Logistic Imperatives and Mode Choice



Logistic Imperatives and Mode Choice

Authors

F Combes, Université Paris-Est, FR

Description

This paper adapts a classical model of inventory theory to provide a logistic, microeconomic interpretation of the preference of shippers with respect to freight transport. The concept of supply chain's reactivity is given a formal representation.

Abstract

Modelling the choice of mode in freight transport is a complex issue. In disaggregate models, each mode is represented by a given utility, typically consisting of a cost dependent term, a time dependent term, a mode specific constant and most often an idiosyncratic random term, supposedly accounting for the unobserved parameters influencing the decision of each shipper. This approach, inherited from passenger modelling, is quite efficient, but has a number of shortcoming, listed below.

First, this approach does not make explicit the linkage between the logistic imperatives of shippers and their preferences with respect to freight transport services. This is typically the case of the value of time or value of reliability coefficients, which are derived from empirical studies, but have few theoretical linkage with the logistics of shippers. Second, by construction, it does not explain why a given shipper would use two modes simultaneously for a given commodity flow (e.g. a base mode and an emergency mode). Third, it does not explain why shippers say that some transport modes bring more "flexibility" to their supply chains than others. Fourth, and finally, it is modelled without reference to the choice of shipment size, while this variable is of crucial importance for shippers and carriers.

One possible way to overcome these shortcomings is to try to model simultaneously the choice of shipment size and transport mode, as these two decisions are closely related. A number of models able to do that are available in the inventory theory. A small number of them have been imported to freight transport modelling, including the well-known Economic Order Quantity model, which represents the optimal shipment size and transport mode as a trade-off between transport cost and commodity waiting time. However, to our knowledge, none of them insist on the characteristics of the shippers' customers, and how these characteristics influence the logistic decisions of shippers.

To address this gap, we present a classic model of the inventory theory, the single product single location system under periodic review, and we analyse it from the perspective of freight transport modelling. This model is a simple representation of a simple supply chain, where a plant supplies with commodities a single retail center, where customers come and buy them. The daily demand at destination is stochastic, but the shipper knows its distribution. The shipper decides each day the size of the shipment he sends from the plant to the retail center. However, the higher the travel time, the more difficult it is to forecast the demand. Thus, the higher the risk to have a stock shortage at destination. A safety stock is subsequently needed, increasing with travel time. This optimal safety stock, as well as the expected transport cost, inventory cost, and customer dissatisfaction due to undelivered orders, are easy to derive.

Thanks to this approach, we obtain a logistic interpretation of the preference of shippers for shorter travel times. The concept of supply chain's reactivity is given a formal representation, and is explicitly related to the preference of shippers for faster transport modes. Furthermore, this framework can be extended to provide a microeconomic basis for the value of reliability, or to explain when two modes are used simultaneously by a single shipper for a single commodity flow. Finally, it illustrates how small can be the importance of transport costs in the logistic decisions of shippers, compared to other costs.

Publisher

Association for European Transport