Transportation inbound cost

Transportation network design decisions are affected by the cost of opening new facilities, holding inventory costs, inbound, outbound logistic costs among others. 

Since the order quantities at the consolidated DCs are higher, inbound transportation cost from the factory to the DCs will be reduced due to economies of scale and volume discounfs in shipping. 

TRANSPORTATION-RELATED METRICS Inbound transportation decisions affect the cost of goods sold, whereas outbound transportation costs are part of the selling, general, and administrative expenses. Thus, transportation costs affect the profit margin. A manager should track the following transportation-related metrics that influence supply chain performance ... 

Average inbound transportation cost per shipment measures the average transportation cost of each incoming delivery. Along with the incoming shipment size, this metric identifies opportunities for greater economies of scale in inbound transportation. 

Given that Chicago is close to Cleveland, the inbound transportation cost from the plants to the NDC would fall to 0.05 per unit. The total replenishment lead time for orders from the Chicago NDC would still be five days. Given the increased average distance, however, the outbound transportation cost to customers from the NDC would increase to 0.24 per unit. 

The presence of a DC allows a supply chain to achieve economies of scale for inbound transportation to a point close to the final destination, because each supplier sends a large shipment to the DC that contains product for all locations the DC serves. Because DCs serve locations nearby, the outbound transportation cost is not very large. For example, W.W. Grainger has its suppliers ship products to one of nine DCs (typically in large quantities), with each DC, in turn, replenishing stores in its vicinity with the smaller quantities they need. It would be expensive for suppliers to try to serve each store directly. Similarly, when Home Depot sources from an overseas supplier, the product is held in inventory at the DC because the lot size on the inbound side is much larger than the sum of the lot sizes for the stores served by the DC. 

All shipments via central DC with inventory storage Lower inbound transportation cost through consolidation Increased Inventory cost Increased handling at DC... 

Berman, O. Wang, Q. (2006) Inbound logistics planning minimizing transportation and inventory cost In Transportation Science, 40(3), 287-299. 

For instance, one inbound and outbound optimization planning software package has the ability to manage shipments from multiple origins to multiple destinations and builds and consolidates loads as orders are imported into the system, using a library of transportation algorithms. Combined with a costing module, it rates, ranks, and selects carriers based on customer needs. 

After decision of order or production quantities, transportation decisions should be made. The company may have a contract with third party carriers or may use its own trucks and transportation facilities to deliver products to customers. Especially, international firms need to consider modes of transportation, inbound and outbound logistics costs. Road, railway, waterway, air, and pipelines are common modes of transportation. Intermodal transportations are possible as well. 

The logistics view often addresses the outbound downstream side in much the same way as the procurement viewpoint worked with the inbound side. Supply chain improvement focuses on cost reduction aimed at incremental improvements in profit. Typical activities include modeling or automating warehouses, distribution centers, and transportation networks to reduce cost. 

In Level 4, the network view causes those in logistics to consider who is the best constituent for providing transportation for the pieces that go into the final product. The best constituent provider means a part of the transportation function could be outsourced to let a supplier deliver and pick up finished product. Now a global view of warehousing, transportation, and delivery comes into play, as the nucleus firm drives an effort to seek lowest-landed cost with the right products being at the point of need. With inbound and outbound freight on either side of each constituent, the question becomes how to make the best use of all available equipment and resources. Tmck utilization on a nationwide basis, for example, is estimated to be no better than 60 to 70%, because of all the less-than-full outbound loads and empty backhauls. That becomes an opportunity to better utilize assets. 

Total logistics costs associated with the existing systems, including the inbound and outbound transportation costs, direct and indirect warehouse and distribution center operating costs, capital... 

Equations 3.9 and 3.10 show the inbound and outbound shipment costs, respectively, that are included in the objective function, based on the transportation costs determined for each arc of the network. The outbound shipments are associated with the transportation of semi-finished and finished products directly to customers, regardless of the origin facility type, and the inbound shipments correspond to the inter-plant transactions among production and distribution facilities. 

Inventory and facility costs increase as the number of facilities in a supply chain increases. Transportation costs decrease as the number of facilities increases. If the number of facilities increases to the point at which inbound economies of scale are lost, then transportation costs increase. For example, with few facilities, Amazon has lower inventory and facility costs than Barnes Noble, which has hundreds of stores. Barnes Noble, however, has lower transportation costs. 

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