Lecture Purchasing and supply chain management (3rd/e): Chapter 15 - W. C. Benton

Chapter 15:
Purchasing
Transportation Services
Purchasing and Supply Chain Management
3rd edition

Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.           
Purchasing and Supply Chain Management 3rd edition,  Copyright 2013 W. 

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Content
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Majoractivitiesrelatedtopurchasingtransportation
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Modeselection

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Carrierselection

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Ratedetermination

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Thirdưpartyoutsourcing

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Shippingdocumentationandterminology

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PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved.


TransportationActivity
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Transportationisoneofthemostexpensivecomponents
ofmostmanufacturingfirms
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In2009,transportationrevenueswereapproximately$1.1trillion

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Morethan50,000privatetruckingfleetsintheUnitedStates

Factorsassociatedwithcost:
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Frequency

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Producttype

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Volumeofshipments
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InboundFreight
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Usuallyacomponentofmaterialscosts
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e.g.,F.O.B.delivered

Freightbuyingiscomplexbecauseofthemany
alternativemodes
Modes:
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Rail

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Air

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Truck

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Oceancargo

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2012


TransportationandPurchasingManagement
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Purchasingsroleintransportation:
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Facilitatesthemovementsofrawmaterialsandcomponentparts
fromsuppliersthroughthefirmsmanufacturingprocesstothe
ultimatecustomers

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Oftenthemostcostlyandtimeưconsumingactivity

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Requiresextensiveplanningtomeetdeliveryschedules

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Requiresknowledgeofbasictransportationdecisionmaking
activities

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ModeSelection
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Eachofthemodeshasspecificoperatingandcost
characteristics
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e.g.,cost,reliability,andspeed

Thebuyingprofessionalmustevaluatethetradeoff
betweencharacteristicsandselectthemostappropriate
transportationmode
Typicaldecisions:
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Whenspeediscritical,highcostmodesareselected

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Undernormaloperatingconditions,onưtimedeliveriesandservice
qualitymodesarepreferred
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CharacteristicsofRail
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Coststructureischaracterizedbyhighfixedcosts
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Majorityofthefixedcostsareunrelatedtovolume

Theoreticalpricingadvantages:
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HasthelargestshareofthetonưmilesintheUnitedStates

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Mostbulkcommoditiesareinitiallyshippedbyrailandlater
shiftedtomotorcarriers

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Generallylessexpensivethanairandtruckmodes

Disadvantages:

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PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved.

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TruckMode
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Industrycomposition:
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Forưhirecarriers

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e.g.,UnitedParcelService

Privatecarriers
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2/3ofintercitytrucktonưmileage

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50,000privatetruckingfleets
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Manufacturers(1/3)

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Producersofconstructionmaterials(75%)

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Foodprocessors(55%)

Industrycharacteristics:
Fragmentationandhighcompetition

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AirMode
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Domesticaircargomarketin2009
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Approximately$252.2billion

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4.5billiontonscarriedover40.1billionmiles

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Averageshipmentwas10.8pounds

Industrycharacteristics:
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Onlypremiumandemergencygoodsareshipped

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Highestưcostshippingmode

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Majorcategoriesarecomputercomponents,electronics,and
fashiongoods
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Anintegralstrategicweaponforfirmsthatcompeteonafastư

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WaterMode
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Classificationcategories:
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Inland(suchasriversandcanals)

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Lakes

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Coastalandinterưcoastals

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Internationaldeepsea

Industrycharacteristics:
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Directcompetitionwithrailandpipelines

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Approximately$114.9billioninrevenues

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Majorityofcommoditiesshippedviawater
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Semiưprocessedmaterials,fuel,oil,coal,chemicals,minerals,andpetroleum
products

Advantages

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PipelineMode
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In2009,$399.6billioninrevenues

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Industrycharacteristics
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Usedtotransportlowưvalued,nonperishableproducts
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e.g.,oil,dieselfuel,jetfuel,kerosene,andnaturalgas

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CarrierSelection
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Aftertheappropriatetransportationmodeisselected,the

specificcarrierwithinthemodemustbedetermined
Requirescarefulresearchandnumerouseconomictradeoffs
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Transportationcostsconsistofalldirectcostsassociatedwiththe
movementofaproductfromonelocationtoanother

Dependingontheshippersneeds,theshippermaychoose
touse:
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Oneshipper

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Multipleshippers
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Shippermightachievebetterpricesandhigherservicequality

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Evaluationofthecarrieriseasier

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CarrierEvaluation
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Routineevaluationoftheperformanceintermsof:
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Consistencyofservice

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Qualityofservice

Keycompetitivecriteria:
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Price

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Onưtimedeliveries

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Lossanddamageclaims

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Billingaccuracy
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PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved.


RateDetermination
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Generalfactorsaffectingfreightrate:
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2.
3.
4.

5.

6.
7.

Shippingweightpercubic
foot
Liabilityfordamage
Perishability
Liabilityfordamagetoother
commoditiesbeing
transported
Liabilityforspontaneous
combustionorexplosion

Susceptibilitytotheft
Valueperpoundin
comparisonwithother
articles

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9.
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Easeordifficultyinloadingand
unloading
Excessiveweight
Excessivelength
Careorattention
necessaryinloadingand
transporting
Tradeconditions
Valueofservice
Competitionwithother
commoditiestransported
Quantityofferedasasingle
consignment

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RateNegotiation
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Deregulationhasmadenegotiationsveryimportant

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Negotiationisamanagementprocess
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Involves:
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Planning

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Analysis

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reviewing

Influencedbythecharacteristicsofthe:
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Currentbusinessenvironment

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Organization

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PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved.
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Individuals


ThirdưPartyOutsourcing
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Thedecisionstotransferlogisticsactivitiestoathird
party
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Mustincludeallofthepartiesthatwillbeaffected

Combinefreight

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Organizetransportationcouncils

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Tosimplifythenegotiationsprocess

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Toreduceprice

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Fewerthirdparties
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PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved.


ThirdưPartyOutsourcing(cont.)
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Negotiationprocess:
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Prequalifyasetofcarriers

2)

Bidbyidentifyingandcommunicatingtothethirdưpartybaseall
dataneeded

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Enforceacommonbidformatforaccurateevaluation

4)

Thirdưpartycontract
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Detailedandspecificoperationsection

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PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved.


Shippingdocumentation
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Definition
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Alsocalledbilloflading

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Servesasthebasiccontract

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Specifiesthecommoditiesandquantitiesshipped,routing,rates,and
carrierliability

Servesasareceiptfordelivery

Classification:
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Order

Notifybillsofladingarenegotiableandaresimilartolettersof
credit
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PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved.
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Terminology
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FreightTerms
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Prepaid

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Collect
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Theconsigneeownsthefreight

Prepaid/collectbeyond
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Theshipperownsthefreight

Thereisashippersprepaymentportionofthefreightandthe
consigneeisresponsibleforthebalanceofthepayment

Thirdparty

Establishesthatneithertheconsignornortheconsigneeowns
thepaymentprocessfunction
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PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved.
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Prepayandadd


Questions?

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Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved.