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Theoretical Framework
In terms of product distribution, the transportation system is defined as the physical link that connects all fixed points in a logistic supply chain. By connecting geographically dis-persed operations, the function of transportation is to bridge the buyer-seller spatial gap. (Coyle, Bardi & Langley, 2003) As mentioned in the introduction, transportation is the principal linkage process and do often consume most of the resources allotted to the logi s-tics function (Frazelle, 2001., Gattorna & Walters, 1996). Nevertheless, increased spending on transportation does not naturally lead to better customer satisfaction or increased sales as the demand patterns for transportation services is not exclusively a result of own charac-teristics but rather the result a of change or shift in underlying demand patterns of end products. For example, transportation as the mean of moving physical goods from a ware-house to a store, its demand is relative to the demand of the specific product being trans-ported. (Cole, 2005)
Modeling transportation
The traditional starting point of modeling transportation is simple. There are basically four questions needs to be answer; origin and destination, how often to transport, what mode to use and what route to take. (Gomer-Ibanez, 1999) The challenge comes when these ques-tions are brought down to find the most appropriate solution. Transportation is a broad and complex field which can be analyzed from a number of situations and perspectives. Thus, the selection of an adequate model is necessary to be able to draw correct conclu-sions.
According to Tarko (2003), the theoretical scope of transportation analysis consists of a pa-radigm divided into four main categories; demand-, network-, traffic- and performance modeling (figure 2-1) . Demand oriented modeling is commonly used when the aim of the research is to predict future demand. Basically, such models use historical data to forecast trends by opportunities and threats and are being used on both corporate and governmen-tal levels. Secondly, network models are used when analyzing certain transportation modes and their possibility for interactions. Such modeling highlights connectivity between diffe r-ent modes which allows for easier decision when implementing intermodal transportation in a region or for a firm. Traffic models aims to display the relationship between transpor-tation demand and cost components. The last category, performance modeling, is over-arching and contains elements from all of the previously mentioned approaches. Common-ly, performance modeling is used to compare the characteristics of different transportation alternatives by focusing on the relationships of different terms, for example volume, time, cost, traffic density, emissions, market strategies etc.
Transportation Management
The main objective of transportation management is, according to Frazelle (2001), to “…link all pick-up and deliver-to points within the response time, requirements of the customer service poli-cy and the limitations of the transportation infrastructure at the lowest possible cost”. Cost is the deno-minating label for every expense that can be associated with distribution and response time, commonly denoted lead time, is defined as “…the time between receipt of an order and dispatch for delivery or actual delivery” (Lowe, 2002). Furthermore, requirements of the customer service policy include the foremost important objective, satisfying customer demand on transpor-tation.
To be able to take the right decisions when structuring the distribution of products and materials, transportation managers must consider a wide range of factors. Many of the con-siderations are quite obvious ones, but the problem lies within the many different aspects that need to be acknowledged Rushton, (2006). Although theorist uses different groupings of these determination factors, their results are somewhat similar; it ultimately points to-wards one decision point; a trade off analysis implied by Frazelle’s (2001) definition where quality of distribution stands in contrast with costs and the main objective being to satisfy customer and at the same time do it to the lowest possible cost. By using a performance modeling approach, Gattorna and Walters (1996) try to explain the factors influencing transport managers’ decision by grouping the considerations into three sets based accord-ing to Slater’s (1990) reasoning (see figure 2-2); operational factors which include customer, product, market and company characteristics; transportation mode which concern for ex-ample load size, costs, accessibility of different transportation means; and finally channel strategy, which denotes identification and interfaces of available channels.
Company characteristics refers to the own firm’s marketing, operational and financial strat – egies. Marketing strategies is considered to be one of the cornerstones as it determines the service level that will be offered to the customers. Dependent on market demand, customi-zation of transport might be necessary or on the contrary, only standard quality levels are the most appropriate approach. Furthermore, financial objectives are a determinant as well, since level of performance contrast costs in a trade off perspective. Operating strategies in-fluences the choice in terms of possibilities to control resources. Furthermore, Gattorna and Walters (1996) and Slater’s (1990) argues that market structure is an important deter-minant, significantly in terms of highly competitive markets as service level of deliveries could become one of the key determinants of which suppliers a customer choo ses to work with. In addition, product characteristics needs to be considered, which might seem ob-vious but still, special product requirements of the transportation could become a needle’s eye for efficient performance. The fourth factor, customer characteristics, goes to some ex-tent hand in hand with the marketing strategy as it concerns what service level being de-manded among customers; special demands from customer groups must be met in order to stay competitive. Finally, environmental issues in the context of government infrastructure policy and transportation technology must be taken into account.
The second set of consideration, transportation mode, concerns the specific characteristics of different means of transportation. It is considered to be of great importance and infl u-ence on transportation management, and is further discussed in chapter 2.3.1.1.
The third set of factors, denoted channel strategy, refers to what options the firm has to reach their customers (Gattorna & Walters, 1996) and is considered to have a great influ-ence on the long run performance of the firm (Carlos & Bakr, 2002). Channel strategy refers to a set of trade off concepts; horizontal, vertical and lateral tradeoffs. Horizontal tra-deoffs refer to choices between different transportation modes which could be used to per-form the same task, for example comparisons between rail and road transportation. The key is to find the most appropriate transportation mode to meet the demands of the opera-tional factors. Vertical tradeoffs concern the utilization of transportation resources. In ot h-er words, evaluations of where in the logistics functions the transportation supply the greatest benefit. The third trade off discussed concerns lateral tradeoffs where the cost for the transportation is compared with other business processes. For example, it could be pre-ferable to produce in countries with low labor costs irrespective of their geographical loca-tion if the savings in labor outnumber the increased transportation costs.
Similar to Gattorna and Walters (1996), Rushton (2006) concludes a set of general factors that directly affect the very foundation of distribution (see figure 2-3). These issues are pre-sented as operational factors, transport mode characteristics, consignment factors, and cost and service requirements.
Operational factors are constituted by external operations, customer characteristics, prod-uct characteristics as well as a collective sub category denoted logistics components.
The operational factors are in its context pretty similar to the environmental factors of Gat-torna and Walters (1996) and Slater’s (1990). Within external operations, Rushton (2006) discusses the impact of all the factors shaping a firm’s environment. He argues that g ov-ernment infrastructure policy and transportation technology are focal determinants and ex-tends the discussion by acknowledging cultural and economical factors of geographical re-gions, even the effects of differences in climate. Rushton (2006) highlight the fact that these factors, external to direct distribution, must be known in order to move further into the decision process, especially when developing distribution in international contexts. The second sub category of the operational factors is customer characteristics and is defined about the same as the corresponding category of Gattorna and Walters (1996) and Slater’s (1990). Rushton’s (2006) addendum consists of service level requirements which by the previous theorists were included in marketing strategies of company’s characteristics. Just as the former sub category, product characteristics have a corresponding category by the previous theorists. The physical nature of the product is an important factor when deciding over modal choice as volume to weight and value to weight is naturally crucial determi-nants. The collective category, logistics component, deals with resources and opportunities for the firm by basically including the horizontal-, vertical- and lateral tradeoffs mentioned within choices of channel strategy.
The second overarching category is denoted transportation mode and just as in Gattorna and Walters (1996) and Slater’s (1990), it concerns different transportation modes’ charac-teristics and will be discussed in Chapter 2.3.1.1. Under consignment factors, Rushton (2006) further discuss loading, routing and possibilities for efficient transit out of the cha-racteristics of all possible transport assignments that could influence the practical use of the final choice of transport solution, a discussion corresponding with the possibilities for a firm to control resources within distribution. The final category, cost and service require-ments, concerns the ultimate challenge for the transportation manager; the familiar cost – benefit tradeoff between level of service and the cost of distribution. With the basis of the previous category summarized in a specific service level, Rushton (2006) argues that in theory, the size of load to be moved and the distance to be travelled will determine the final decision choice of mode in relation to the cost.
Carrier selection
The carrier selection process is an important function in the procurement of transportation services as the final choice will directly determine the quality of the distribution (Bardi, Coyle & Novack, 1999).
The process contains three principal steps as shown in figure 2-4. First of all, the transpor-tation manager needs to decide on a specific mode according to a number of selection de-terminants. Further on, the manager must examine costs in relation to service levels and decide on possible outsourcing of the distribution; which in case leads to the final selection of what transportation provider to contract. (Coyle et Al, 2003) According to Bardi, Coyle Novack (1999), there are a number of factors that needs to be examined in order to find the most appropriate solution.
Step 1 – Selection determinants
As mentioned earlier, the transportation modal choice is dependent on a wide range of va-riables in complex relationships. In order for a transportation manager to be able to take decisions, all these factors need to be accessible and easy to grasp. Irrespective of initial grouping, it is a necessity to break down the overarching factors from the performance models into more hands-on decision points, decisions points that eventually will lead to the cost-benefit tradeoff.
For most companies the general factor when thinking of carrier attributes is the cost and lead time aspect. Thought, a lot of research has been done in the subject and the above attributes is competing with other important concerns when considering choice of carrier. Early research by Saleh & Das (1974) states the reliability, stability in service, the image of the company, and the handling capabilities as the most important factors. Jerman et al (1979) declared in their research the six most important attributes for carrier selection from 26 different variables. These six attributes were price and privileges, earlier performance, the image of the carrier, the cooperation concerning rate adjustments, routing abilities, and competence of needs. The attributes were conducted from ratings by both carrier and shippers. For the carrier organization it is a focal point to know the dimension of the carri-er selection process, and the value of having the perceptive in customer demand. To be able to compete in the transportation market the carrier organization needs to go beyond the perceptive in customer demand and define the potential customer segments and choose correct strategic option (Coulter, Darden, Coulter & Brown, 1989). One of the most crucial determinants for customers of transportation is the time and speed attribute, on account of the customer demand in today’s market. By reducing the time of freight transport to meet with the demand from customers, the most energy and polluting mode is often preferred since the lead time of the route is minimized (Rodrigue, Slack, and Comtois, 2001). Busi-nesses today have turned into a more time limit process as of the market demand, and the result have been an increase in more polluting modes as air freight and road transportation is selected. Other factors why customers of transportation is selecting road and air freight is by the reason of the reliability when it comes to on time delivery and the safety of the goods (Rodrigue et al, 2001).
Presently, six decision points dominates the selection process; transport cost, transit time, reliability, accessibility, capability and safety. Transportation cost is, as previously men-tioned, all the costs that can be associated with the transportation; for example distribution rates, loading and unloading, damaged goods, etc. In early carrier selections, simple cost comparisons were the predominant factor for every decision made but after the recent rec-ognition of transportation as an extension of production processes and sometimes tools for competitive advantage, cost analysis is leaning towards evaluating alternative options through trade off comparisons; in other words weighting unit of costs in relation to unit of perceived value. (Coyle et Al, 2003) The second factor in the consideration is lead time for the transportation, also commonly denoted transit time. As previously mentioned, lead time is the total time that elapses from a transportation order dispatch until the goods are delivered. The lead time factor is closely related to reliability which in turn refers to the consistency of transit times; in other words if promises and time schedule are kept by the hauler. In addition to costs, lead time and reliability, accessibility and capability determines if a hauler can practically perform transportation. Capability refers to the physical equi p-ment and facilities needed for a particular good. Accessibility is, as formerly mentioned, the ability to provide transportation over the desired route. The final factor in the selection concerns safety and security; to have the goods arrive at the destination in the same condition as they were while being loaded at the origin. Although insurances can secure capital in case of damages, it cannot cover opportunity costs for lost business or forgone productivi-ty, etc. (Coyle et Al, 2003)
1 Introduction
1.1 Problem & Background
1.2 Purpose and research questions
1.3 Structure of the research
1.4 Delimitation
2 Theoretical Framework
2.1 Modeling transportation
2.2 Transportation Management
2.3 Carrier selection
2.4 Performance measures
2.5 Greener Transportation
2.6 Emissions from transportation
2.7 Basis for empirical gathering
3 Method
3.1 Outline of the research method
3.2 Research approach
3.3 Research method
3.4 Data collection
3.5 Method for data analysis
3.6 Validity
3.7 Reliability
3.8 Method criticism
4 Empirical findings
4.1 The plastic industry
4.2 Survey
4.3 Follow up interviews
4.4 Environmental progress by transportation providers
5 Analysis
5.1 Operational factors prevailing in the plastic industry
5.2 Transportation mode
5.3 Comments on selection determinants
5.4 Environmental sustainability, lead time and cost
5.5 Towards environmental sustainability
6 Conclusions
7 Suggestion for further research
Reference list
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Road Transportation Environmental sustainability vs. lead time and costs
