CHAPTER9DecisionStrategiesinTransportationCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin9-2AreasintheSupplyChainAffectedbyTransportationPlanningProcurementManufacturingDistributionNetworkandassetrationalizationLandedcostsInterplantmovementsLoadplansLeadtimesInboundin-transitinventorymanagementJITandotherspecializedservicesPicklistsVendorsourcingReducedrawmaterialandwork-in-processinventoriesShippingdocumentationpreparationEconomicorderquantityDockschedulingOutboundshipmentmanagementMode/carrierselectionSource:AdaptedfromTheEmergenceofThirdPartyLogistics,WhitePaperno.4(Atlanta,GA:PricewaterhouseCoopers,1998),p.5.Copyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin9-3Mode/CarrierSelection•Problemrecognition•Searchprocess•Choiceprocess•PostchoiceevaluationCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin9-4CostFactorsOftenConsideredinModeCarrierSelection•Freightcosts•Inventorycarryingcosts–inventoryinpipeline–cyclestockatthereceivinglocation–requiredsafetystockatthereceivinglocation•InvestmentcostrequiredtoproducetheinventorytofillthepipelineaCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin9-5ServiceFactorsOftenConsideredinModeCarrierSelection•Perceivedqualityofcustomerservice•Shipmenttrackingandtracingcapabilities•Billing/invoicingaccuracy•Electronicdatainterchange(EDI)capabilities•Potentialtodevelopmutuallybeneficiallong-termpartnership•Cargocapacitylimitations•Abilitytoprovideservicethatdoesnotdamagegoodsintransit•Customsclearancecapabilitiesforinternationalshipments•Impactontheshipper’snegotiatingposition/leverageonothershippingactivities9-4bCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin9-610StepsinEvaluatingPrivateCarriageOption1.Definetheproblem.2.Developtransportobjectives.3.Collectpertinentinformation4.Determinepresentcost.5.Analyzepresentoperations.9-5aCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin9-710StepsinEvaluatingPrivateCarriageOption(cont.)6.Developalternatives.7.Determineprivatefleetcosts.8.Considerindirectfactors.9.Summarizealternatives.10.Makethedecision.9-5bCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin9-8FinancialConsiderationsintheDecisiontoPrivateCarriageCapitalRequirementsAnnualCashInflowsCostofbuyingorleasingfleetCostofmaintenancefacilitiesCostofterminalfacilitiesSavingsoverusingpubliccarriersReductioninlostsalesReductionininventorycarryingcostsduetomoreefficientroutingTotal9-6aCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin9-9FinancialConsiderationsintheDecisiontoPrivateCarriage(cont.)AnnualCashOutflowsFuelLabor-driversLabor-maintenanceandterminalInsurance-trucks-drivers-maintenanceandterminalfacilitiesLicensefeesPartssupplyUtilitiesSupervisionAdministrative-billing,telephone,accountingTotalAnnualcashinflows-Annualcashoutflows9-6bCopyright©2001byTheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin9-10StepsinLogisticsAllianceFormationObjectivesandselectioncriteriaIdentifyqualifiedvendorsNeedsdeterminationandrequestforbidsEvaluatebiddersandselectIntegratelogisticsproviderswithownsystemsImplementandmanagetherelationshipMeasureperformanceandanalyzedeviationsRedefinegoalsandobjectivesKnowyourneedsandwantsDefinecriteriaPhase1NeedawarenessPhase2PlanningandmanagementPhase3EvaluationKnowthemarketplaceCooperateinmanagementandcontrolCooperateincriticalreviewLogisticsISTrainpartnersRevisitneedsandprovidercapabilityIdentifypartnersArticulateneedsandwantsDOACTCHECKPLANContinuousImprovementProcessLogisticsAlliancePhases7-7