The Role of Transportation in Supply Chains and Business

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(0:00 - 13:47) Anytime I study something, the first thing I always ask myself is, why am I even studying this? I'm a purpose-driven person and so why should we spend four days studying transportation and distribution? And that's where we're going to start. And it goes like this. We call this the plight of the transportation manager. The first part of the course was uplifting. It's going to be depressing here for the next 10 or 12 minutes, so just hang in there with me. Number one on the list. More, smaller, faster, more time-definite shipments. Why is that, by the way? To try to lower inventories. For many years, what we've tried to do is to substitute transportation for inventory. Part of the way you did that was just-in-time, lean. Okay, you're trying to take inventory out. We had a period of time where the price of fuel got cranked up so high that all of a sudden we were substituting inventory for transportation. Now prices are back down and so we're back into this phenomenon, but in general this is here to stay. That when you can use transportation to take inventory out of a supply chain, people want to do that because for the most part, inventory is riskier than transportation. Transportation is more of a variable cost than is inventory. So there's going to be smaller shipments. By the way, what happens to pricing as the shipment size declines? In general, the less cube and the less weight there is in a shipment, the more expensive it is per pound and per cube. Why is more time definite important? Why are people asking for more time definite? A lot of it is around taking variability out of the supply chain. Every time there's a point of variability, there's going to be a type of inventory in the supply chain that has a name. What is inventory related to variability called? Safety stock, exactly right. So that's another reason people are asking for more time definition and so all of those things in general work together to drive the cost of transportation up and I can't see that going away anytime soon. The other phenomenon we have been faced with is a shortage of drivers. The large majority of money spent on transportation in the United States is on trucking. It's not even close. I'll show you some of these numbers here in just a little bit, but why would there be such a shortage in that particular industry? The lifestyle, exactly right. That's a hard lifestyle. A friend of mine is the manager of a private fleet with BP. Every three to five years I get a phone call from Carlos and it goes like this. They call me Dr. Ed at BP. That's how I'm known. Dr. Ed, can you dust off that study again? I can probably dust it off. What he means by that is they have a large private fleet. Every time there's a new president of the business unit who comes in they want to know why do we have a private fleet? Why aren't we outsourcing this? So we run and we do the outsourcing study on that and in the things that we look at for outsourcing one would be cost.

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