The Concept of Uni-Modal Supply Chain - Term Paper Example

This report analysis the concept of uni-modal supply chain, and the means a company can use to develop a multimodal supply chain. Attention is given to the conditions relevant to development of multimodal supply chain, and the benefits of multimodal supply chain. Table of contents 1. Introduction 2. The concept of uni-modal supply chains 3. Disadvantage of the uni-modal supply chains 4. Case study of a company 4.1.1. Supply chain of the company 4.1.2. Reasons for multi-modal chains of distribution 4.1.3. Process of implementing the multi-modal supply chain 4.1.3.1.1.1. The role of management 4.1.3.1.1.2. The role of multi modal transport operator 4.1.4. Benefit of multi-modal supply chain 5. Conclusion 6. Reference list Introduction This report analyse the concept of uni-modal supply chain, and multi-modal supply chain. It focuses on the factors that may lead a company to choose use of multimodal supply chain. Relevant conditions that are required for the establishment of multimodal supply structure are discussed in details. Two core participants in the multimodal supply are identified as the management (logistic department) and the multimodal transporter chain have been discussed in details. Each of these key players is seen to have very distinct and elaborate functions to play in making multimodal supply chain a success. Lastly he benefits of using multimodal supply chains are discussed. For the purpose of description Oakley Oil Company based in U.K. has been used. The concept of uni-modal transport supply chains A supply chain is made up of all parties concerned, directly or indirectly, in fulfilling a buyer request to either supply goods or provide a certain service. The parties involved include retailers, customers and transporters. Within each supply chain, transport plays a key role of receiving and delivering a customer’s request. A warehouse’s transport means may either be by air, road, water or rail or a combination of any 2 or 3 thus a multi-modal transport chain supply. In other supply chain’s transport systems, customers order are supplied using a single means thus a uni-modal transport supply chain (“About Dept to Equity Ratio”, 2012). A customer who places an off shore order will be most likely supplied with a multi-modal transport supply chain. A multi-modal supply system is largely used by multi-national companies; however, other established companies though not multi-national may use it. To the contrary, uni-modal transport supply chains largely serve local purchase orders because there may not be transit over vast distances. In addition, uni-modal transport supply chains chiefly serve domestic markets while, multi-modal transport supply chain, serves foreign market of exports and imports. Uni-modal transport supply chains, though, they have a number of limitations, they should be appreciated for a number of reasons. First, they help meet limited supplies of goods which cannot be economical to the multi-transport supply chains, for example Oakley Oil Company supplies motels far distances from it central depot using small medium tanker of 1,000 litres. The other petrol stations in main towns are mainly supplied using 20,000 litres tankers. Secondly, they are not largely affected by economic recession and depression. The chains mainly supply constant domestic demands. For example, Oakley Oil Company serves mainly estates and flats fuel stations and this assures them that dwellers in these flats must at least fuel their cars before they drive to other destinations (Diener, 2004). Disadvantages of uni-modal transport supply chains The uni-modal transport supply chains are associated with a number of disadvantages. First, they are blamed for most delays of supplies of goods and services. For example in Wales and Staffordshire, delays occur mainly due to traffic jams in the main highways leading to these important commercial towns of Britain. Secondly, uni-modal transport supply chains are associated with uncompetitive products because of higher prices as compared to other suppliers of the same products. For example Oakley Fuel products cost a quarter a dollar higher in some sections of Wales because the company relies on road transport that is often associated with accidents, traffic jams and high cost of transporting it products to customers and wholesalers (Fricker et al, 2004). Thirdly, this supply chain is expensive to maintain, run and this has impact on the profits generated by the company. Low profits by Oakley Oil Company are seen by many financial analyst as the reason for the depreciation in it’s per share value in the stock market. Fifth, the uni-modal transport supply chain has been mentioned in a number of unethical business practises by UK Standards Board and Oil Marketers. For example, in 2007, the company was accused of supplying substandard diesel of 2.8% sulphur content instead of the recommended 2.4%. This unethical practise was reported by other oil sellers as a way to maximise the company‘s profit. Profits by oil companies were speculated to reduce in 2008 in UK and other European countries because of increased international prices of crude oil. The supply chain of Oakley Oil Company The Oakley Oil Company relies on 2 types of suppliers to satisfy the customer needs. First, the suppliers from the refinery to the company’s central depot who mainly use road transport to supply large volumes of oil. Secondly, the suppliers from the depot to whole sellers who too use road transport to deliver oil to various bided orders or customers. The suppliers must be certified, be accountable and be regularly trained. Oakley requires the suppliers to certify that the components of the oil they are supplied by the refinery comply with local regulations. In addition, all contractual agreements must be certified by a legal expert to comply with local laws and any energy law. Breach of local laws, especially, on oil standards leads to suspension of the license to supply oil. The company supplier must comply with the contractual agreement. If the company feels a supplier is going against the supply agreement, the supplier shall be suspended from the chain until further notice. The suspension shall be lifted after thorough inspection by an expert that the corrections have been made. The company recognises the importance of training its suppliers and customers on new knowledge on products. In addition, the training shall focus mostly on supply chain ethics and customer satisfaction. The company recognises that customer satisfaction will lead to increased profits (Hoeks, 2011). Reasons for multi-modal chains of distribution Multimodal transport is a through transport combination of diverse modes of transport such as rail, Aeroplane, and truck where containers are primarily used. The purpose of containers is that they are efficient with least possible risk, in transportation of unitised cargo from the place of origin to the final destination (Weele, 2010). They ultimately enable the application of multimodal transport on a variety of general cargo, by an international means of standardised transport unit. The idea of using freight containers came from the ancient Romans but transportation through containers by rail, originated from the Manchester and Liverpool railway. In 1839, this railway used Roll off or Roll on containers for dragging coal minerals. In 1839, the Derby and Birmingham Railway invented a multimodal form of transport which would transfer containers between horse carriage and rail wagons. In 1921, the New York Central Railway established and launched the first container service that offered free transportation from Chicago to Cleveland. Containerisation, therefore, grew tremendously as a means of “door-to-door” transport and was facilitated by the establishment of the “Piggy Back System”. This system used to carry trailers aboard specialised “Flat cars”. However, Multimodal transport is a concept which places the accountability for the whole door-to-door transport under one operator. This operator provides a multimodal transport document, manages and then coordinates the whole task of shipment, ensuring that the movement of goods is by the most cost effective and efficient means, and along the best route in order to meet the delivery requirements of the shippers. The multimodal transport operator is also seen as a principal and a carrier because he or she makes a contract with the shipper, to transfer goods by 1 or more transport modes as may be necessary (Reiners, 2012). Currently, most of the companies choose to use transport modes that offer the best solutions for the environment and market problems. However, due to market changes, escalating concerns over the environment, rising fuel prices, direct grants for freight movements, and higher levels of congestion, implies that there are corresponding changes occurring on the boundary between which the transport mode provides the best environmental and economic solutions. Oakley Company should choose the best transport model system that enhances the way it distributes its oil products, and the way it competes with other oil companies in the United Kingdom. Currently, the Uni-modal supply chain being used by the company, does not suite in the competitive oil market. It should shift to multi model form of transport which provides opportunities to improve services, reduce costs, and reduce environmental impacts. Oakley oil Company uses road as a form of uni-model transport. The model’s problems are observed to surpass the benefits it offers to the company, in that it has a lot of expenses in terms of fuel cost, driving hours and the company’s commitment to reduce emissions. There is, therefore, a need to shift to multi-model form of transport by include rail transportation, in order to avoid a lot of expenses. According to the previous rail freight market of 2008, rail transport lifted approximately 103 million tonnes where it also moved an equivalent of 6.50 million lorry journeys in United Kingdom. It attracted over 1.5 billion dollars of private sector investments since privatisation in 1994. After 1994, there has been a growth of rail freight tonnes by around 66 per cent. This has increased rail freight market share of inland transport to 11.5% (Hoeks, 2010). Oakley Oil Company should realise that, to change from uni-modal transport to multi-modal form of transport, it need to consider a number of factors. The first one is modal shift suitability where it should consider the origin and final location of oil product in order to influence transport costs. In this case, the company is required to determine how the existing links to the road and rail, can be accessible. This strategic thinking can, therefore, provide the company with long term profits by future-proofing the company against changes in the market or legislation conditions. The second one is market dynamics, which describes the factors that affect road Haulage Company’s dominance, as well as the expected escalation of rail and road market. The third one is a rail and road freight policy. Apart from regional and nation policies influencing any form of the transport system, EU policies are also considered having an impact on both road and rail freight. The third one is environmental consideration where due to the escalating awareness of “Corporate Social Responsibility,” the company is required to consider the credentials of both road and rail transport. Finally, we have organizational priorities, which involve putting strategies into practice (Diener, 2004). Oakley Company can only balance the above strategic considerations, market dynamics, environmental considerations, freight policy, and sustainability, through understanding its organization priorities. The process of implementing a multi-modal supply chain This section explores the factors that a company should consider in establishing a multi-modal supply chain. Therefore, the aim of the section is explaining how a company can establish the necessary grounds for a multimodal supply chain and implement it. There are several factors that may make it necessary for a company to adapt a multi-dimensional supply chain. The main factor is continuous change in the production patterns within industries that call for transportation of materials and finished product on a global scale. For the company to use multimodal supply chain it has to contract a multimodal transport operator in the transportation of goods, upon the choosing of the operator, he assumes all responsibility and liability of the goods from the origin to the destination. For the success of a multimodal supply chain, both the management and the multimodal transport operator have roles to play (Diener, 2004). The roles of the management The department of logistics manages transport in an organisation (Hayuth, 1987). The importance of management of transport is central to this department to the extent that many view logistics as being synonymous to transport. The logistic department has to consider several factors in awarding a contract to a certain multimodal transport operator (MTO). These factors include reliability of the operator, price, and the time taken to deliver the goods among other factors. Transport operators must comply with the specifications hat laid down by the logistic department during the transportation. According to Williamson et al. (1990), the logistic department plays four key functions in developing a multimodal supply chain. These functions include inbound traffic, out bound traffic, international traffic, and carrier selection. In this regard, it is the role of management to determine the multimodal network which brings about the combination of performance and value. The management, therefore, needs to determine the network that has the following qualities: The first one is that the network chosen should give the cheapest solution to transportation. This implies that, the management should establish from the operators the relative cost of provision of services and choose the operator with the lowest cost. The second quality is that the network should be in proximity to the source and the destination of the consignment. For this reason, the management should establish the modes that the operator intends to use and determine how reliable they are to serve the purpose. The third quality is that the operator should offer services that are sustainable to the firm. This means that the management should choose a network that they can sustain in terms of the cost and demands of the system. Other factors that the management should consider are flexibility of the network to changing market, adaptation to technological changes and safety of the commodities. After the determination of the multimodal operator to contract for the transport of goods, the management needs to consider several requirements for the transport of goods. These include commercial practices, transport infrastructure and commercial practices. Commercial practises refer to the terms developed by the “international chamber of commerce (ICC)” referred to as INCOTERMS. The ICC set these terms to facilitate smooth flow of trade between different nations. INCOTERMS relate to the terms of agreement between the buyer and the seller of goods. They describe the conditions that should be met by both parties so that the goods the transaction can be regarded as complete. These terms have described the sharing of risks between the seller and the buyer of goods in transit. Consequently, the knowledge of these terms is crucial to any business so that the management can design the roles that the multimodal operator will carry out, and the also determine the amount of risks involved. Secondly the organisation should consider the administrative requirements required during the movement of goods for successful delivery of the consignment. These requirements entail the different procedures and rules that the company experience when exporting the goods to different countries. This applies because different countries have different rules and regulations. The company should consider the facilitation of trade within a certain country and the process of payment of customs. The company should at last consider the transport infrastructure and make improvements where possible. Infrastructure refers to facilities required for efficient handling of the consignment. These include cranes, stacking areas, equipment for handling containers and many others (Weele, 2010). The management must ensure that the company can access these services easily and in sufficient amounts. Role of the multimodal transport operator in the multimodal supply chain For the successful implementation of a multimodal supply chain, the operator must be effective and efficient in carrying out his role. The operator assumes the responsibility of the consignment immediately he obtains the consignment from the shipper. Consequently, the roles of the operator include carrying out the following: obtaining an effective means to transport goods from the shipper’s location to the port, clear the goods at the coast for transport, and carry out the main transport either through air, road or ocean. At the terminal i.e. the importing country, he clears the goods and then obtains a means of transport the goods to the consignee. In all these activities, the operator completes the tasks by through subcontracts with the transport companies in the locality. To deliver on these activities, the operator needs to have broad information on the transport companies available in the localities and be able to use the information to his advantage. Consequently, the operator should be able to compare the statistics of the cost of the companies available and choose the right combination of modes that are most efficient. The operator should also ensure that the goods are safe by using the right containers in the transportation (Diener, 2004). This section has analysed the conditions that need to be considered in the process of choosing and implementing a multimodal supply chain in a company. It has emphasised on the role of the management through the logistic department and the role of the operator for the successful implementation of a multimodal supply chain. The implementations of the above conditions lead to maximum benefits from the multimodal supply system to the parties involved (WSDOT, 2006). Benefit of multi-modal supply chain There are a number of benefits that Oakley is likely to realize by implementing a multi-modal transport supply chain both to the company and the country at large. The first one is the creation of short and long team job opportunists. Oakley Oil Company will need addition employees to operate the machineries and professional accountants to plan and allocate finances to use in the process. According to economic research on jobs creation, implementation of new ideas creates about 61 percent direct jobs, 12 percent jobs in the manufacturing sector and 7 percent jobs in both retail and wholesale sectors. The research also shows that most of these jobs opportunities are middle class jobs that contribute about 25 to 75 percentages of country’s wages distribution (“Benefits of Multi-Modal,” 2011). The second one is that, implementing multi-modal transport has a positive economic impact in the country. In both developed and developing countries that wish to sustain its economy, it is crucial to consider investing in multi-modal transportation. The economy will be expected to grow since investing in multi-modal transportation provides the government with additional areas of taxation. For instance, the government will tax all the workers and all transactions involved in multi-modal transport supply chain. Multi-modal transport supply chain will also increase the income per capital the government can manage to collect from the tax payers within a day from all the modes of transport at a time (“Benefits of Multi-Modal,” 2011). The third one is that the introduction of multimodal mode of transport will pressure the government to budget for infrastructure construction in the entire country and, at the same time, accelerate infrastructure development. The government’s main objective, like any other private sector, is to maximize returns and minimize expenditure. Therefore, since the multi-modal mode of transport is a new venture the government will strategize in exploiting it through taxation and construction of infrastructures to attract other companies. For example, in response to this new mode of transport the government may decide to build more roads in the entire country. This will reduce traffic congestion, which according to the United States, results to waste of about 1.9 million gallons of gas annually (“Multi-modal Transport Management,” 2012). The fourth is that the company may engage in multi-modal transport as an initiative in establishing a low-carbon supply chain. UK Technology Strategy Board has made it a requirement for every logistic company, to implement a low carbon initiatives by coming up with a project referred to as Agent Based Intelligent Logistics. Therefore, Oakley Oil Company whose operations involve logistics would significantly reduce carbon pollution by transporting their product using other means other than road (Davies, 2010). This is because research has shown that road transport alone contributes about 25 percent of carbon in the United States, which if reduced would significantly cut down carbon emission. For example, Oakley Oil Company can use a pipeline networking, a multi-modal mode transport that does not contribute to carbon gas emission. The fifth one is that the company’s transport standards will be elevated to fit in the global market. This will significantly boost Oakley Oil Company’s relation with international counties and also expose it to a larger market. The sixth one is that multi-modal provides a flexible and efficient mode of transport. Multi-modal mode transport is considered flexible compared to uni-modal mode of transport sine it has a verity of choices. For instance, in case of a failure with the traditional modes such as roads and air modes, due to accidents or weather conditions, Oakley Oil Company will still have the option of railway and water. Finally, introducing the multi-modal mode of transport would cut operational cost for the company even with the increase in production. Using a variety of transport means allow transportation at lower cost and price due to competition and availability as well as efficiency from all the modes (“Failure to Act,” 1997). In conclusion, this paper gives a clear description of both uni-modal supply chain and multi-modal supply chain in transportation and their impact on the operations of Oakley Oil Company. It also clearly illustrates the disadvantages of uni-modal transport supply chain and, on the other hand, illustrates the benefits of implementing multi-modal transport supply chain. Uni-modal supply chain, in this case, presents a traditional mode of transportation whose characteristics include inflexibility, high operation cost, inconvenient and inefficient. Oakley Oil Company, therefore, in cutting down its operation cost in transportation and logistics, it needs to consider implementing multi-modal mode of transportation. Multi-modal transportation supply chain is an improvement of the uni-modal transportation supply chain since it incorporates all modes of transport making it effective. Therefore, multi-modal transportation will not only financially impact on the company but also it will significantly contribute to the entire country’s economy. References About Dept to Equity Ratio. (n.d). retrieved from http://ycharts.com/companies/WMT/debt_equity_ratio Days in Accounts Receivable ration. (n.d). retrieved from Diener, D. (2004). Value Recovery from the Reverse Logistics Pipeline. Boston: Santa Monica Publishers. Fricker, J. & Whitford, R. (2004). 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