Delivery, Warehousing, and Transportation in Supply Chain Management
In the era of globalization, transportation is more important than ever in supply chain management. Delivery and shipping create linkages between different players in the supply chain, which could range from a mining company in Australia, a manufacturing company in China, and a retail store in America. Transporting goods and materials efficiently (on time and at a low cost) is a key focus of supply chain managers.
Concerns to Focus On: A Supply Chain Perspective
Supply chain management can be viewed simplistically as the process of getting raw materials from point A to a finished product at point B. Of course, there are many stops and business processes in between. Purely from a transportation point of view, there are several important factors managers must analyze:
- Technological Developments
- Environmental Regulations
- Global/Domestic Politics
- Global/Domestic Economics
Each of these factors affects transportation of materials and goods in a different way. For example, development of new technology like RFID chips and GPS has significantly altered the way organizations undertake warehousing and transportation. Environmental regulations also play a major role as well, with increasing pressure from consumers and Congress to make the notoriously energy-consuming transportation process efficient and environmentally friendly.
Of course, politics and economics play a huge role in transportation (and for that matter, other aspects of the supply chain). Political decisions with regards to transportation infrastructure often determine not only transportation routes, but modes as well – depending on whether air, rail, truck, ship, or a combination thereof is more cost efficient and timely. Economic conditions also play a major role in determining which countries can provide the best opportunities for growth and sourcing.
Optimization and Consolidation of the Supply Chain: Benefits and Drawbacks
In an effort to reduce costs and maximize profits, many companies have chosen to consolidate warehouses. Materials and goods from many suppliers flow through a few key warehouses. While this generally increases efficiency, it can also reduce service concerns like customer responsiveness.
Calculating how to balance these tradeoffs is key to effective supply chain management. There are three primary types of costs to consider:
- Inventory costs (holding costs)
- Primary transport costs (amount spent shipping goods and materials)
- Facility costs (facility overhead like power, labor, rent/lease, etc)
The best way to decide where to locate facilities is with a mathematical optimization. While these calculations are usually done by advanced software (and the specific methods used are too complex for the scope of this article), they all work on a “center of gravity” principle. Essentially, customers are placed on a map grid, and weighted based on their demand. The optimal warehouse location is the one that minimizes total transportation costs.
After the program has determined potential sites, they can be evaluated using nonmathematical criteria such as:
- Property costs (lower is better)
- Proximity of labor and transportation networks/hubs (airports, seaports, road, rail)
- Site construction time
Transport management, warehouse management, and order management are all important concepts in supply chains. Like demand forecasting, managing transportation is often complex due to the variables that must be taken into account. These include:
These obviously must be balanced against each other depending on the needs of the specific business, and indeed, the needs of a specific product. For certain products (say, toothpaste to be sold at Walmart), shipping speed might not matter so much, and cost might be a more important concern. On the other hand, vital replacement parts for industrial machinery need to be shipped with haste to prevent the threat of significant losses.
Transport by air takes place mainly using cargo operators – airlines specializing in cargo. There are also couriers like UPS and Federal Express, which carry parcels.
Transport by road generally takes place by truck. Two important terms are FTL (full truckload) and LTL (less than truck load). Primary transport vehicles, used to deliver supply to warehouses, are generally the large eighteen wheelers you see on the highway. Secondary transport vehicles pick up customer orders from a distribution center for delivery – think of the smaller UPS or FedEx trucks in your neighborhood.
Rail offers a cheap alternative for shipping products that aren’t particularly focused on the speed component. There are several possibilities for rail: Trailer on Flat Car (TOFC), Container on Flat Car (COFC), and Rolling Road Train (RRT). In TOFC, an entire semi truck trailer is loaded onto a flat rail car and shipped to some other part of the country. At the receiving train station, a different trucker comes to pick up the trailer. In COFC, a container is used instead of a trailer (say, an ocean or air shipping container). Finally, in RRT, a road train drives on a flat car.
Water offers another good alternative for items not requiring speedy shipping. Many chemicals and petrochemicals are delivered in tankers, a fact that receives much public attention in the wake of oil spills like the Exxon-Valdez. Other water transportation methods include inland vessels and container vessels, the latter of which is often used for shipping food products overseas.
Warehouse Management: Alternatives Abound
Warehouses are the point in the supply chain that clearly differentiate between supply and demand. Managers have several alternatives when picking a warehouse, and the type will depend on business and industry specific needs. For example, contract warehousing is a term for warehouses operated and managed by a third party. Cross-docking describes a warehouse that doesn’t hold any permanent inventory, but is instead involved in quickly taking in and distributing bulk shipments.
Managers must plan out a warehouse before building it. Important considerations include questions like:
- What will we store? (Do we need refrigeration?)
- How much space will we need? (Are we storing toys, cars, or cranes?)
- How should we organize products?
Demand forecasts should be used to answer the second question. Calculations should then be performed to determine how much space is needed, how many workers will be needed, and how much power will be consumed. These calculated costs are reviewed and aligned with existing budgets, S&OP plans, and sourcing strategies. If the warehouse seems feasible, it can then be built.
Warehouse layout should be set up with JIT-like principles: unnecessary motion should be reduced. The two primary layouts are U-flow (receipt and dispatch same side) and through-flow (receipt and dispatch opposite sides).
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