Quản trị kinh doanh - Chapter 15: Purchasing transportation services

1Chapter 15:PurchasingTransportation ServicesPurchasing and Supply Chain Management 3rd edition, Copyright 2013 W. C. Benton Jr., All rights reservedContentMajor activities related to purchasing transportationMode selectionCarrier selectionRate determination Third-party outsourcingShipping documentation and terminology2Transportation ActivityTransportation is one of the most expensive components of most manufacturing firmsIn 2009, transportation revenues were approximately $1.1 trillionMore than 50,000 private trucking fleets in the United StatesFactors associated with cost: FrequencyProduct typeVolume of shipments3Inbound FreightUsually a component of materials costs e.g., F.O.B. deliveredFreight buying is complex because of the many alternative modesModes:RailAirTruckOcean cargoInter-modal transportation (ocean, rail, truck)42012Transportation and Purchasing ManagementPurchasing’s role in transportation:Facilitates the movements of raw materials and component parts from suppliers through the firm’s manufacturing process to the ultimate customersOften the most costly and time-consuming activityRequires extensive planning to meet delivery schedulesRequires knowledge of basic transportation decision making activities5Mode SelectionEach of the modes has specific operating and cost characteristicse.g., cost, reliability, and speedThe buying professional must evaluate the trade off between characteristics and select the most appropriate transportation mode Typical decisions:When speed is critical, high cost modes are selectedUnder normal operating conditions, on-time deliveries and service quality modes are preferred6Characteristics of RailCost structure is characterized by high fixed costs Majority of the fixed costs are unrelated to volumeTheoretical pricing advantages:Has the largest share of the ton-miles in the United StatesMost bulk commodities are initially shipped by rail and later shifted to motor carriersGenerally less expensive than air and truck modesDisadvantages:Lack of flexibilityShipping from terminal to terminalThe primary products shipped via rail:Lumber, iron, steel, coalAutomobilesGrainsChemicals7Truck ModeIndustry composition:For-hire carriers e.g., United Parcel ServicePrivate carriers 2/3 of intercity truck ton-mileage 50,000 private trucking fleetsManufacturers (1/3)Producers of construction materials (75%)Food processors (55%)Industry characteristics:Fragmentation and high competitionShips majority of high-valued commodities movementsDelivery of the largest portion of fresh fruit and minerals8Air ModeDomestic air cargo market in 2009 Approximately $252.2 billion4.5 billion tons carried over 40.1 billion milesAverage shipment was 10.8 pounds Industry characteristics:Only premium and emergency goods are shipped Highest-cost shipping modeMajor categories are computer components, electronics, and fashion goodsAn integral strategic weapon for firms that compete on a fast-delivery, low-inventory strategy9Water ModeClassification categories:Inland (such as rivers and canals)LakesCoastal and inter-coastalsInternational deep sea Industry characteristics:Direct competition with rail and pipelinesApproximately $114.9 billion in revenuesMajority of commodities shipped via water Semi-processed materials, fuel, oil, coal, chemicals, minerals, and petroleum products AdvantagesExcellent for low-valued bulk commodities in large quantities Not for time sensitive products10Pipeline ModeIn 2009, $399.6 billion in revenuesIndustry characteristicsUsed to transport low-valued, nonperishable products e.g., oil, diesel fuel, jet fuel, kerosene, and natural gas11Carrier SelectionAfter the appropriate transportation mode is selected, the specific carrier within the mode must be determinedRequires careful research and numerous economic tradeoffsTransportation costs consist of all direct costs associated with the movement of a product from one location to another Depending on the shipper’s needs, the shipper may choose to use: One shipperMultiple shippersShipper might achieve better prices and higher service qualityEvaluation of the carrier is easier12Carrier EvaluationRoutine evaluation of the performance in terms of:Consistency of serviceQuality of service Key competitive criteria:PriceOn-time deliveriesLoss and damage claimsBilling accuracy13Rate Determination General factors affecting freight rate:14Shipping weight per cubic footLiability for damagePerishabilityLiability for damage to other commodities being transportedLiability for spontaneous combustion or explosionEase or difficulty in loading and unloadingExcessive weight Excessive lengthSusceptibility to theftValue per pound in comparison with other articles Care or attention necessary in loading and transporting Trade conditions Value of service Competition with other commodities transported Quantity offered as a single consignmentRate NegotiationDeregulation has made negotiations very important Negotiation is a management process Involves: PlanningAnalysisreviewingInfluenced by the characteristics of the: Current business environmentOrganizationIndividuals15Third-Party OutsourcingThe decisions to transfer logistics activities to a third party Must include all of the parties that will be affected Combine freight Organize transportation councils To simplify the negotiations processTo reduce priceFewer third parties16Third-Party Outsourcing (cont.)Negotiation process:Prequalify a set of carriersBid by identifying and communicating to the third-party base all data needed Enforce a common bid format for accurate evaluation Third-party contractDetailed and specific operation section17Shipping documentationDefinitionAlso called bill of ladingServes as the basic contract Specifies the commodities and quantities shipped, routing, rates, and carrier liability Serves as a receipt for deliveryClassification:Order Notify bills of lading are negotiable and are similar to letters of creditSales/purchase orders Convey the passage of title and are legal documents18TerminologyFreight Terms Prepaid The shipper owns the freightCollect The consignee owns the freightPrepaid/collect beyond There is a shipper’s prepayment portion of the freight and the consignee is responsible for the balance of the paymentThird party Establishes that neither the consignor nor the consignee owns the payment process functionPrepay and add The shipper advances the charges to the carrier and then bills the beneficiary an amount that approximates or equals the actual freight charges19Questions?20