SCM Exam 3 Review

Primary Function of Transportation

Transportation provides: (1) Physical movement of goods between origin and destination, (2) A link connecting all supply chain members, (3) Time & Place Utilities — gets goods to the right place at the right time, (4) Enables competition — efficient transport gives firms market access

Derived Demand

Demand for transportation comes FROM customer demand for goods. No demand for freight = no demand for transportation services. It is "derived" because it depends entirely on whether customers want the goods being shipped

Landed Cost

Total Landed Cost = Production Cost + Transportation Cost + Other Logistics Costs. Transportation affects both product pricing and competitive position

Accessibility

A transportation mode's ability to reach the origin and destination and provide efficient direct routing. Motor carrier has the BEST accessibility (door-to-door). Pipelines and water have the WORST

Capability

The mode can physically perform the transport service required — meaning it can carry the right type and size of freight. Rail has the BEST capability (carries almost anything). Air has the WORST (small shipments only)

Reliability

Consistency of transit times. Can you count on it arriving on schedule? Pipelines are most reliable (no weather/driver issues). Rail is fair (classification delays). Air is good but can be disrupted by ground leg

Transit Time

Total elapsed time to move goods from origin to destination. Air is fastest. Water is slowest

Private Fleet

Trucks owned and operated by a firm to move its OWN freight. Transportation is NOT the firm's primary business. Example: a grocery chain running its own delivery trucks

Unit Train

A train carrying a single type of rail car with the same freight, usually for one customer. No classification time needed = fastest rail option

Intermodal Transportation

Combines two or more primary modes to move freight from origin to destination, leveraging the best cost and service characteristics of each mode. Example: Truck–Ocean–Rail–Truck for global shipments

TOFC vs COFC

TOFC = Trailer On Flat Car: the entire truck trailer is loaded onto a railroad flat car. COFC = Container On Flat Car: just the shipping container (no truck cab/wheels) is loaded onto a flat car

Competitive Advantage from Transportation

Low-cost transportation enables: access to higher quality/lower price materials, competition on price, increased market reach, access to new markets, and economies of scale in production

What Affects Transportation Cost?

Primary factor: VALUE of freight — higher value goods cost more to ship (more liability, care, insurance needed). Other factors: distance, weight, density, handling difficulty, and liability

7 Rs of Logistics — Transportation's Role

Transportation affects: Right Product, Right Quantity, Right Place, Right Time, and Right Condition

Transportation Regulation — Operations

Federal & State law regulates: (1) Safety of transportation equipment, (2) Maintenance of transportation equipment, (3) Operation of transportation equipment, (4) Licensing of commercial vehicle operators

Transportation Regulation — Environment & Security

Environment: emissions standards, noise pollution limits, hazardous material transportation. Security: Department of Homeland Security requires advance filing of import/export cargo information

Transportation Challenges in Global SCM

(1) Offshore manufacturing creates long complex supply chains, (2) Customer demand for tailored services: defect-free delivery, just-in-time small frequent deliveries, shorter order cycles, (3) Capacity constraints: demand outstrips supply, (4) Unstable rates: prices fluctuate making cost planning difficult

Motor Carrier (Truck)

MOST WIDELY USED mode. Why: best door-to-door accessibility, carries wide range of loads, short transit times, highest freight spend and tons lifted. TL = one shipment fills entire truck, direct delivery. LTL = multiple shipments per trailer (150–15,000 lbs), hub-and-spoke network. Best for: high-value, time-sensitive goods. Freight damage: higher than rail/water

Rail

Most throughput of all modes (ton-miles). Lowest cost for long distance. Poor accessibility (needs truck for first/last mile). Best capability — carries almost anything. Manifest trains = mixed freight, slow (classification time). Unit trains = single freight type, one customer, fast. Best for: long-distance, low-value, heavy/bulk products (coal, grain, chemicals). Freight damage: low

Air

Fastest mode point-to-point BUT can be SLOWER door-to-door due to poor ground accessibility (intermodal unreliability on truck legs). Most expensive. Worst capability (small shipments only). Good reliability. Integrated carriers (FedEx, UPS) = door-to-door service. Best for: small, high-value, urgent freight. Freight damage: low

Water

Slowest mode. Very poor accessibility (limited to waterways/ports). Enormous carrying capacity. Very low cost per ton-mile. Dominates GLOBAL trade volume. Domestic use limited to bulk commodities (grain, coal, ore). Freight damage: can be significant (moisture, rough seas)

Pipeline

Very low cost. Very reliable (no weather delays, no driver shortages). Very slow. Carries ONLY liquids and gases (oil, natural gas, chemicals). Very limited accessibility — fixed infrastructure only. Pipelines act as warehouses — product always moving in transit. Excellent safety record. Security is paramount

Intermodal Detail

Combines modes for best cost and service. Global: Truck–Air–Truck or Truck–Ocean–Rail–Truck. Domestic: Truck–Rail–Truck. Transload = freight itself is handled when switching modes. Containerized = container moves between modes, freight stays put. Sizes: 20' (TEU), 40' (FEU). Speed vs reliability: air is fast point-to-point but intermodal ground legs can slow door-to-door delivery

Primary Function of Distribution — 4 Utilities

Time utility: goods available WHEN customers need them. Place utility: goods available WHERE customers need them. Quantity utility: right amount available (break-bulk, consolidation). Form utility: goods in the right form (kitting, light assembly)

Role of Distribution in SCM

(1) Balance supply & demand: inventory buffers mismatches, protects against uncertainty. (2) Purchase discounts: hold inventory from large purchases at lower unit price. (3) Purchasing economies: store raw materials BEFORE manufacturing. (4) Production economies: store finished goods AFTER manufacturing. (5) Transportation economies: receive and hold large inbound deliveries. (6) Assortment: provide customers the right product mix

Accumulation

One of the four distribution functions. Collection point for product. Consolidates orders and shipments for production and fulfillment. Enables large inbound deliveries and transportation cost savings

Sortation

One of the four distribution functions. Assembles LIKE products/product batches for storage or transfer to customers. Sorted by: production lot #, SKU number, case pack size, expiration date, temperature control, security

Allocation (Break-bulk)

One of the four distribution functions. Matches available inventory to customer demand. Allows customers to buy SMALLER quantities (cases, inner-packs, "eaches") instead of full pallets. Customers purchase only what they need

Assortment (Mixing)

One of the four distribution functions. Allows customers to order a VARIETY of products from a single location. Involves inbound and outbound product mixing

Customer Facing Metrics

Order Accuracy: was each LINE-ITEM delivered correctly? Order Completeness: fill-rate — overall quantity received vs. quantity ordered. Timeliness: cycle times for order picking, order preparation, and shipping (vehicle loading & dispatch)

Perfect Order Index (POI)

A perfect order must be delivered: (1) To the right place, (2) At the right time, (3) Without damage, (4) With correct documentation including pricing and invoicing

Internal Metrics

Cost performance: total distribution costs / budgeted cost goals. Unit cost: distribution cost per unit (pallet, case, carton). Space utilization: % used / % available — near 100% = congestion risk. Equipment utilization: Up time = time available / time required; Utilization = time used / time available. Labor productivity: activity completion time / expected completion time vs. engineered standards

Distribution Challenges

Demand variation: unpredictable fluctuations affect labor availability. Seasonality: managing seasonal + steady-demand products in same facility, balancing capacity. Labor turnover: physically demanding job, requires high-quality trained labor, aging workforce

Distribution Strategies

Determined by product characteristics: value, durability, temperature sensitivity, product life cycle, and volume. Channel structure: direct shipping OR using distribution facilities (crossdocks)

Direct Shipping

Best for: Truckload (TL) shipments that fill an entire truck, and perishable items that can't wait for DC handling. Expensive for small quantities — cannot fulfill cases, inner-packs, or "eaches"

Crossdock — How it Works + Adv/Disadv

How it works: TL arrives from plant → goods flow through DC from receiving to shipping with minimal handling → TL departs to retailer. Advantages: high velocity flows (no storage), zero inventories (no holding cost). Disadvantages: high fixed costs for materials handling and information systems to coordinate inbound and outbound distribution

Facility Ownership: Private vs Public/Contract

PRIVATE — Advantages: full operational control, income from leasing excess space, asset to depreciate. Disadvantages: need experienced management, expends scarce capital, distribution may not be core competency. PUBLIC/CONTRACT — Advantages: eliminates capital investment, variable cost, network flexibility (short-term leases), outsource personnel, good for seasonal demand/startups. Disadvantages: less control over operations

Facility Layout

High inventory turnover: needs more floor space, wide open aisles. Low inventory turnover: racking/vertical storage, narrower defined aisles. Single story: more space per investment dollar. Always have separate areas for: high-value, hazardous, flammable, toxic, and temperature-sensitive goods

Slotting

DC Slotting = efficient handling of space. Objective: minimize travel time AND minimize SKU handling time. Criteria: (1) Popularity — popular items CLOSEST to shipping area, (2) Unit size — LARGER items closest to shipping area, (3) Item cube/volume — HIGH cube closest to shipping area

Mechanization

Works best when items are regular shaped and easily handled. Benefits: improves productivity and reduces travel time. Should be reconfigurable to adapt to changing demand patterns

WMS — Warehouse Management Systems

WMS: management control of product movement and storage. Labor Management: tracks productivity vs. engineered standards. Task Interleaving: mixes dissimilar tasks (put-away + replenishment) to reduce travel time. Systems Integration: interfaces with ERP, OMS, TMS. Visibility: inventory availability, order status, delivery tracking. Activity-Based Costing (ABC): assigns distribution costs to customers based on cost to serve. Value-Added Services (VAS): multi-unit distribution, cross-docking, light-assembly, integrated-channel distribution