Logistics and Transportation Exam 1 Question and Answers

Logistics and Transportation Exam 1 Question and Answers Why simulate and model? -any time a business is faced with a problem; maybe we can grow or change -probably not a good idea to jump directly from the problem into a real-world solution -risk free space: create models that will give you a better understanding -models make assumptions about the real world -model ex: hospital ER, pilots, military training, business situations Types of Models -Mental models: how you understand the world and how you think it works -Boxes connected with lines: flow charts, organizational structures, don't see loops or how variables effect each other or causality, difficult to capture data points -Physical models: 2D or 3D visualization -Formulas on a sheet of paper: full understand in great detail but difficult to accomplish -Excel spreadsheets: very popular way of representing situations, just a snapshot of what is going on -Simulation models: try to combine the best of all the different types of models, OOP: Object Oriented Programming; able to create their own outputs What is the most popular modeling tool? MS Excel, Analytical solution formulas and scripts, easier to learn than simulation software but does not give you as much detail as simulations Analytical solution is possible if 1. The number of parameters is 'manageable' 2. Behavior is linear 3. Dependencies are clear; easy to build a mental model 4. Snapshot in time (Analytical solution is possible if) But what if: 1. Too many parameters 2. Non-linear behavior 3. Counter-intuitive behavior- difficult to have a mental model 4. Non-obvious influences 5. Causal dependencies (with causal loop) 6. Longitudinal dependencies Analytical approach useful for: 1. Highly abstract models 2. Acceptable to make many assumptions Bank Example 1. On average 10 clients per hour 2. Only one teller at the counter 3. Mean service time is 5 minutes We want to find out: 1. Mean waiting time in the queue -Googling or thinking through it will quickly produce analytical solution Mean waiting time Bank Example Assumptions of the Analytical Approach 1. Independent arrivals of clients- makes sense for the bank 2. Constant average service time- not a good assumption 3. Exponentially distributed service time? - not a great assumption for the bank In a real bank setting the process is far more complex: 1. Some transactions can be done only by some particular employees 2. The client can be redirected to other employees 3. The tellers may share resources, such as a printer or copier 4. Different employees may have different skills and performance 5. Many other parameters may be envisioned The analytical solution probably does not exist 1. Even if it exists who will find it for you? 2. Almost any change in the process makes the previous analytical solution void Where do queuing problems occur in logistics and warehousing industry? Loading, logistics network Simulation models may be the only feasible analysis method for complex dynamic systems Simulation Model Advantages 1. Animation a. Demonstration b. Verification c. Debugging 2. Playability- observing dynamic system across time 3. A simulation model's structure more naturally reflects the actual system's structure a. As opposed to analytical models- formulas and scripts 4. Easier to add parameters 5. Easier to change degree of abstraction 6. Bottom line: more convincing High Abstraction level minimum details, macro level, strategic level (market and competition/ social systems) Medium Abstraction level medium details, meso level, tactical level (supply chains/ transportation) Low Abstraction level maximum detail, micro level, operational level (pedestrian dynamics) Methods in Simulation Modeling Discrete Event (process based modeling) -Agent Based Modeling System Dynamics- Jay Forrester '50s introduced Forrester Effect, in SC: the Bullwhip Effect, describes the highs and lows of supply and demand due to bottlenecks across the SC, also introduced RAM: Random Access Memory, intermediary between hard drive and CPU System Dynamics 1. Stocks and flows 2. Interacting feedback loops 3. Differential calculus 4. Abstraction level? Discrete Event Modeling- G. Gordon '60s 1. Agents and Resources 2. Queues and Delays 3. Abstraction level? Agent Based Modeling- 80s and later 1. Focus on individual agents (objects) -describe objects' behaviors -describe object's rules 2. The environment can be an agent (object) 3. Object Oriented Approach -based on OOP- Object Oriented Programming Simulation Modeling Software -many tools exist that support one particular modeling approach AnyLogic- Multi-Method Simulation Tool -easy to choose and adjust the abstraction level -can switch between different methods -can mix methods in one model -modern and flexible OO platform What are the benefits of free-market? § Free to do whatever we want; create what we want § Up to the market if it will sell or not Why do we need government to regulate then? § Prevent monopolies § Correct some market failures Market Spectrum o Pure Competition: High # of Firms, Low Firm influence of price & Service offerings o Monopoly: Low # of Firms, High Firm influence of price & Service offerings o Market structures can take varying forms along the spectrum o Perfect competition is hard to come by Development of US Transportation Regulation § Initiation Era () § Positive Era () § Intermodal Era () § New Economic Era (1976- Present) Why regulation was needed in logistics 1. unite the country (when railroads came along- move around, share information, can serve everybody) 2. fear of unknown (new industry, scary) 3. rail (first mode of transportation other than by water, much faster, tendency to monopolize, lots of barriers to entry, big players) 1887 - the initial regulation Era- Interstate Commerce Commission was established (ICC) Created to regulate the rail and made specific decisions such as which rail companies can operate in the market, in which regions, services offered, and what rate- pretty limiting 1920- the Transportation Act of 1920 established to rule of rate making, the government dictated how you should go about making rates and what the limits were, rails started to be privatized 1935- the Motor Carrier Act Gave ICC the authority to regulate trucking and safety concerns, new companies could only be established if the new operation is required by the present or future public convenience or necessity - 4 factors that dictated 1938- Civil Aeronautics Act airlines added under ICC 1940- Transportation Act of 1940 Added water carriers under ICC and introduced the Declaration of National Transportation Policy 1948- Reed Bulwinkle Act o Introduced the Antitrust Immunity for joint ratemaking specifically for trucking o Against collusion 1966- Department of Transportation Act o First time seeing effort to deregulate o DOT introduced 1980- Motor Carrier Act o Entry barriers are lifted o Rate negotiations were allowed 1995- ICC Termination Act o STB established to replace it- Surface Transportation Board o Most of the economic regulations were eliminated Interstate commerce is subject to federal regulations administered by the Surface Transportation Board (STB) MC# (Motor Carrier number) Intrastate commerce is subject to state regulations that vary from state to state, but generally are patterned after federal economic regulations USDOT# Current Economic Regulation o Antitrust Laws o Market Entry o Markets Served o Pricing Under government regulation, the government: o Maintains or enforces competition through the antitrust laws o "PER SE" VIOLATIONS o "RULE OF REASON" VIOLATIONS Provides basis for competition by: o Determining if a firm can enter an industry o Determining which markets a firm can serve in that industry Safety Regulations To establish a minimum level of safety for transportation providers to maintain Security Regulations To protect the security of the transportation system from terrorist attacks, organized by the Department of homeland Security (DHS) & administered through: § The Coast Guard § Transportation Security § Administration Hours of Service HOS o Dictates legal hours that a truck driver or commercial vehicle driver can operate, 14-hour shift, 11 hours of driving, 10 hours mandatory break after, 60 hours across 7 days or 70 hours across 8 days- then have to hard reset for 34 hours, predominantly applies to interstate o 150 miles intrastate exclusion, still have to limit yourself to 14 hour shift o ELD: Electronic Logging Device What is the purpose of National Transportation Policy? o Underpinnings of Transportation Policy § Purpose: to provide direction for determining: · The amount of national resources dedicated to transportation o Money o Land o People · The quality of service essential for economic activity and national defense 1. Ensure the safety of travelers 2. Balance environmental, energy, and social requirements 3. Promote fair competition 4. Protect the public from the abuse of monopoly power Public Transportation Promotion (how can we tax) o Promotion connotes encouragement or provision of aid or assistance so transportation can grow or survive o 1. Existence Charge: A charge made against the person or tangible item unit regardless of the extent of use made of the services (car registration) o 2. Unit Charge: Fee assessed for use of a facility or resource, variable according to use, but does not distinguish between passengers or freight within each unit (gas/ tolls) o 3. Relative Use: Fees assessed according to the investment of cost incurred by the agency to provide the services (type of car, weight) Uses of User Charges o To compensate the public for assistance during modal conception and encouragement o To finance construction (ex federal fuel tax on gasoline...) cover operating costs equalize competition Nationalization High Government ownership, High government financing and operation control Privatization Low Government ownership, Low government financing and operation control FMCSA o Requires you to have BO3 Form filing- service of process (SOP) o Requires that you have insurance- minimum of $750,000- most brokers require $1 mil insurance liability o URC- United Carrier Registrations o IFTA- International Registration Plan o 2290- HVUT- Federal Tax § NY HUT § KYU § NM# § OR# - annually § CT # - monthly MC# authority American Trucker Association (ATA) Applaud Federal Motor Carrier Safety Administration (FMCSA) Proposal for ELDs in Trucks Highway Trust Fund using for improving/ repairing infrastructure should be finding new ways versus just filling potholes Rates (before deregulation) o All interstate rail freight traffic and much motor freight traffic was moved on published (tariff) rates § A lawful charge that a carrier can impose on a given commodity movement § Determined primarily by considering a carrier's costs Prices (after deregulation) o Under freedom from economic regulation, the use of rates set in confidential contracts between carriers and shippers has become prominent § Carriers are free to charge whatever rates & operate wherever they choose geographically § Market-driven pricing % Markup Profit/ Cost % Margin Profit/ Price Freight Markets o Contract o Spot (load boards, DAT) Market Structure Models in Transportation Pure Competition - Monopolistic - Oligopoly - Monopoly The unique nature of transportation markets o All four types of markets can be found in transportation industries, depending on particular market situations o Market situation: commodity & Products, geographic point, route, intermodal competition Pricing in Transportation Management o Factors affecting carrier pricing decisions § Customers (Market): · Customers vs carrier relative power · Price elasticity · Availability of substitutes § Government · Economic regulation · Antitrust enforcement § Channel Members · Revenue split in interline movements · Price change interdependency § Competition · Price leader influences Reefer refrigerated unit Carrier Pricing Strategy o Cost of Services § Buildup approach § Cost + profit § Markup § Popular during regulated transportation period Value-of-Service / Differential Pricing § Value as perceived by the shipper - SAFER - FMCSA § Margin approach (aka profit maximization) § Often used for high-value goods · Transortation proportionally smaller part of final product price · Carry more liability · Specialized equipment necessary § Combination · On the spectrum of cost- and value-of-service · Cost-of-service- pricing floor · Value-of-service - price ceiling § Net-Rate · Pricing presented as one number to shipper Pricing in Transportation Management: Establishing the carrier pricing objectives § Survival-based pricing · Last minute airplane ticket deal § Unit volume pricing · Tighter packaging encouraged/ capacity utilization § Profit maximization- skimming prices · iPhone 4 classic example · carrier costs for high-value goods § Sales-based pricing · Later stages of product/ service life cycle · Once popular passenger movements § Market share pricing · To increase market share and enjoy · Economies of scale § Social responsibility pricing · Walmart hurricane relief · 9/11 assistance o Most common mistakes in carrier pricing § Over reliance on cost-based pricing § Fail to react to or capitalize on market changes ... Rate making in Practice o Rate structure systems § Class rates § Exception rates § Commodity rates § Special rates o Class rate simplification: § Shipping and receiving points § Commodities and products § Modes of transportation Product density directly impacts the use of the carrier's vehicle and the cost per hundredweight National Motor Freight Classification (NMFC) range 50-500 (closer to 50 is heaviest, over 50 lbs) What is one of the elementary building blocks of any market-based economy? o Trade between two or more parties o Started trading during the caveman era; everyone can benefit, have to establish trading posts to meet o Aggregation of trade: survival way of life, communities, civilizations o Export-Import Trade today across many different countries § Top regions: USA, EU, Asian countries Developed countries US/ Europe/ Asian markets: logistics components of a final price of a product is roughly 10% Developing countries such as Africa the logistics component can be anywhere north of 80% of the final product price; prohibits manufacturers and suppliers of various products to go to those markets, consumers are not able to afford it The growth in the volume of global trade § Elimination of trade barriers § Trade agreements among countries § A reduction in tariffs § Greater acceptance of importing finished products (vs raw materials) § Is it easy to tell 'made in' a country? Contributing Factors for Global Flows o Population size o Population distribution o Urbanization o Land and Resources o Technology and Information o Globalization Landed Cost= Acquisition cost (or production cost) + Transportation cost o Theory of Absolute Advantage o Theory of Comparative Advantage o Factor Endowment Theory (Land, Labor, Capital, Entrepreneurship) o Lardner's Law (law of squares) Transportation Challenges o Labor shortages o Old bridges o Traffic o Influx of new policies for truck drivers Logistics Definition o "glue" within supply chain o Flow of products § What is a Product in GDP? · Physical goods? · People transport? · Services industry? o Financial o Medical o Food, restaurants o Cinemas o Digital cable Webster definition § The aspect of military science dealing with the procurement maintenance, and transportation of military, material, facilities, and personnel. § The handling of the details of an operation (ex. Political campaign) I definition The process of planning, implementing, and controlling procedures for the efficient and effective storage of goods, services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements. This definition includes inbound, outbound, internal, and external movements. CSCMP: Council of Supply Chain Management Professionals Definition Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements Transportation as Social Capital o Too often taken for granted o Social capital- benefits to the society as a whole o How do improvements in transportation spur economic growth? § The Dwight D. Eisenhower National System of Interstate and Defense Highways (aka Interstate Highway System) · What was its primary reason initially? o Flows § Goods § Information § Knowledge § "cardiovascular" system of the supply chain Demand for Transportation o Mass Production -- oversupply o Need to bridge the gap between extra supply and demand o Raw materials distributed unevenly § Agriculture § Minerals § Energy; switch from fossil fuels to renewable- transport impact? o Finished goods production based on specializations o Passenger demand § Daily commute in GR vs Chicago, vs Tokyo § Migration within and across countries § Future of passenger transport -- Elon Musk? Is transportation considered to be primary or derived demand? It is derived because if there is a primary need for a product there will be derived demand for transportation Transport Measurement Units o Transportation demand § A request to move a given weight or amount of cargo specific distance between two specific points o Weight-distance for freight § Ton-mile o Passenger-distance for people § Passenger-mile Is It better than just capturing mileage or tonnage alone? Yes Is it a perfect measure? No; not perfect but a starting point, need to know bulky, value, amount of trucks/ trailers Demand Elasticity o Why aggregate demand for transportation is inelastic? § Aggregate meaning across the whole economy, consumers have basic needs to be fulfilled, o Why demand for specific mode of transportation or specific carriers s generally elastic? § Have several choices for similar options at different/ better prices · Demand Elasticity = % change in quantity/ % change in price o What does elasticity of less than 1 mean? § When the % change in quantity % change in price Service components of freight demand o Top-mile moved in ton-mile moved (ex commodity) o Must find other ways to differentiate § Transit Time · Carrying cost · Stock out costs § Reliability · Less uncertainty= optimal conditions= less safety stock § Accessibility · Direct flights? · Modal differences · Direct= lower costs § Security · % damage · Loss of customer · Increased insurance · Safety stock Shipper business that ships out products