The role of
transportation in a supply chain
Transportation is the back bone of every supply chain network. It
facilitates the movement of goods from one destination to other destination
starting from suppliers till customers. Further, the transportation is crucial
for manufacturers and intermediaries as manufacturing facilities and customer
locations may not be same. For instance, Hero Motocorp manufactures their bikes
in Kolar plant India and their majority customers account from Mumbai, New
Delhi, Bengaluru and Chennai. Thus, there's need for bikes transported from
Kolar plant to metro cities.
According to IBEF, today, companies spend 14.4℅ of the GDP on
transportation that is much higher than developed countries 10%. However,
Indian transportation industry contribute only 6.3% of the GDP with CAGR 15%.
5I's: Drivers of Indian transportation industry
- Interstate movement of goods and
passengers.
- Increase in disposable
income.
- Intensive growth of FMCG sector
- Incremental growth of export sector
- Investment by government and
private enterprises
Modes of transportation
- Air
- Package carriers
- Truck
- Rail
- Water
- Pipeline
- Digital
- Intermodal.
Performance characteristics:
Air
This is a very expensive mode of transportation. However, it
is a good mode of transportation for long distance shipment. This mode of
transportation commonly used by goods those in small size yet expensive. Apart
from this, air transportation used to meet quicker time scheduled shipments of
the product.
Package
carriers
These are small transportation companies carrying couriers and
packaging weighing up to 70 kgs. Maruti Parcel service, Safe Express, Gati etc
are a few companies involved in package carrier business in India.
Water
This is the ideal mode of transportation for bulk goods to be
shipped to long distance. However, this mode suffers from customs and excise
clearance, jettison, pirates, port clearance and container management.
Rail
This mode is very popular in India for shipping oil and gas,
cement, and bulk items. The railway network can carry goods for longer distance
but it is time consuming. Till Indian Railways allowed private container and
proper axle loading businesses were not using this mode regularly. Yet, this
mode gave cost advantage to entrepreneurs due to the tarriff structure.
Truck
This mode of transportation is good for door to door delivery.
Added to this, it takes less time to reach destination. Apart from this, a
customer can track their shipments. Contrary to above points, if transportation
is having less than truck load ( LTL) it will take long time due to pick and
drop of goods at multiple locations. To overcome from this business owners used
cross docking, 3PL, 4Pl, and 5PL strategies.
Intermodal
This type of transportation mode is used when one transportation
mode is not possible or cost effective. For instance, A cement company in
Gujarat wants to send their products to Ichalakaranji in Maharashtra. The
company may use rail network till Kolhapur because of cost effectiveness but
further it will use road network to drop products to a dealer in Ichalakaranji.
Another example is Indian oil. This company procure crude oil from different
countries through ship and use rail and road to reach the final consumer. The
major hurdle this mode undergoes is information sharing at different points.
This leads to delay in products distribution and ultimately a poor customer
service.
Transportation infrastructure and policies
Design options for a transportation network
Direct shipment network
Direct shipping with milk run
All shipments via central DC
Shipping via DC using milk run.
Tailored network.
Trade-offs in transportation design
Transportation and inventory cost trade-offs
1. Transportation mode selection.
2. Aggregating inventory
Trade-offs between transportation costs and customer relationship.
Tailored transportation
In
this type of transportation, organizations use different networks and modes
looking at customer and product characteristics.For Instance, Parry's that
manufacture fertilizers and sugar have to desing their transportation network
differently. Most fertilizer companies in India transport via Indian railway where
as sugar 1 Kg pet bottles are transported using trucks. Parry's has to adjust
transportation based on product characteristics.
Tailored transportation by customer density and distance
| | Short distance | Medium distance | Long distance |
High density | Private truck companies with milk run | Cross docking with milk runs | Cross docking with milk runs |
Medium density | 3PL carriers | Less than truckload carriers | Less than truckload carriers or package carriers. |
Low density | Less than truckload carriers OR third party Milk runs. | Less than truckload carriers or package carriers.
| Package carriers.
|
Tailored transportation by size of customers
Tailored transportation by product demand and value.
| | High Value | Low Value |
High Demand | Safety inventory should be aggregated and cycle inventory has to be dis-aggregated. Cheaper mode of transportation should be used for cycle inventory whereas quick service transportation mode should be used for safety inventory. | All inventories must be dis-aggregated and companies must focus on cheaper mode of transportation for replenishment |
Low Demand | Aggregate all inventories. On need basis an organization must adopt quick modes of transportation. | Aggregate only safety inventory and manufacture must use cheaper modes of transportation for cycle inventory replenishment. |
The role of information technology in supply chain
Route planning
Route
optimization had become an important tool to reduce the cost. To achieve this
objective, transportation companies use information such as a customer
location, shipment size, delivery time and the capacity of the transportation
mode and optimize the ideal route.
Fleet utilization
Loading
and unloading at multiple destinations is the major hurdle for transportation
companies. Fleet utilization software will take into the consideration of size
of container, size of delivery and sequence of delivery and synchronize all of
them.
Global positioning system
GPS
allows transportation companies to track and inform about products in real time
to customers. This feature enhances customer satisfaction. Today, a customer
gets notifications about shipment arrival and delivery information well in
advance. These notifications also help transporters load and unload goods
properly.
ERP: Enterprise resource Planning
RFID: Radio Frequency Identification Device.
Block chain
Risk management in transportation
Making transportation decisions in practice.
1. Synergy of competition strategy and transportation strategy.
2. Own transportation and outsourcing transportation decision.
3. Transportation technologies and productivity.
4. Agile transportation network
