Dependence of International Supply Chains on Multimodal Transport Operations - Essay Example

RUNNING HEAD: DEPENDENCE OF SUPPLIERS ON MULTIMODAL TRANSPORT The Dependence of Finished-Product International Supply Chains on Multimodal Transport Operations Name Class Date The Dependence of Finished-Product International Supply Chains on MTOs Introduction As the world continues to shrink due to market globalisation, the importance of intermodal transportation partnerships and expansion of multimodal transport infrastructure are critical to optimising supply chain functionality. According to Rondenelli and Berry there are four movements leading the international company's (IC) quest to continued success: "continued economic globalization as the driving force in trade and investment, the growing demand for speed-to-market product delivery, the adoption of agile manufacturing and business practices, and the need to manage supply chains more efficiently " (2000, p. 398) which further increase the need for strong supply chain partnerships and increased utilisation of multimodal transport operations (MTO). ICs are increasingly dealing with complex logistics to ensure finished productsare shipped and received expeditiously. As the supply chain lengthens and transport distance increases ICs must find more cost effective methods of shipment. In this competitive market, customers expect fast delivery and quality product and services at the lowest price possible. "Trade and transport are inextricably linked: efficient transport services are a prerequisite to successful trading" ("Multimodal "UN 2006, screen 1). To compete, ICs are turning to MTO operators to handle the complexity of logistics required to accomplish timely delivery of the finished product, a marketable product with an economic value to the customer ready to be used without the requirement of further alteration of its form, ("Product" 2005) also the most critical, direct link with the customer. The complexity of international transportation of finished product, goods and services shipped to the end user, has resulted in a lengthening international supply chain (ISC) comprised of economic, technology, social/legal and environment issues and innovations necessary to improve efficiency and effectiveness. (Trienekens et al. 2003). Figure 1 demonstrates an ISC Flow Chart. The main intent of the ISC is the smooth integration of suppliers and customers within one process from raw materials receipt to delivery of finished goods (end user product) to the customer. The continuum of the supply/demand cycle and increased innovations throughout the ISC create a two way dialogue at all stages of the chain increasing efficiency and effectiveness. Figure 1: ISC (Marlow 2004) As seen in Figure 1, the expanded ISC encompasses all process within a company and has further expanded to include vendors and customers all working in tandem: to maximise buying; materials management; production; and shipment to customers. This increased efficiency is accomplished through information sharing and seamless coordination of transportation - land, sea, rail and air, and of storage and handling between each phase of the transportation chain all handled by the MTO. Multimodal transport is the door-to-door service from supplier to customer in another country utilising multiple modes of transportation to effectively and efficiently ensure delivery. ("Multimodal" 2006;"Intermodal" 2006). The Multimodal Transport Operator is "any person whoconcludes a multimodal transport contract and assumes responsibility for the performance of the contract" ("Implementation" 2001, p.5). Critical Analysis: The Inter- Dependence of Finished-Product ISCs and MTOs Companies are relying more and more on MTOs which offer door-to-door service to meet customer needs while coordinating all logistics involved in multimodal use. (Coyle et al. 2003) One factor leading to the development of the MTO was containerisation, placing smaller units inside larger containers for shipment. (Hoyle et al. 1992) The last area to define is the MTO hub, centralized points for exit and entry of goods with the facilities and technological advances necessary to handle the increasing flow of products ("Development of" 2003, p. 3). Figure 2 displays the complexity of multimodal transport hubs. Figure 2: Complexity of Hubs (Rondenelli and Berry 2000, p.402) Figure 3 displays the growth of containerised shipments beginning in 1965 through 2000. From barely any in 1965, in 2000 shipments exceeded 220 million TEUs. Figure 3: Containerised Shipments 1965 through 2000 ("Multimodal" 2003, p. 5) The efficiency of hubs has greatly increased the speed to market. Through utilisation of multimodal transport, the existing infrastructure is optimised. This is seen in the projected increase in containerised shipments. Figure 4 displays the forecasted container usage through 2010. Figure 4: Containerised Shipment Forecast ("Multimodal" 2003, p. 5) With further development of hubs; other infrastructure improvements and planning; and development of more efficient corridors, transport modes will realise an even greater cost savings as modes become more closely linked, yielding greater integration of services. One such advancement is the utilisation of air/sea combination which offers two distinct advantages: speed and cost containment. As an example this combination is used for shipment of goods from Asia to Europe via the U.S, sea to the US with air then to Europe. Proving more economical and faster than just sea shipment or land route, travel time has been reduced significant justifying the slightly higher transportation costs. These creative combinations become possible with development of MTO hubs and other infrastructure. Figure 5 displays the major multimodal hubs throughout the world. Figure 5: Major Hub Configurations ("Multimodal" 2003, p. 6) Figure 6 displays the increase in export shipments from 1960 through 2000. Exports have increased by over 4 trillion dollars during the last 40 years. Based on containerisation usage forecasts, exports should nearly double by 2010 demonstrating the importance of MTOs. This is further seen when adding in other benefits of MTOs such as reduced need for inventory stock, company storage and handling of finished goods which all reduce costs. Figure 6: Export Figures 1960 through 2000 ("Multimodal" 2003, p. 6) Figure 7 displays the growth by transportation sector forecast through 2010. The importance of developing strategic partnerships with MTOs is further demonstrated by this increased demand for efficient and cost effective services. As goods are shipped greater distances an additional benefit of the MTO is consolidation of paperwork. The company pays one bill, signs one contract, and requires insurance documentation once from the MTO operator who is responsible for all phases of shipment, regardless of the number of transport mode changes, streamlining the ISC further and resulting in greater efficiency and cost savings. Figure 7: Projected Growth in Transports ("12 Prescriptions 2005, p. 13) The Cost Analysis Methodology The Cost Analysis Methodology (CAM) adapted from Beresford and Banomyong measures cost and time plotted over a continuum of steps in the ISC and between modes of transport and at various points within the ISC. The model demonstrates sea transport should be the cheapest per tonne-km, road transport should normally be the most expensive (at least over a certain distance), and waterway and rail costs should be intermediate. Faster shipments mean faster delivery which enables companies to more quickly apply the value of goods to their balance sheets. As partnerships are further developed the shipper, customer and MTO operators can work at further driving down costs through process improvements in such areas as material handling, temporary storage and forward scheduling benefiting everyone in the ISC. Figure 8 displays CAM. Figure 8: Cost Model for Multimodal Transport (Banomyong & Beresford 2001, p. 666) The top left diagram displays the most basic function, comparing two modes of transport, rail and road, to time and cost. Initially road transport may be more cost effective but as distance increases rail becomes more cost effective as shown by the more gradual slope. The top right diagram illustrates two modes combined and a transfer at the break even point which combines the initial short distance efficiency of the road transport with the more economical long distance costs of rail transport. The bottom left diagram incorporates another step where land transport ends and the finished goods are transferred to the seaport awaiting forward routing. The final stage, the bottom right diagram, displays each step in the MTO, shipment from vendor to delivery to the customer. The CAM proves much more cost effective as the distance increases and multimodal transport is utilised. The money saved directly impacts the company's bottom line. Additional MTO Considerations To be competitive ICs need to foster partnerships to maximise success of their ISC. However, in reality, it is not always possible to select the quickest, least expensive modes of transportation. Selecting a mode that may be faster or more economical is ineffective if the finished goods do not arrive, cause missed downstream transports, or cause the finished product to be damaged in transit. Situations such as these require fostering improvements in the ISC that will remedy the reliability factor and promote a mutually beneficial working relationship. This efficiency can be defined as the ability to effectively coordinate MTO with respect to cost, time, reliability, frequency and flexibility as seen in Figure 9 below. Figure 9: Considerations in Mode Selection (Ruess 2003, p. 9) The decision of mode usage is based on a variety of factors including type of product being shipped, distance and time sensitivity. Each mode has strengths and weaknesses and analysis is required to determine the best mode or multimode of shipment. Figure 10 displays the various modes as well as costing and ranking with respect to time, reliability and loss. Figure 10: Cost vs. Time, Reliability and Quality by Mode ("Transportation 2003, p. 8) Kazakhstan and Uzbekistan: A Case Study The region of Asia where Kazakhstan and Uzbekistan are located has few inhabitants. Additionally, several of the nations in this region are landlocked creating additional transport challenges. "The economies of Kazakhstan and Uzbekistan comprise four fifths of the economy of the Central Asian sub region, with Kazakhstan alone accounting for half of sub-regional economic output" ("Transit transport" 2003, p. 26). The infrastructure of this region has a primary corridor, from east to west, for land transport but much of the outer areas are not developed. There is one rail line leading to China. Because of the nature of their infrastructure transit of finished product occurs via land modes, rail and truck, although there is the potential for ferry service to cross the Caspian Sea. There are two main road routes through these countries: the Northern and Southern Routes. As seen in Figure 11 there is extensive wait times involved with both; the Northern route is faster but is not the most frequently used route. Figure 11: North and South Road Route Comparisons ("Transit transport" 2003, p. 38) The wait time for the North route is seven to 11 days. Reducing the border crossing time to five hours will cut the transit time by 50%. Improved road conditions within the country would further reduce the transit time. Figure 12 shows the cost analysis of the trucking routes. Figure 12: North and South Routes Cost Analysis ("Transit transport" 2003, p. 40) If the convoy fee is removed the Northern Route proves to be the most cost effective, quickest route to Europe. Currently the average cost for transport is between $6,500 and $7,000 USD. Eliminating the wait and cost for the convoy, the Northern Route transit would save five days and $1,000 with no additional improvements initiated. The region uses containerised rail shipment, primarily imports via China. Figure 13 displays the data obtained on estimated times. As seen the Lianyungag route is the longest and fastest route, under nine days and a distance of 6,500 kilometres. Compared to the regular and express shipments of the Shanghai route with 13 and 6 days more transit time respectively and 1,000 less kilometres, the Lianyungag route offers the greatest potential as an economic savings for the region. Figure 13: Time & Distance Comparison Rail Service ("Transit transport" 2003, p. 44) The last area to consider is development of a ferry service to Turkey. Table 14 displays the multi-modes which could be developed including distance and approximated costs. With the current status of the infrastructure, road transport is the shortest in distance but the ferry/rail multimodal proposal although longer would yield significant savings, $4,000/TEU to $2,385/FEU, offering a significant advantage towards the global equalisation of this emerging area. Figure 14: Multimodal Comparison, Proposed Development of Ferry Service ("Transit transport" 2003, p. 47) This area of the world holds significant promise of economic growth through establishment of MTOs. Several key areas were noted which will increase profitability: Eliminating the convoy of the Northern Truck Route and streamlining border crossings will significantly save time and money. Utilisation of rail service will equalise import/export ratios and further reduce shipment costs of finished products Development of waterway/rail/truck MTO west bound will yield more efficient, cost effective shipments Development of other rail lines west bound connecting to other ports in Europe should be considered. Conclusion Throughout the research into the unique challenges facing not just ICs but entire nations in competing in the ever shrinking world, it has demonstrated the need to ensure MTOs are developed to ensure effective and efficient service. The complexity brought on by globalisation of the market increases the competitiveness of each and every business transaction. Customers demand quality and efficient service. Streamlining the MTO is one area where companies can decrease their costs significantly through the use of empirical data while streamlining throughput times as well. Further, this complex environment demonstrates the need to developing partnerships with multimodal transport operators whose sole focus is ensuring door-to-door service faster and cheaper without compromising on quality. Utilising and fostering these mutually beneficial partnerships makes good, economic business sense and allows ICs to further plan their future strategic direction to ensure their continued economic prosperity. References Banomyong, R. and Beresford, A.K.C. (2001). International Journal of Physical Distribution & Logistics Management, 31:9, pp. 663-685. Retrieved 3 Feb. 2006, from www.cf.ac.uk/carbs/research/2000pubs.html Coyle, J. 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"Innovation through (international) food supply chain development: a research agenda." International Food and Agribusiness Management Review, 6:1, pp. 84-98. Read More