SCM 461: Exam I Flashcards
Identify other logistics costs in the supply chain that transportation affects and explain how it affects them?
- Transit Time: User has inventory and stock out costs
- Reliability: User has inventory and stock out costs
- Accessibility: Impacts transit time, and transportation cost
- Capability: Does it meets the products unique physical and marketing requirements
- Security: Affects inventory and stock out costs
What costs are included in a product’s “landed cost”?
Landed cost determines the extent of the market
- Landed costs at buyer facility = Production cost of overseas supplier
- Overseas warehouse & transport costs
- Export tariffs
- International freight transportation costs
- Import duties
- Buyer warehouse & transport costs
Why are ton-miles and passenger-miles not good measures to use at the micro level (for costing and pricing purposes)?
Reductions in prices charged usually result in greatly proportional increases in quantity demanded. Decreasing levels similarly result in greater than proportional decrease quantity demand.
Explain why the price elasticity of demand for transportation service is inelastic at the aggregate level but elastic at the mode or firm level.
- Aggregate demand for transportation is price inelastic. Freight rate reductions will not proportionally increase the aggregate the demand for freight transportation.
- Demand for specific modes of transportation or specific cases is generally price elastic and service elastic.
Why is the demand for transportation said to be a derived demand?
- Freight transportation demand is a derived demand which the demand for transportation exists because there is demand for the product in a market located away from point of production or supply.
Be prepared to do a problem like that on slide 10 of Chapter 2 slides (determining the extent of market given production costs and transportation costs for two production sites).
LC(P) = LC(S)
Production Cost (P) + Transportation Cost (P) = Production Cost (S) + Transportation Cost (S)
Distance between P and S is 200 miles
P production is $50 per unit and transportation is $0.60 unit per mile
S production is $50 per unit and transportation is $0.50 unit per mile
50 + 0.60x = 50 + 0.50(200-x)
0.60x + 0.50x = 50-50+100
1.10x = 100
x = 90.9 miles from P
Define “quantity utility” and explain how transportation affects it.
Is the usefulness or value of a good or service as a function of timely delivery and undamaged condition. Its value has increased in importance in recent years to minimize safety stock inventories for shippers and receivers. Shippers might alter the form of the product to ensure safe transportation or change carriers with repeated failures.
In class we discussed that the U.S. trucking industry is not one homogeneous industry but rather it is comprised of several different components or segments. Explain?
There are trucks handing long distance deliveries and trucks handing local/regional deliveries. Truck companies are charted either as Common or contract. Common carrier truckers are required to serve general public upon demand and charge reasonable rates and without discrimination. Contract are longer term basis that are guaranteed volumes. Also, there are Dedicated carriage companies where logistics companies deploys their own fleet of trucks for a shipper or special loads such as windmill blades. There are truck companies providing Truckload shipments such as semis and LTL shipments such as the postal service.
What are the service advantages that motor carriage has over railroad transportation?
- Accessibility (Door-to-door services)
- Universal Modal Connector
- Speed (Transit time)
- Carrying Capacity (inventory levels and service frequency)
- Loss and Damage (relatively damage free)
- Customer-oriented (responsiveness)
What is the general cost structure of the trucking industries? Capital or fixed costs are higher in LTL than in TL – explain why this is the case.
TL have High levels of variable costs and relatively low fixed costs, while LTL has higher fixed cost due to terminal systems
Low Fixed Costs:
The public investment in the highway system
- Ability to increase /decrease number of vehicles
High Variable Costs:
- Labor (approx. 40% of costs)
- Fuel (approx. 25% of costs
- Maintenance
- Highway user fees
Define “economies of density” and explain its significance in a TL carrier’s growth strategy.
Are savings that are realized wherein unit costs are lower in relation to population density. Higher population density = lower the likely costs of infrastructure to provide a service. Some TL carriers suggest small-scale operations are viable and competitive.
Be able to identify three motor carrier fuel management strategies and provide a one or two sentence description of each.
- Fuel surcharge provides carriers with an average cost of fuel
- Off-peak delivery making deliveries overnight or not busy times such as rush hour
- Reducing Engine idling time when not in use or low priority deliveries
- Large fuel tanks to reduce fueling stops
How does the government’s investment and taxing policies affect the cost structure (fixed cost vs. variable cost) of the U.S. trucking industry?
The federal/state government invests heavily in the highway system (Interstates, US, and state routes) via a fuel tax plus other fees such as vehicle registration/regulations to pay for infrastructure
What are the differences between being a company driver and an owner-operator?
Company drivers are employees of the carrier while Owner-operators (independent contractors) where the driver owns truck and incurs maintenance costs and fuel costs
Why might a shipper choose to engage in private carriage?
Improve service and/or lower costs
- Maximum control
- Non-transportation reasons (advertising)
