Factors Defining Selection of Outbound Transportation Service
Saturn Corporation’s Just-In-Time (JIT) manufacturing model defines its selection of an outbound transportation provider. The main principles of the JIT approach require organizations to purchase only the required amount of stock and only when necessary. In this way, the company attempts to increase production quality and reduce manufacturing defects (Yasin, Small, & Wafa, 2003).
JIT principles are interrelated with some advantages in transportation due to links between the delivery process to a particular schedule and sequence of procedures. According to Svensson (2002), “The time dependence between firms turns out to be of substantial importance” in the outbound logistics flows (p. 110).
According to this principle, Saturn Corporation requires its outbound transportation service to comply with designated delivery times and truck and rail delivery flowcharts. In this way, the JIT delivery process based on compliance with organizational regulations is the main determiner of the management of outbound logistics activities.
Inefficient delivery process management, suppliers’ irresponsibility, communication problems, and the inability to manage inventories well can lead to the failure to deliver vehicles in time and to adhere to the right sequence of delivery procedures. In turn, this failure can have several negative effects on the business, including a decrease in the quality of logistics service, a manufacturing breakdown, a loss of positive business reputation, and more (Danese, Romano, & Bortolotti, 2012).
Thus, to arrange delivery effectively, Saturn Corporation plans its logistics operation regarding physical space and time. By following JIT principles, the company has managed to achieve a smooth product delivery. Moreover, the timeliness of vehicle delivery helps Saturn Corporation generate significant competitive advantages in the market.
The failure to deliver vehicles safely and just in time may entail significant financial burdens for Saturn Corporation due to the corresponding decline in the volume of retailers’ purchases or vehicle damages. It raises the issue of stakeholder concerns in the process of aligning production and transportation activities. Saturn Corporation’s primary stakeholders are consumers (retailers), business partners (suppliers of transportation services), and shareholders. All three groups of organizational stakeholders have sufficient power, urgency, and legitimacy, and they significantly define the overall progress of Saturn Corporation’s performance.
Researchers suggest that companies should consider the interests of such powerful, legitimate stakeholders to be a strategic priority (Santana, 2011). By addressing legitimate stakeholders’ needs and providing added value for them, a company contributes to its sustainability and profitability. Based on this idea, Saturn Corporation’s success depends on its ability to offer benefits for both suppliers and retailers and to create value for them. In this way, the company will be able to maintain a high level of profitability, customer loyalty, and reputation that will support sustainable business performance.
Product Delivery Flowcharts
Truck Delivery
The delivery flowchart should include vehicle production (Event 38), quality check and verification, collection of vehicle identification numbers (VIN) and information about destination and delivery method, vehicle shipment (Event 40), verification of VIN information, vehicle departure (Event 42), unloading (Event 48), additional driver inspection, and vehicle receipt (Event 50).
Rail Delivery
The detailed rail delivery flowchart should include vehicle production (Event 28), the designation of the lane, vehicle inspection, loading yard delivery, inspection of empty rail cars, collection of VIN barcode information, shipment (Event 40), additional inspection of vehicles and loading procedures and protocols by I.T.S., verification of VIN information, classification of rail cars by destination at the Radnor yard, vehicle dispatch, additional vehicle inspection at the destination rail ramp, vehicle release, inspection, truck loading, vehicle dispatch for the final delivery (Event 42), unloading (Event 48), vehicle inspection, and receipt by the retailer (Event 50).
Cost Efficiency of Delivery Methods
Figure 1: Outbound Logistics Cost Per Vehicle
Every delivery method entails a different amount of human resource efforts, loading capacity, and expenses. However, to select the best option, it is also important to consider multiple factors including destination proximity and expected customer demand. For example, a truck can contain 12 vehicles per load, and the linehaul cost per vehicle at proximate distances (within 500 km) is $2.405, while an average cost per vehicle in rail delivery is $2.796. Although rail loading capacity is slightly higher (15 cars per load), truck delivery is more cost-effective.
The average cost of truck delivery per mile (466 km, Baton Rouge, LA) is $61.91, while rail delivery requires $90 per mile. The average cost of truck delivery per vehicle is lower than the average cost of rail delivery per vehicle at proximate distances of less than 610 km. Not only is truck delivery less expensive, but it also requires fewer expenditures for inspections and other partners’ services. Based on these calculations, Saturn Corporation should use truck delivery at proximate distances and rail delivery for farther retailers.
Transit Time Analysis
Logistics flexibility, i.e. an organization’s ability to meet customer demands and needs in the provision of service and delivery of products, is one of the major factors of customer satisfaction and value creation (Zhang, Vonderembse, & Lim, 2005). Saturn Corporation pays great attention to customer satisfaction and strives to increase the attraction of potential retailers and develop customer loyalty. Since the majority of retailers expect their vehicles to be delivered quickly to reduce expenses and increase profitability, delivery time is a decisive factor in customer satisfaction levels.
Since transit time in rail delivery is significantly higher than in truck delivery, the use of trucks is the best solution to minimize delivery time. Moreover, truck delivery is characterized by greater transit time consistency with a lower standard deviation (0.9 days). The standard deviation in rail delivery is 2.3 days, which increases the risks of retailers’ dissatisfaction with Saturn Corporation’s service. Based on this, truck delivery is suggested as a more flexible method of transportation.
Damage Cost Analysis
The average truck delivery damage rate is 0.45%, while rail delivery is characterized by a rate of 0.92%. Truck delivery thus can be suggested as the best method for minimizing vehicle damage. Although the damage claim in truck delivery equals $204, the overall annual expenses for repairing vehicles delivered by truck is close to $66.096 per 720 cars. At the same time, the annual costs for repairing vehicles delivered by rail will be over $78.825. Therefore, truck delivery is more cost-effective.
Final Recommendations
Figure 2: Outbound Logistics Method Recommendation
An analysis of the damage rates, required transit time, and cost efficiency associated with both transportation methods make it clear that shifting towards truck delivery can reduce expenses and stabilize profits. Although trucks have less loading capacity, which may result in a slight purchase volume decrease, their use suits the flexible logistics approach that implies “little penalty of time, effort, cost, or performance” (Jafari, 2015, p. 947). More specifically, truck delivery has fewer negative impacts on organizational performance regarding damage and repair costs, service expenditures, and risks to corporate reputation due to delivery delays and customer discontent.
The major stakeholder groups that can benefit from Saturn Corporation’s shift towards truck delivery service are its shareholders and retailers. The retailers will gain an opportunity to receive their orders and make sales faster. They also will have a chance to reduce delivery costs. The retailers’ positive purchasing experience will lead to customer retention and the attraction of new dealers.
In this way, a high level of customer satisfaction will be one of Saturn Corporation’s main competitive advantages, which will support greater revenue inflow and facilitate business expansion. However, Premier Service, CSX, and I.T.S. will be less satisfied with the exclusion of rail delivery as their activities are primarily needed to support loading procedures and vehicle inspection during rail transportation.
Based on the data, it can be presumed more efficient to exclude distant destinations—defined as those over 660 km—from the map list (e.g. Watertown, NY, which is 1012 km away). In this way, it will be possible to increase cost efficiency and eliminate the potential risks of vehicle damage and delivery delays.
References
Danese, P., Romano, P., & Bortolotti, T. (2012). JIT production, JIT supply and performance: Investigating the moderating effects. Industrial Management & Data Systems, 112(3), 441-465. DOI:10.1108/02635571211210068
Jafari, H. (2015). Logistics flexibility: A systematic review. International Journal of Productivity and Performance Management,64(7), 947-970. DOI:10.1108/ijppm-05-2014-0069
Santana, A. (2012). Three elements of stakeholder legitimacy. Journal of Business Ethics, 105(2), 257–265.
Svensson, G. (2002). A conceptual framework of vulnerability in firms’ inbound and outbound logistics flows. International Journal of Physical Distribution & Logistics Management, 32(2), 110-134. DOI:10.1108/09600030210421723
Yasin, M. M., Small, M. H., & Wafa, M. A. (2003). Organizational modifications to support JIT implementation in manufacturing and service operations. Omega,31(3), 213-226. DOI:10.1016/s0305-0483(03)00024-0
Zhang, Q., Vonderembse, M. A., & Lim, J. (2005). Logistics flexibility and its impact on customer satisfaction. The International Journal of Logistics Management, 16(1), 71-95. DOI:10.1108/09574090510617367.