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Discuss the two key players involved in any transportation in the supply chain. There are two key players in any transportation that takes place within a supply chain. The shipper is the party that requires the movement of the product between two points in the supply chain. The carrier is the party that moves or transports the product. When making transportation-related decisions, factors to be considered vary depending on whether one takes the perspective of a carrier or shipper. A carrier makes investment decisions regarding the transportation infrastructure (rails, locomotives, trucks, airplanes, etc.) and then makes operating decisions to try to maximize the return from these assets. A shipper, in contrast, uses transportation to minimize the total cost (transportation, inventory, information, and facility) while providing an appropriate level of responsiveness to the customer. What trade-offs do managers need to consider when making transportation decisions? The cost of coordinating operations is generally hard to quantify. Companies should evaluate different transportation options in terms of various costs as well as revenues and then rank them according to coordination complexity. A manager can then make the appropriate transportation decision. Managers must consider the following trade-offs when making transportation decisions: Transportation and inventory cost trade-off.Transportation cost and customer responsiveness trade-off.The trade-off between transportation and inventory costs is significant when designing a supply chain network. Two fundamental supply chain decisions involving this trade-off are: Choice of transportation mode. Inventory aggregation When selecting a mode of transportation, managers must account for inventory costs. Modes with high transportation costs can be justified if they result in significantly lower inventories. Firms can significantly reduce the safety inventory they require by physically aggregating inventories in one location. Transportation cost, however, increases when inventory is aggregated. The transportation cost a supply chain incurs is closely linked to the degree of responsiveness the supply chain aims to provide. If a firm has high responsiveness and ships all orders within a day of their receipt from the customer, it will have small outbound shipments resulting in a high transportation cost. If it decreases its responsiveness and aggregates orders over a longer time horizon before shipping them out, it will be able to exploit economies of scale and incur a lower transportation cost because of larger shipments. Explain why transportation systems should be tailored. Tailored transportation is the use of different transportation networks and modes based on customer and product characteristics. A firm can meet customer needs at a lower cost by using tailored transportation to provide the appropriate transportation choice based on customer and product characteristics. Firms must consider customer density and distance from warehouse when designing transportation networks. Firms must consider customer size and location when designing transportation networks. The degree of inventory aggregation and the modes of transportation used in a supply chain network should vary with the demand and value of a product. Tailoring transportation based on customer density and distance, customer size, or product demand and value allows a supply chain to achieve appropriate responsiveness and cost. Discuss the relationship between transportation strategy and competitive strategy. Transportation strategy needs to be aligned with competitive strategy. Managers should ensure that a firm’s transportation strategy supports its competitive strategy. They should design functional incentives that help achieve this goal. Historically, the transportation function within firms has been evaluated based on the extent to which it can lower transportation costs. Such a focus leads to decisions that lower transportation costs but hurt the level of responsiveness provided to customers and may raise the firm’s total cost. Discuss the importance of designing flexibility into the transportation network. Flexibility needs to be designed into the transportation network. When designing transportation networks, managers should take into account uncertainty in demand, as well as availability of transportation. Ignoring uncertainty encourages a greater use of inexpensive and inflexible transportation modes that perform well when everything goes as planned. Such networks, however, perform very poorly when plans change. When managers account for uncertainty, they are more likely to include flexible, though more expensive, modes of transportation within their network. Although these modes may be more expensive for a particular shipment, including them in the transportation options allows a firm to reduce the overall cost of providing a high level of responsiveness. What modes of transportation are best suited for large, low-value shipments.Why.Rail and water transportation modes are best suited for large, low-value shipments. The price structure of the business make rail and water the modes of choice if low-value, large, heavy, or high-density items need to be transported. Air, package carriers, and trucks would not have the infrastructure required to accommodate large items; roads and bridges would be damaged and the storage capacity of the carriers is insufficient. Why is it important to account for congestion when pricing the use of transportation infrastructure.Infrastructure often requires government ownership and is not something that can be increased in capacity in the short term. If congestion is not factored in to the price structure for infrastructure, then demand for the resources will exceed capacity and major delays will occur. Pricing may be used to force users to internalize the marginal impact of their choices, thus alleviating some of the demand during peak periods.Walmart designs its networks so a DC supports several large retail stores. Explain how the company can use such a network to reduce transportation costs while replenishing inventories more frequently.A distribution center that supports several large retail stores can reduce supply chain costs in four ways: 1) Inbound shipments to the DC achieve economies of scale because each supplier sends a large shipment; 2) The outbound transportation costs for a DC can be low because it serves retail locations nearby; and very large inbound shipments that match retail demand can be cross-docked at the DC, which saves both 3) storage and 4) material-handling costs. A DC also can replenish retail inventories more frequently; the DC breaks bulk from manufacturers on one side of the warehouse and sends it to retail locations on the outbound side. Since retail demands are aggregated at the DC level, the amount of inventory actually stored at the DC is very low and as Little’s Law indicates, the time between replenishments is low also.Compare the transportation costs for an online buriness such as Amazon and a retailer such as Home Depot when selling home-improvement materials. The primary difference between these retailers is that Home Depot does not incur any outbound transportation cost for residential customers while Amazon faces such charges. Home Depot has substantial inbound transportation charges but is able to offload the outbound transportation cost to the vast majority of their customers. Amazon must use high cost package carriers for much of its product line although they are able to avoid inbound transportation costs for items that are drop shipped. For items that are held in one of their warehouses, Amazon must pay both inbound and outbound. What transportation challenges does online grocer Peapod face? Compare transportation costs at online grocers and supermarket chains. Peapod faces the burden of expensive outbound transportation costs and must account for congestion in the delivery area. Unlike traditional grocers who don’t deliver their products, Peapod must deliver items in their fleet of climate-controlled trucks. These trucks must be scheduled with pricing incentives offered for peak and off-peak delivery times. Customers are keenly aware of the transportation component of their purchases and Peapod can use pricing incentives to spur their customers towards higher order amounts. Both Peapod and traditional grocers must pay the inbound transportation costs of their wares; there would appear to be no great advantage gained by either approach unless one vendor has such substantial market share as to gain price concessions that they other can’t negotiate. Do you expect aggregation of inventory at one location to be more effective when a company such as Dell sells computers or when a company such as Amazon.com sells books.Explain by considering transportation and inventory costs. Inventory aggregation is a good idea when inventory and facility costs form a large fraction of a supply chain’s total costs. Inventory aggregation is useful for products with a large value to weight ratio and for products with high demand uncertainty. Both factors allow aggregation to work to Dell’s advantage, while Amazon reaps less of a reward. Dell benefits from aggregation because personal computers have an extremely high value to weight ratio; the demand for new items is uncertain, and Moore’s Law makes holding excessive inventory an extremely unattractive proposition. Amazon benefits from aggregation when inventory costs are examined, but is hurt by increased transportation costs. Most items that Amazon sells have low value to weight ratios and Amazon must ship them via package carrier, which is expensive. Amazon saves money on storage costs since they choose to stock more popular titles and allow other entities to hold items with more variable demand. Discuss key drivers that may be used to tailor transportation. How does tailoring help. Tailored transportation is the term for use of different transportation networks and modes based on customer and product characteristics. Tailoring transportation allows firms to achieve cost and responsiveness targets that are appropriate for the supply chain. The key drivers are density and distance, customer size, and product