| Optimizing the supply chain involves satisfying or | | | | facilities. As a result, rail provides terminal-to-terminal |
| exceeding customer demands, at the lowest | | | | service rather than point-to-point service unless |
| operating cost. While this is generally true, there are | | | | companies have a rail siding at their facility. Rail |
| organizations that move to a higher cost facility | | | | transport generally costs less (on a weight basis) |
| network to provide the best level of customer | | | | than air and trucking, but compared to trucking |
| service. This is seen in the growing trend to have | | | | carriers, has disadvantages in terms of transit time |
| more, smaller distribution centers located closer to an | | | | and frequency of service. Some of this rail |
| organizations end customers. Wal-mart is an | | | | disadvantage is overcome through the use of |
| exception to this trend, with many distribution | | | | trailer-on-flatcar (TOFC) or container-on-flatcar |
| centers, strategically located, but many over a million | | | | (COFC) services. These inter-modal options offer the |
| square feet. | | | | economy of rail movements with the flexibility of |
| And, with a growing number of companies acquiring | | | | trucking routes. TOFC and COFC are referred to as |
| other businesses with existing distribution centers, | | | | piggyback service and is a growing trend in the |
| another network trend is consolidation. The challenge | | | | industry for moving goods over 700 miles. |
| then is which facilities to close, and where to locate | | | | Airfreight offers the quickest time-in-transit of any |
| the consolidated facility. With so many factors | | | | transport mode. Although increasing numbers of |
| involved in deciding how many facilities to operate, | | | | shippers are using airfreight for regular service, most |
| where to locate them, what customers to serve | | | | view air transport as premium, emergency service |
| from each, what inventory to store where, and what | | | | because of its high cost. Shipping competition varies |
| size to make each facility, there is a growing need | | | | between domestic and international needs. |
| for organizations to understand the basics of supply | | | | Domestically, airfreight mainly competes with trucking |
| chain optimization. | | | | carriers, whereas the major competitor for |
| The four main logistics cost drivers are information, | | | | international airfreight is water carriage. |
| inventory, facilities and transportation. Information | | | | Air carriers usually transport high-value products |
| costs become more important with shorter delivery | | | | because it cannot be justified for low-value items. Air |
| lead-times. If delivery lead-times are short, it is | | | | transport provides frequent and rapid time-in-transit |
| important to monitor shipment information to allow | | | | service, but terminal delays and congestion reduces |
| adjustments to transportation modes and carriers. | | | | some of the advantages. Over short distances, |
| This can increase the cost of information system | | | | trucking transport can often match or out perform |
| software and hardware. Most companies hold a | | | | the air total transit time. As customers demand |
| minimum safety stock or inventory level for the | | | | higher levels of service and international shipments |
| same products at each distribution center. | | | | increase, air may have a greater role in the supply |
| As a result, inventory costs increase as facilities are | | | | chain plans of many companies. However, increasing |
| added to the network. If products are dedicated to | | | | security issues must be considered for the impact on |
| specific facilities, then increases in inventory costs can | | | | transit time and costs. |
| be minimized. Facility costs increase as the number of | | | | Water transportation includes several distinct |
| distribution centers or space is increased. The | | | | categories: inland waterway, lakes, coastal and |
| objective is to exploit economies of scale to keep | | | | inter-coastal ocean, and international deep sea. Water |
| facility costs low. However, if your network has only | | | | is the dominant mode in international shipping and is |
| two distribution centers, you may incur higher | | | | the most inexpensive method of shipping high-bulk, |
| transportation costs and longer delivery lead-times. | | | | low-value commodities. Containers play a big role in |
| This leads to the transportation factor, which is often | | | | domestic and most international water shipments. |
| the key to optimizing the supply chain network. | | | | The shipper places cargo into a container at its |
| Transportation has many associated costs and | | | | facility. The container is then transported by rail or |
| options that should be evaluated to satisfy customer | | | | trucking carriage to a water port for loading onto a |
| demand and control transportation costs. | | | | container ship. After arrival at the port, it is unloaded |
| Transportation Costs | | | | and loaded onto a rail or trucking carrier and delivered |
| Transportation costs have two factors: outbound to | | | | to the customer. |
| customers and inbound from suppliers. Typically, | | | | The use of containers for inter-modal logistics |
| outbound transportation costs drive the total cost of | | | | reduces staffing needs, minimizes in-transit damage |
| freight due to a higher number of less-than-truckload | | | | and pilferage, and shortens time-in-transit because of |
| (LTL) and small parcel shipments. The industry | | | | reduced port turn around time. Containers are |
| average for outbound transportation costs is 70% to | | | | typically 8 feet high by 8 feet wide and of various |
| 80% of the total transportation costs. The inbound | | | | lengths from 20 feet to 53 feet. The container ships |
| shipments are typically truckload (TL) and / or rail | | | | are capable of carrying the equivalent of 6,000 |
| shipments at lower rates. As a result, a common | | | | twenty-foot containers. Today, there are many |
| strategy is to add distribution centers to get closer | | | | problems at the ports impacting the timeliness of |
| to the customers. The addition of facilities leads to an | | | | unloading containers from ocean liners. The increase in |
| initial reduction in total transportation costs. However, | | | | import volumes, aging port equipment, shortage of |
| if too many facilities are added to the network, the | | | | rail capacities and limited number of truck drivers and |
| increase in LTL shipments from inbound suppliers can | | | | carriers are contributing to this growing problem. |
| increase transportation costs. | | | | Determining Strategy |
| Transportation Modes | | | | The mode of transportation selected impacts |
| The five primary modes of transportation include air, | | | | customer delivery times, transportation costs, |
| water, rail, trucking and pipeline. In addition, there are | | | | inventory levels, and the size and number of |
| inter-modal combinations that are associated with | | | | distribution centers. The inventory level and resulting |
| integrating rail with truck and ocean modes. The two | | | | size of the facility is impacted by the frequency of |
| primary modes based on U.S. tonnage shipped are | | | | shipments and timeliness of deliveries. Once |
| truck carrier and rail. In terms of revenue, truck | | | | "physically" optimized, the supply chain management |
| carriers' jumps to a higher level above rail. Pipeline is | | | | technology must enable the facility network to run |
| used for moving bulk commodities (i.e. oil), but isn't | | | | efficiently. This technology includes warehouse and |
| part of a typical distribution center network. | | | | transportation management systems which provide |
| Trucking carriers (motor) offer point-to-point service | | | | data for performance measurements and continuous |
| between almost any origin-destination combination | | | | improvement. In addition, your business processes |
| and provide the widest market coverage of any | | | | should support the optimized facility network and |
| mode. The most common trucking options used in | | | | ensure that the ultimate business objectives are |
| distribution centers are small parcel, truckload (TL) | | | | satisfied. |
| and less-than-truckload (LTL). Small parcel is used | | | | Given an understanding of modes, there are |
| mainly for small volume outbound shipments and | | | | remaining decisions to be made regarding |
| competes with LTL carriers. TL carriers compete | | | | transportation management strategies. An analysis of |
| with rails for larger volume shipments that are | | | | using private fleets, carriers, and / or freight |
| transported more than 500 miles. The average length | | | | forwarders is the next step. The key is to optimize |
| of haul for trucking carriers is approximately 500 | | | | the strategy based on your specific criteria, which |
| miles. The flexibility and versatility of trucking carriers | | | | may include higher service levels, required capacities, |
| has enabled them to become the dominant form of | | | | flexibility and low logistics costs. |
| transport in the Americas and in many other parts of | | | | The transportation industry is being challenged today |
| the world. Trucking rates are expected to increase | | | | by ocean containers delayed at the ports, rail and |
| again this year at a rate of 3% to 4%. The primary | | | | trailer capacity constraints, shortage of drivers, and |
| reasons for this increase are higher fuel costs and | | | | rising gas prices. If your customer service levels are |
| insufficient carrier capacities. | | | | decreasing and logistics costs are rising, it is time to |
| Rail is mainly used to ship large volumes inbound and | | | | review and optimize your facility network. The |
| has an average length of haul of approximately 750 | | | | competitive advantage realized can set you apart |
| miles. The rail network is not nearly as extensive as | | | | from the competition. |
| the highway network and is limited to fixed track | | | | |