or both.In many firms, traffic management is the core of business logistics department

32、. Transportation in the firm exists in close trade-off relationships with purchasing, warehousing, inventory control, packaging, production scheduling, and marketing.7/1/202222Traffic Management as a Procurement FunctionTraffic management is a special form of procurement and purchasing. Procurement

33、is a term that applies to a wide range of activities that basically consists of obtaining goods and services for the firm.Procurement includes analysis and activities in the following areas: (See next page)All of these factors provide the firm with a system to obtain the physical goods and special s

34、ervices it requires.7/1/202223Traffic Management as a Procurement FunctionQualityPricingSpecificationsSupply sourceNegotiationsInspection and assurance of quality7.Timing8.Conducting value analysis of alternative methods and sources9.Capital analysisMake or buy decisionsLegal and regulatory constrai

35、ntsGeneral management7/1/202224Line and Staff FunctionsOriginally, traffic management was a clerical activity devoted to shipping or receiving the firms goods. Today it entails a range of line functions that often are specialized and require communications and data systems.Traffic managers must obse

36、rve field trends, evaluate potential procedural and system changes, plan for the implementation of appropriate changes, and propose some of these changes to top management.7/1/202225Carrier Selection ProcessThe traffic managers decisions have a direct impact upon the companys total logistics costs a

37、nd quality of service provided to the customer.The transport selection decision is a two-part decision. The initial decision involves the selection of the mode and the second division relates to the selection of the specific carrier within the mode.7/1/202226Carrier Selection ProcessThat is, the tra

38、ffic manager examines the cost and service characteristics of the different modes, including the combination of two or more modes, and selects the mode that matches the companys cost and service goals.Next, the traffic manager examines the cost and service characteristics of the individual carriers

39、within the selected mode and selects the specific carrier to provide the desired transport service.7/1/202227Carrier Selection ProcessThe relevant carrier selection factors include transport cost, transit time, transit time reliability, accessibility, capability, and security.These factors impact th

40、e total logistics costs of movement and storage and are used in both the selection of the mode and specific carrier.7/1/202228Transport CostThe transport cost factor includes the rate charged by the potential carrier. In addition, this factor examines the charges assessed by the carrier for ancillar

41、y services such as residential delivery, controlled-temperature vehicles, and stops in transit.The transport cost varies from mode to mode because of the different cost structures of the modes, whereas the cost variation among carriers within a mode is less because the carriers have similar cost str

42、uctures.7/1/202229Transit Time and Transit Time ReliabilityThe total-cost implication of the carrier selection decision considers not only the direct transportation cost incurred but also the indirect costs associated with the quality of the service provided.Transit time and reliability of transit t

43、ime are two transport service qualities that affect inventory costs and stockout costs.7/1/202230Transit Time and Transit Time ReliabilityTransit time impacts the level of inventory held and the consequent inventory carrying costs. The longer the transit time, the higher the inventory levels and the

44、 higher the inventory carrying costs.Therefore, the total cost impact of using a carrier (mode) with a longer transit time is higher inventory carrying costs.7/1/202231Transit Time and Transit Time ReliabilityLikewise, the reliability of transit time affects the level of inventory required. Unreliab

45、le transit time requires an increase in the level of inventory to guard against stockout conditions and the resultant cost of lost profit or lost productivity associated with not having the product available to meet the demand.Viewed from a marketing perspective, reliable transit time affords the bu

46、yer the opportunity to reduce or control both inventory and stockout costs. Thus, using a carrier that provides reliable transit time provides the seller with a marketplace advantage.7/1/202232AccessibilityThe accessibility factor considers the ability of the carrier to provide the transport service

47、 between a specific origin and destination.The modes differ in their ability to provide direct service to specific locations. Physical limitations associated with roadways and terminals prohibit certain modes from providing direct services to a specific site.To overcome the accessibility of a mode,

48、the services of another more accessible mode must be purchased. The addition expense to surmount a modes inability to service a particular location is the accessibility cost.7/1/202233CapabilityThe capability factor refers to the ability of the carrier (mode) to provide the unique transport services

49、 and equipment required by the user. The traffic manager will use the carrier that has the ability to provide the unique services or equipment required.Controlled-temperature vehicles for the movement of frozen foodsHigh cube capacity vehicles for the movement of low-density products(plastic bottles

50、, for example)Tank vehicles for the movement of bulk liquids.7/1/202234SecurityConsiders the indirect transport service cost if the shipment is damaged or lost in transit.A damaged shipment has the same impact on inventory costs and stockout costs as unreliable transit time.A product damaged or lost

51、 in transit is not available for use when demanded and the user incurs the cost of processing a damage claim or legal action against the carrier to secure reimbursement, incurs the loss if reimbursement is not received from the carrier, or pays for insurance to provide protection against the in-tran

52、sit damage.7/1/202235Line Aspects of Traffic managementAlthough the management of individual traffic officers may vary, the typical traffic management process is as follows:Shipment planningCarrier selectionOrdering serviceExpediting/tracingPreauditing/ratingAuditing/paying the freight billDetection

53、/demurrage processesClaims, if nayOther private car or truck fleet management, transportation budget management7/1/202236Shipment PlanningTraffic management continually monitors inbound and outbound shipping schedules, which should be coordinated with purchasing and distribution or production.A cont

54、inuous flow of product should be maintained, unhindered by the unavailability of transportation (no equipment or service).Further, physical loading and unloading must be planned according to the efficient use of docks and labor.Management must ensure that transportation is not scheduled too early or

55、 in excess of actual needs because dock and track congestion and equipment detention and demurrage charges will result.7/1/202237Carrier SelectionIn rail contexts this might be largely confined to the carrier that has a siding into the plant. But even here, the traffic manager may have some latitude

56、 in route selection through use of intermediate or alternative route carriers.In connection with motor carriers, traffic managers often will give shipment preference to the firms own private carriage vehicles or use a contract carrier before considering common carriers.7/1/202238Ordering ServiceElec

57、tronic methods are becoming more common and the use of the Internet is accelerating this trend.In other cases, long-term arrangements for equipment supply include trailer pools and scheduled rotation.The traffic manager needs to inform the carrier personnel of the shippers name and pickup point, wei

58、ght, commodity, destination, and sometimes the cube measurement of the shipment.Upon vehicle arrival, the equipment is loaded according to plans established in the first step (shipment planning). They include crew assignment, loading arrangement, bracing, dunnage, documentation, and any other specia

59、l need.7/1/202239Expediting/TracingThe traffic manager keeps track of shipment progress and alerts the carrier of any en-route changes that might be necessary.Some shippers have direct computer links with carrier shipment systems. These provide daily position reports of all the shippers railcars or

60、shipments. Some carriers provide tracing services via the Internet.Other carriers place information in a secure Web site that only particular shipper can access.This information is updated on a scheduled basis.Expediting/tracing is a valuable control tool for the shipper and consignee because they c