⛓️Supply Chain Management Unit 9 – Transportation & Distribution in SCM

Key Concepts in Transportation & Distribution

• Transportation involves the movement of goods from one location to another, while distribution encompasses the entire process of delivering products to end customers
• The goal of transportation and distribution is to ensure the right products reach the right customers at the right time and in the right condition
• Factors influencing transportation and distribution decisions include cost, speed, reliability, flexibility, and environmental impact
• Intermodal transportation combines multiple modes of transport (truck, rail, ship, air) to optimize efficiency and cost-effectiveness
• Reverse logistics manages the return, repair, or disposal of products, ensuring sustainable and efficient supply chain operations
• Cross-docking is a distribution strategy that minimizes handling and storage by transferring goods directly from inbound to outbound vehicles
• Collaborative transportation management (CTM) involves shippers, carriers, and customers working together to optimize transportation processes and reduce costs

Modes of Transportation

• Trucking is the most common mode for short to medium-distance transportation, offering flexibility and door-to-door service
  • Full truckload (FTL) shipments utilize the entire capacity of a truck, while less-than-truckload (LTL) consolidates multiple shipments
  • Trucking is subject to regulations such as hours of service (HOS) limits and weight restrictions
• Rail transportation is cost-effective for long-distance and high-volume shipments, particularly for bulk commodities (coal, grain)
• Maritime shipping is essential for global trade, with containerization revolutionizing the industry by standardizing cargo units
  • Ports serve as critical nodes in the supply chain, facilitating the loading, unloading, and transshipment of goods
• Air freight offers the fastest transportation option but is more expensive and subject to stricter security measures
• Pipeline transportation is used for the continuous movement of liquid or gaseous products (oil, natural gas)
• Intermodal transportation combines multiple modes to leverage their respective strengths and optimize overall performance

Distribution Network Design

• Distribution network design involves determining the optimal number, location, and capacity of facilities (warehouses, distribution centers) to meet customer demand
• Centralized distribution networks consolidate inventory in fewer locations, reducing costs but potentially increasing response times
  • Centralization is suitable for products with stable demand and low inventory turnover
• Decentralized networks position inventory closer to customers, improving responsiveness but increasing inventory and facility costs
  • Decentralization is appropriate for products with high demand variability and short lead time requirements
• Factors influencing network design include customer service requirements, product characteristics, transportation costs, and facility costs
• Network optimization models (gravity models, center of gravity) help determine the optimal facility locations based on supply and demand data
• Risk management considerations, such as natural disasters or supply chain disruptions, should be incorporated into network design decisions
• Regularly reviewing and adjusting the distribution network is essential to adapt to changing market conditions and customer needs

Transportation Planning and Optimization

• Transportation planning involves determining the most efficient routes, modes, and schedules for moving goods through the supply chain
• Factors considered in transportation planning include cost, transit time, reliability, and environmental impact
• Vehicle routing problems (VRP) aim to minimize total distance traveled or time spent while satisfying customer demands
  • Variants of VRP include capacitated VRP (CVRP), which considers vehicle capacity constraints, and time-dependent VRP (TDVRP), which accounts for varying travel times
• Load planning optimizes the placement of goods within a vehicle to maximize space utilization and minimize damage risk
• Carrier selection involves choosing the most suitable transportation providers based on factors such as cost, service level, and reliability
• Transportation management systems (TMS) automate and optimize planning, execution, and tracking of shipments
• Collaborative transportation planning involves sharing information and resources among supply chain partners to improve overall efficiency

Warehousing and Inventory Management

• Warehousing involves the storage and handling of goods between production and consumption points
• Warehouse management systems (WMS) automate and optimize processes such as receiving, putaway, picking, and shipping
  • WMS can integrate with other systems (ERP, TMS) to provide end-to-end visibility and control
• Inventory management aims to balance the costs of holding inventory with the benefits of meeting customer demand
  • Safety stock is extra inventory held to buffer against demand or supply variability
  • Economic order quantity (EOQ) models determine the optimal order size that minimizes total inventory holding and ordering costs
• Cross-docking is a warehousing strategy that minimizes handling and storage by transferring goods directly from inbound to outbound vehicles
• Value-added services, such as kitting, labeling, and customization, can be performed in warehouses to meet specific customer requirements
• Warehouse layout and design should optimize space utilization, minimize travel distances, and ensure efficient material flow
• Inventory accuracy and cycle counting are critical for maintaining reliable stock levels and avoiding stockouts or overstocking

Technology in Transportation & Distribution

• Transportation management systems (TMS) automate and optimize planning, execution, and tracking of shipments
  • TMS can integrate with other systems (ERP, WMS) to provide end-to-end visibility and control
• Global positioning systems (GPS) enable real-time tracking of vehicles and shipments, improving visibility and security
• Radio-frequency identification (RFID) tags and barcodes facilitate automated data capture and tracking of goods throughout the supply chain
• Internet of Things (IoT) devices, such as sensors and smart containers, provide real-time monitoring of cargo condition and location
• Blockchain technology can enhance supply chain transparency, traceability, and security by creating an immutable record of transactions
• Artificial intelligence (AI) and machine learning (ML) can optimize route planning, demand forecasting, and risk management
• Autonomous vehicles, including self-driving trucks and drones, have the potential to revolutionize transportation by improving efficiency and safety

Cost Management and Performance Metrics

• Transportation costs include direct costs (fuel, labor, equipment) and indirect costs (administration, insurance)
  • Fuel surcharges and accessorial charges (detention, layover) can significantly impact total transportation costs
• Inventory carrying costs include the opportunity cost of capital, storage costs, and risk costs (obsolescence, damage)
• Total logistics cost (TLC) encompasses all costs associated with transportation, warehousing, and inventory management
• Key performance indicators (KPIs) measure and monitor the effectiveness and efficiency of transportation and distribution operations
  • On-time delivery (OTD) measures the percentage of shipments delivered within the agreed-upon timeframe
  • Freight cost per unit measures the average transportation cost per unit of product shipped
  • Inventory turnover ratio measures how quickly inventory is sold and replaced, indicating the efficiency of inventory management
• Benchmarking involves comparing performance against industry standards or best-in-class companies to identify improvement opportunities
• Activity-based costing (ABC) assigns costs to specific activities, providing a more accurate understanding of cost drivers and profitability

Challenges and Future Trends

• Capacity constraints, particularly in trucking, can lead to higher costs and longer lead times during peak seasons
• Driver shortages and high turnover rates in the trucking industry can disrupt transportation operations and increase costs
• Fuel price volatility can significantly impact transportation costs and require effective fuel management strategies
• Increasing customer expectations for faster delivery times and greater visibility put pressure on transportation and distribution operations
• Sustainability concerns, such as reducing carbon emissions and waste, are driving the adoption of green logistics practices
  • Initiatives include alternative fuel vehicles, optimized routing, and sustainable packaging materials
• Globalization and the growth of e-commerce are expanding supply chain networks and increasing the complexity of transportation and distribution
• Digitalization and the integration of emerging technologies (AI, IoT, blockchain) are transforming transportation and distribution processes
• Collaborative logistics, such as shared warehousing and transportation, can help companies optimize resources and reduce costs
• Resilience and risk management are becoming increasingly important in the face of supply chain disruptions (natural disasters, pandemics)