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Supply Chain Models: Logistics

Supply Chain Models: Logistics. Domestic Transportation Systems. Dr. John Vande Vate. Outline. The big picture Carriers: TL & LTL Inland Waterways and Intercoastal Waterways Railroads Air cargo Shippers: Send goods Consignee Receives the goods. Mode Comparison.

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Supply Chain Models: Logistics

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  1. Supply Chain Models: Logistics Domestic Transportation Systems Dr. John Vande Vate

  2. Outline • The big picture • Carriers: • TL & LTL • Inland Waterways and Intercoastal Waterways • Railroads • Air cargo • Shippers: • Send goods • Consignee • Receives the goods

  3. Mode Comparison

  4. Transport in the Supply Chain RetailStores Warehouses Cross-docks DCs Cross-docks Suppliers Manufacturers Customers Transportation, Distribution Intra-facility Transportation

  5. Integrated Transportation andInter-modal Services • Multi-modal transportation • Ocean transportation typically involves rail and trucking • Rail transportation typically involves trucking • Air cargo typically involves trucking

  6. Project Inter-modal ExampleChina to New York Chinese Factory Port in China Store Port of Long Beach NY DC Cross Dock

  7. Trucking Outline • Background information • DOT driving regulations • TL transportation • LTL transportation

  8. Background Information • Common terms: • TL and LTL • For hire and private fleets • Common carriage and contract carriage • Irregular and dedicated carriage • Single and team operations • Key statistics: • Gross freight revenue: $485 billion • Freight weight: 7.7 billion tons • Intercity freight ton-miles: 1,000 billion

  9. Background Information • Number of trucks: • 2.3 million tractors • 4.4 million trailers • 20 million trucks of all weight classes

  10. DOT Driving Regulations • Duty hours: • Driving or waiting for dispatch • Inspecting, servicing, or conditioning vehicle • Loading or unloading • Maximum driving hours: • Not to exceed10 hours driving following 8 consecutive off duty hours • Not to exceed 15 hours of duty following 8 consecutive off duty hours • Not to exceed 70 duty hours in any consecutive 8 day period

  11. A Feasible Driving Schedule • Single driver • Atlanta, GA to San Francisco, CA • Mileage: 2,440 • Average speed: 50 miles/hour • Driving hours: 49 8 16 24 32 40 49 Driving Hours on off on off on off 17 on 8 off 16 on 8 off 16 8 on off 16 8 16 8 16 8 0 Wednesday Thursday Friday Saturday Sunday Monday Tuesday

  12. Most Aggressive Feasible Driving Schedule • Single driver • Atlanta, GA to San Francisco, CA • Mileage: 2,440 • Average speed: 50 miles/hour • Driving hours: 49 10 20 30 40 49 Driving Hours 17 8 0 14 6 20 12 2 18 8 0 Wednesday Thursday Friday Saturday Sunday Monday Tuesday

  13. TL Background Information • No barrier to entry • 500,000 interstate carriers • 80% operate 20 or fewer trucks • 72% operate 6 or fewer trucks • Industry issues • Fragmentation • Severe competition • Very low margins • High fuel cost, fuel surcharge • Driver shortage and high turnover

  14. TL Background Information • Types of carriage • Irregular, dedicated, continuous • Head-haul, backhaul • Multi-stops • Top carriers • Schneider National • J.B.Hunt • M.S.Carriers • Werner Enterprises • Swift Transportation

  15. Truckload Topics • Freight acceptance and solicitation • Drop and swap • TL economics 101 • Pricing of services

  16. Truckload Booking ProcessLoad Acceptance Composite score Accept load Reject load Load profitability

  17. Contract compliance Customer importance Equipment and driver availability at origin Equipment and driver needs at destination Execution difficulty: Windows for pickup and delivery Equipment requirements Dock doors compatibility Special handling requirements Team operation Composite Score Factors

  18. Drop and Swap • Why drop and swap • Duty hour problems • Missing service • Emergency driver requests Calculations for drop and swap opportunities

  19. TL Economics 101 • Cost breakdown • Fixed • Variable Trailer Tractor • Fixed cost is allocated on a time basis • Variable cost is allocated on a mileage basis

  20. Tractor/Trailer OperationFixed Costs • Tractor and trailer depreciation and interest • Tractor: $80,000, 7 years, 20% salvage, 8% interest • Trailer: $20,000, 12 years, 25% salvage, 8% interest • Driver compensation • Base compensation: $45,000 (first) • Base compensation: $35,000 (second) • Fringes: 25% • Nights out: $35 per night out • Tags, taxes, licenses • $3,000 per year

  21. Tractor/Trailer OperationFixed Cost Summary Annual costs 50 WEEKS PER YEAR Single operation • Annual cost: $75,213 • Weekly cost: $1,504 • Plus $35 per night Double operation • Annual cost; $118,963 • Weekly cost:$2,379 • Plus $70 per night

  22. Tractor/Trailer OperationVariable Cost Summary • Fuel and oil cost • Fuel and oil cost per gallon $ 1.68 • Fuel efficiency in miles per gallon 6 • Fuel and oil cost/mile $ .28 • Tractor and trailer maintenance • Maintenance cost per mile $ .06 • Tires cost per mile $ .04 • Total variable cost per mile $ .38

  23. Over the Road Tractor/Trailer Cost Example San Jose, CA Nashville, TN Atlanta, GA 8,000 10,000

  24. Over the Road Tractor/TrailerScheduled Arrivals and Departures Schedule for a Single Driver

  25. Over the Road Tractor/Trailer Estimated Cost • Trip represents a full week (5 days) • Fixed cost = $1,504 • Nights out cost = 5 X $35 = $175 • Variable operating cost = $ .38 X 2,514 = $ 955 • Total trip cost = $ 2,634 • Cost per mile = $ 1.05 • Consider an incremental positioning cost

  26. Pricing of TL Transportation Services Gross margin 20% 25% 30% Charge per trip 3,293 3,512 3,763 Charge per mile 1.31 1.40 1.50 Per mile & stop-off charge 1.27 100 1.36 100 1.46 100

  27. LTL Transportation

  28. LTL Transportation Background • LTL trucking requires a large investment in facilities • Few major national and regional carriers • For national carriers, tendency for smaller number of facilities • Interlining traffic to gain geographical coverage at the required service frequency • Relatively stable driver workforce • Major players: • Roadway Express • Yellow • CNF • American Freightways (FedEx) • Arkansas Best • U.S. Freightways

  29. LTL Transportation Background • Typical shipments vary in size from 100 to 10,000 pounds • Going directly from shipper to consignee is not economical • Shipments are typically transported via a hub and spoke system: • Shipper to origin spoke (satellite terminal) • Origin spoke to origin hub (breakbulk terminal) • Origin hub to destination hub • Destination hub to destination spoke • Destination spoke to consignee

  30. LTL Hub and Spoke NetworkShipper to Consignee Consignee Shipper

  31. Hub Operations • Receiving spoke and hub loads • Freight breakdown and sorting • Relays • Outbound load buildup • Sending satellite and hub loads • Local pickups and deliveries

  32. Illustration of Relays St. Louis hub Nashville hub # 2 # 3 Driver B Pup #1: Atlanta-Nashville Pup #2: Atlanta-St. Louis Pup #3: Nashville- St.Louis Atlanta hub # 2 # 1 Driver A

  33. Freight Flow at Hubs Pure pups from hubs & spokes Mixed pups Locals and from spokes Strip pups Relays Load pups Pure pups to hubs & spokes Pure pups Locals, to spokes, and to hubs

  34. Rail Transportation

  35. Impact of Rail • Carries more than • 40% of nations intercity freight • 70% of automobiles from domestic mfgs • 64% of nations coal • 40% of nations grain • Class 1 rail freight volume in 1998 was 1.38 trillion ton-miles • Intermodal volume (trailers & Containers) has nearly tripled in the past 20 years

  36. Major Railroads • Norfolk Southern • CSX • Burlington Northern Sante Fe (BNSF) • Union Pacific • Canadian Northern (CN) • Canadian Pacific (CP)

  37. General Freight Trains • Averages • 69 cars • 2660 tons • 21 miles per hour • Sorted at Hump Yard or Switch Yard • Local railroad picks up and delivers

  38. Switch Yard

  39. Unit Trains • Sufficient volume for dedicated power • Coal and Grain • Long, slow, heavy • No switching

  40. Intermodal Trains • Types • Trailer on Flatcar (TOFC) • Double Stack • Roadrailer • Triple Crown • Scheduled • Estimated 9 trillion containers and trailers loaded on intermodal trains in 2000

  41. Air Cargo Transportation

  42. Air Cargo Background • International air freight is 16 million tons • 2% of total tonnage but 33% of value traded • Annual traffic growth rate is 7.5% • Robust growth due to: • Just-in-time manufacturing and retailing • Strong China growth • Improvement in Asian crisis markets • Air cargo key commodities are electronics, perishables, fashion apparel, and live animals

  43. Top Air Cargo Carriers • Top 10 air cargo carriers are: • Federal Express • Lufthansa • UPS • Korean Airlines • Singapore Airlines • Air France • Japan Airlines • British Airways • KLM • United Airlines

  44. Top Cargo Airports • Top 10 air cargo airports are: • Memphis • Los Angeles • Hong Kong • Miami • Tokyo • New York (JFK) • Seoul • Frankfurt • Chicago • Singapore

  45. Key Players • Carriers • Combination carriers • Integrators • Freight forwarders • Third party logistics service providers • Ground handlers • Customs brokers

  46. Air Cargo Supply Chain Linehaul Delivery Pickup Forwarder Forwarder Combination carrier Shipper Consignee Integrated carrier Integrated carrier Integrated carrier • Forwarders: MSAS, AEI, Circle • Combination carriers: American Airlines, Lufthansa • Integrated carriers: UPS, Federal Express

  47. Cargo Shipment Activities Three main sets of activities Pre-shipping Shipping Post-shipping

  48. Pre-Shipping Activities • Markets, frequency, fleet • Schedule • Pricing • Reservations • Rating • Routing • Booking • Revenue management

  49. Pre-Shipping Activities Pricing contracts (Pricing) Revise allotments(Revenue mgmt) Ad-hoc space (Revenue mgmt) Determine allotments (Revenue mgmt) Booking requests (Rating, routing, revenue mgmt) 20 daysbefore departure Flight departure 6-9 monthsbefore departure Shipment arrival

  50. Air Cargo Routing Process Shipments Compatibility Routes Sales Requests • Origin-destination • Connections • Transit • Aircraft type • Containers • Door size • Commodity • Terminal hours • Temperature LAX-NRT A2A 2,000 pds 4 LD3s Electronics Check capacity availabilityDecrease capacity

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