Procurement’s involvement in transportation
The management of transportation is complex and require procurement to gain knowledge of basic transportation decision-making activities. The major activities are presented in the following section:
Procurement requires to select the appropriate shipment mode for their incoming shipment from suppliers. Each of the modes has specific operating and cost characteristics. Procurement must weigh them in order to select the most appropriate transportation mode. The most basic selection decision is the trade-off between speed, cost and reliability. The highest speed mode will always end up with the highest cost.
In many cases, most multinational companies use a variety of transportation modes depending on time pressures, the nature of the goods and the shipment destination.
Each of the transportation mode is explained below:
Trucks are the most flexible mode of transportation. The mode offers the advantage of door-to-door service. In Malaysia context, this truck service could be used for transportation in any part of West Malaysia and Singapore. For truck shipment from Singapore, most of the Malaysia companies get their suppliers to ship to one of the public warehouse in Singapore and their appointed truck will pick up the goods from this warehouse. By doing so, there are cost saving from both transportation and shipment consolidation. The truck shipment is reliable with low damage except there is road accident or massive traffic jam. This is the cheaper mode compared with domestic air shipment.
Rail carriers once dominated the transportation sector, but their share of the transportation market has declined steadily after many highways are build in Malaysia. Rail carriers are relatively inflexible compared with truck because it has the fixed departure schedule. On top of that, it is slower than truck shipment in Malaysia context. Thus, it is not so popular for us to use rail for shipment to other parts of Malaysia. The rail shipment could be used for shipment to both Singapore and Thailand. However, we may use it more often for Thailand as it is currently cheaper and more convenient compared with using truck.
The main advantage of airfreight is the speed. Airfreight is costly and must be combined with trucks to provide door-to-door service. Therefore, products best suited for this mode are of high value, extremely perishable or urgently required.
Most international shipment uses water carriers. This is the cheaper alternative mode for international air carriers. Although water carrier is cheaper, it is slow and inflexible due to its fixed schedule of departure time. In Malaysia context, this mode is best suited for heavy or bulky items purchased from overseas such as China, Taiwan, Japan, Korea, United States and other European countries.