The importance of time in transit and reliability of transit time for shippers, receivers, and carriers

W. Bruce Allen, Mohamed M. Mahmoud and Douglas McNeil

Transportation Research Part B: Methodological, 1985, vol. 19, issue 5, 447-456

Abstract: Reliability of transit time is reputed to be the most important variable influencing freight transport today, according to shipper surveys. Average transit time also plays a major role. A model is developed that shows how a cost-minimizing shipper will adjust its economic order quantity as reliability and/or time in transit changes. Such changes impact on average inventory costs, ordering costs, expected shortage costs and expected excess costs. The model is developed for both discrete and continuous transit time distributions. Reliability is defined as the variance of transit time. A matrix is prepared for some sample data, which shows the minimum cost attainable with each mean/variance of transit time distribution. Comparing across rows and columns of the matrix enables one to show the value (reduction in total cost) obtainable by improving reliability and/or mean transit time. In addition, value can be obtained by improving reliability while increasing average transit time. It is suggested that the model can be used for shippers in negotiating service improvements with carriers and by carriers in negotiating service improvements with shippers. In the former case, the carrier can determine how much they are willing to pay for the improvement, whereas in the latter case, the carriers can determine how much they are able to charge for the improvement.

Date: 1985
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