SCMG502 Week 5 Discussion

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American Public University *

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502

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Industrial Engineering

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Jan 9, 2024

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docx

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Good afternoon fellow classmates and professor, Transportation is one of the main key drivers of supply chains, moving product from one stage of the supply chain to another is a primary function. A secondary function of transportation is temporarily storing product as inventory for a supply chain. Therefore, one major trade-off when addressing transportation in a global supply chain is the transportation and cost trade-off. This trade-off requires decision making on what type of transportation mode will be used and inventory aggregation. The company being the shipper must first make the planning decision on which carrier to contract, as well as the operation decision of what mode of transportation for a shipment will be to best balance the costs of transportation and inventory costs. This is because the different modes of transportation such as air, package carriers, trucks, rail, water, pipeline, and intermodal may be lower in transportation cost, doesn’t always equate to lower total costs for a supply chain (Chopra, 2017, p. 412). Some modes are slower from being cheaper, which increases lead times for products and relates to higher levels of inventory that increases holding costs and other cost factors. Therefore, the faster modes are preferred for products with a high value-to-weight ratio when reducing inventory is important for a company, and cheaper modes are preferred for products with a small value-to-weight ratio when transportation is important (Chopra, 2017, p. 413). Reducing safety inventory can lower the costs of lots by aggregating inventory in one location, or optimal amount of locations, opposed to many locations affecting the total ownership cost we learned about previously. Therefore, companies must consider trade-offs with the transportation cost when strategizing the aggregation of inventory. This becomes a good tactic when the inventory and facility costs encompass a large portion of the total costs for a supply chain. The aggregation of inventory is best used with products of large value-to -weight ratio with high demand

uncertainty, while having product of low value-to-weight ration and smaller customer orders could potentially damage the performance of supply chains with higher transportation costs from inventory aggregation (Chopra, 2017, p. 415). The trade-off with the mode of transportation is from analyzing the quantity shipped and the shipping cost between modes, and the holding cost with size of customer order of using aggregation with a certain amount of locations used to determine which of both will be used with their trade-offs that were mentioned above. A second major trade-off when addressing transportation in a global supply chain is transportation cost and responsiveness. The transportation cost is correlated to the amount of responsiveness is provided from a supply chain. The more responsiveness, the more shipments that are conducted, resulting in higher transportation costs. If responsiveness decreases then larger shipments can be made lowering the cost of transportation from delaying shipments. This is where a company must consider the trade-off between transportation cost and being responsive to customer demand. The balance of the two can be achieved utilizing the temporal aggregation method, which would reduce transportation costs for a supply chain. The trade-off is from a certain response time that is chosen from the temporal aggregation, resulting in an amount of revenue loss from the poor responsiveness that a company is willing to accept (Chopra, 2017, p. 420). Additionally, this can have an effect of stabilizing shipments from the temporal aggregation of lowering responsiveness that improves efficiencies and can lower total costs over time. There are companies who sell numerous amounts of products to many different customer segments that utilize tailored transportation networks. Tailored transportation is when a company uses various transportation network and modes that are determined off of customer and product characteristics (HKT Consultant, 2021). For example, Amazon is a company that used this type

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