2-B-2 Direct traffic/distribution policies and procedures to ensure optimum flow of material and consolidation of freight

1 ) Policies and procedures

A) Transportation modalities - In a 2005 survey conducted by ISM of Fortune 1,000 managers and above, 79 percent indicated that transportation, traffic management and shipping were either part of their job responsibilities or supervisory responsibilities, or the responsibility of someone in the supply management organization. The decisions made by an organization regarding transportation are important in today's world. The decisions are vital as supply chains become longer, more complex and increasingly external. Determining the proper modality represents huge tradeoffs in time, cost and required oversight as organizations pursue low-cost country sourcing and market expansions. Sourcing and using logistics and transportation providers is not a buyer's market anymore. Better sourcing and price are obtained with longer-term arrangements that fit the provider's business and capabilities. Yet even better cost-driven pricing is obtained when working with the provider's economics and investment cycles. The supply management professional should be aware of the various market drivers including: globalization, intense competition, short product life cycles, deregulation and environmental issues. The ability to execute the transportation and logistics strategies within the global supply chain better than competitors will lead to improved relative performance. (Cavinato and Strang, 2007.)

There are five modes of transportation: water, motor carrier, rail, air and pipeline. Each has unique characteristics. (See 2-B-3, 1 for more detail on the characteristics.) When considering a transportation modality, the supply n1anagement professional should assess the following factors:

• Types of goods to be transported, including size, weight, density, packaging and specific physical characteristics.

• Which mode or combination of modes will be best suited to meet the organization's needs.

• Delivery requirements, including the time needed.

• Organizational requirements.

With the increase in international sourcing, third-party logistics providers have also increased. Many organizations will use this service as the growth of outsourcing continues.

B) Transportation restrictions -There are multiple rules and restrictions concerning transportation. For example, all carriers have weight and volume restrictions. There are laws restricting the transportation and handling of hazardous materials. There are policies regarding border-crossing inspections and security measures.

C) Carrier cost auditing -To control transportation costs, organizations will typically implement audit procedures to review freight bills. Human error calculating rate variances, descriptions, weights and routing are all possible, resulting in overcharges. Organizations often outsource this activity to a third party known as a freight bureau. (Stanley and Matthews, 2008.)

D) Carrier performance auditing - Carrier performance must be optimal to ensure value to the customer. Some areas of performance that should be monitored and reviewed include willingness to work as a partner, commitment to continuous improvement, acceptance of innovation, focus on time reduction, flexibility in logistics systems design and commonality of core values. (Stanley and Matthews, 2008.)

E) Freight classifications/rates -Line-haul rates are charged for the movement of goods between two points that are not in the same local pick up and delivery area. Due to deregulation, most rates today are negotiated and set into contract form between shippers, receivers and carriers. Their economic basis stems from former regulatory standards such as class and distance. The class system categorized goods according to value, density and susceptibility to damage and theft. Today, a carrier evaluates a new shipper's goods according to these factors and then applies a distance cost rate to them. In many cases, this a starting point, because shippers/receivers can negotiate better rates, typically through discounting, by using such things as total volume with the carrier, favorable directional or seasonal flows, better packaging, faster loading and unloading, and other economic and business factors.

F) Available technology - Electronic commerce and the use of information technology have become widespread in logistics, especially in the area of traffic management. Computerized transportation activities can be categorized into four groups: transportation analysis, traffic routing and scheduling, freight-rate maintenance and auditing and vehicle maintenance.

• Transportation analysis -This software allows supply management professionals to monitor costs and service by providing historical reporting of key performance dimensions.

• Traffic routing and scheduling -This software provides features such as the sequencing and timing of vehicle stops, route determinations, shipping paperwork preparation and vehicle availability.

• Freight-rate maintenance and auditing -This software maintains databases of freight rates that are used to rate shipments or to perform freight bill auditing.

• Vehicle maintenance - Features that are commonly provided by this type of software include vehicle-maintenance tracking, scheduling and reporting.

G) Relocation or movement processes -When considering the relocation or movement of products, supply management professionals should consider any physical restrictions, such as warehousing, methods of transportation and amount of material needing to be relocated or moved.