Cargo Haulers Inc. <\/p>\n
Cargo Haulers is a mid-sized distributor based in the central United States. The ability to distribute their products in a cost-efficient manner is imperative to remaining competitive in their field. <\/p>\n
Transportation Manager Earl Monroe stopped by the office of Fred MacMurray Cargo Hauler\u2019s VP of Supply Chain. \u201cWhat\u2019s new boss?\u201d asked Monroe. <\/p>\n
\u201cWe have a student intern named Dolores Del Rio starting today from Iowa State University, \u201creplied MacMurray. \u201cI\u2019m going to assign her to you.\u201d<\/p>\n
\u201cAwesome!\u201d exclaimed Monroe. \u201cThis gives me the opportunity and the resources to look at that \u2018if I had time\u2019 wish list and assess a potential future employee. I have a project in mind for our new intern. This project should provide some real-world experience and increase her market value for her first career position. If this project is done correctly, I believe Cargo Haulers can realize some key cost saving benefits. So, when can I meet her?\u201d<\/p>\n
\u201cYou actually walked right past her outside my office.\u201d Grinning, MacMurray looked at his open door and called, \u201cDolores, come into my office, I want to introduce you to your new boss and discuss our transportation strategies.\u201d<\/p>\n
As Dolores, walked through the door, MacMurray began, \u201cDolores, this is your boss Earl Monroe. According to your resume, you took a transportation course last semester with Professor Chen \u2013 tell me \u2013 what do you know about transportation consolidation?\u201d<\/p>\n
PART 1: SHIP DIRECT vs VEHICLE (Freight) CONSOLIDATION <\/p>\n
\u201cProfessor Chen taught us that truckload (TL) rates per pound are lower than less-than-truckload (LTL) rates per pound.\u201d Dolores replied. \u201cWith LTL you are handling many smaller shipments for different customers. Truckload shipments are often made up of a few shippers so you get kinda\u2019 an \u2018economics of scale\u2019 thing: fewer delivery points, less handling, more profit for the carrier. Transportation rates reflect this and that is why TL rates are lower per pound. Strategically, you consolidate your freight into larger quantities so you can get the lower TL rate. There are two main types of consolidation: vehicle consolidation and temporal consolidation. Vehicle consolidation combines LTL shipments from various sources together into TL quantities so you can qualify for the lower TL rates.\u201d<\/p>\n
\u201cCorrect\u201d agreed Monroe, \u201cCargo Haulers can either use a ship direct model where our four manufacturers ship LTL directly to our customer and we pay the high LTL freight charges, or we could switch to vehicle consolidation where the four manufacturers ship LTL to our distribution center at our expense and we combine these items into consolidated TL shipments to our customer. Not only would we be able to reduce dock congestion for our customer, but we may also be able to reduce our transportation costs.\u201d<\/p>\n
\u201cAs long as we can efficiently run our distribution center,\u201d cautioned MacMurray, \u201cour distribution center costs run $4.70 per 1,000 pounds handled.\u201d<\/p>\n
\u201cDolores, I want you to take a look at our data (Figure 1) and complete an analysis comparing the ship direct model and the vehicle consolidation over 52 weeks of shipping, \u201cstated Monroe, looking at MacMurray who was nodding his approval. \u201cQuantify a recommendation about the lowest cost strategy. And don\u2019t forget to include our distribution center costs!\u201d Rates are provided in CWT (hundredweight) or cents per hundred pounds. <\/p>\n
MacMurray paused, remembering a prior conversation he had with corporate, \u201calso, I would like to know what would happen if there is a 10% increase in our TL Rate DC to Customer later on in our future\u201d. <\/p>\n
PART 2: SHIP DIRECT vs TEMPORAL CONSOLIDATION<\/p>\n
\u201cSo Dolores,\u201d Monroe continued, \u201cWhat about the other type of consolidation. The temporal one. What is that?\u201d<\/p>\n
\u201cWell,\u201d Dolores hesitated, \u201cbasically, temporal is a fancy word for time. With temporal consolidation Cargo Haulers would combine LTL shipments over time going to a single location into TL quantities to benefit from the lower TL rates per pound.\u201d<\/p>\n
\u201cPerhaps we should use temporal consolidation to consolidate these shipments into larger, lower cost shipments rather than making a number of higher cost, small shipments,\u201d stated Monroe. \u201cOK. Dolores, I also want you to take a look at the possibility of using temporal consolidation from the Cargo Haulers\u2019 Oklahoma City distribution center to each of our operations in Kansas.\u201d<\/p>\n
\u201cUse the history of average past orders to three Kansas cities over consecutive three day periods (Figure 2) an assume this is representative of demand every three days throughout the year (e.g. Day 4 shipments would be identical to those on Day 1). Complete an analysis using our current rates (Figure 3) comparing no consolidation (e.g. ship direct) versus temporal consolidation of three days of shipments over a 30-day period. Quantify and make a recommendation based on the lowest cost.\u201d<\/p>\n
\u201cBut, Earl, if we delay shipments, our customer service level will drop. That has to cost us something,\u201d cautioned Dolores. \u201cTrue,\u201d responded Monroe, \u201cso in your analysis assume a cost of poor service of $2000 dollars per month (every 30 days).\u201d<\/p>\n
\u201cThis all sounds so complicated,\u201d Dolores declared, \u201cwhy don\u2019t we use a freight forwarder or a freight broker to handle the Cargo Haulers freight?\u201d<\/p>\n
\u201cWell, Dolores,\u201d Monroe smiled, \u201cI guess I would answer you with a question of my own: What is the difference between a freight forwarder and a freight broker? Why don\u2019t you provide me the key differences and the similarities of each so we can discuss the options to consider.\u201d<\/p>\n
PART 3: FORMING A NEGOTIATION STRATEGY <\/p>\n
Two weeks later Fred MacMurray called Dolores to his office. Earl was sitting in a chair when she arrived. \u201cDolores, after you completed your analysis of consolidation and completed the comparison of a freight forwarder and a freight broker, Mr. Monroe and I got to talking. We spent $6,704,325 last year shipping freight. I want to consider using a freight forwarder for our operations so Cargo Haulers can lower our transportation costs. Earl checked our NAICS 4885 in Hoovers Online and found there are 31,249 freight forwarding companies in their database. 19,900 of those have revenues below $1 million dollars annually \u2013 and we feel these are too small for us.\u201d Fred leaned back in his chair and then stated \u201cWe also feel we wouldn\u2019t have enough leverage with the really big freight forwarding companies that have over $500 million in annual revenues. So we would like to consider using one of the 121 mid-size firms ($50 – $500 million). We have been discussing doing business with MT Freight Forwarding and they have initially agreed to use the same surface carriers that we presently use so our customers will not notice anything different. We now have to negotiate the rates with MT Freight Forwarding.\u201d<\/p>\n
Monroe chimed in, \u201cas a middleman, MT Freight Forwarding is able to consolidate Cargo Haulers freight along with freight from a number of other customers so they can qualify for a lower transportation rate. We realize that MT Freight Forwarding will have many customers, but we want to pay only our fair share. Our goal is negotiate rates with MT Freight Forwarding so they may earn their average profit margin or EBITDA and keep their shareholders happy. What we do not want to do is to subsidize the other customers of MT Freight Forwarding. So we need you to conduct an analysis for us to use in our negotiations that determines what these rates \u2018should be\u2019<\/p>\n
MacMurray interposed, \u201cTell her about the Accenture report.\u201d<\/p>\n
\u201cOh yes,\u201d Monroe continued, \u201cI found an Accenture report which considers the \u2018higher performer\u2019 freight forwarders. The high performers have tightly controlled operating expenses and strong working capital management. Their average return to shareholders over a five-year period is 7.5% Hoover\u2019s indicates that\u2019s above the industry average EBITDA for all freight forwarders at 6.6%. It appears the high performers earn a higher return for their better efficiency. Happily, the medium sized freight forwarders have a lower average EBITDA of 6.3% (Figure 4) so we might be able to glean even more cost savings.\u201d<\/p>\n
\u201cSince we already have rates from our carrier (Figure 5),\u201d MacMurray interjected, \u201cWe can assume the forwarder has the same shipping rates or better. So use these rates to develop a strategy so we can negotiate a flat rate per CWT for each zone for what we would expect to pay knowing EBITDA target of 6.3% and a Transportation Purchase (Spend) of 65.4%\u201d<\/p>\n
Questions<\/p>\n
Part 1: <\/p>\n
Q #1: If we use the ship direct model, using data from Figure 1, what will be our total costs over a 52-week period?<\/p>\n
Q#2: If we use the vehicle consolidation model, using data from Figure 1, what will be our total costs over a 52-week period?<\/p>\n
Q#3: Which model do you recommend and why?<\/p>\n
Q#4: If we use the vehicle consolidation model, using data from Figure 1, what will happen if we have a 10% increase in the Truckline (TL) Rates from the Distribution Center (DC) to our customers (i.e. what will be the savings \/ or increase over the ship direct model)?<\/p>\n
Part 2: <\/p>\n
Q#5: If we use the ship direct model, using data from Figure 2 and 3, what will be our total costs over a 30-day period?<\/p>\n
Q#6: If we use the three-day temporal consolidation model, using data from Figure 2 and 3, what will be our total costs over a 30-day period?<\/p>\n
Q#7: Do you recommend using the ship direct model OR the three-day temporal consolidation model? Explain why.<\/p>\n
Q#8: Compare and contrast the similarities and differences between a freight forwarder and a freight broker. When is it appropriate to use one but not the other?<\/p>\n
Part 3: <\/p>\n
Q#9: Propose a flat rate for each of the five zones using a cost \/CWT.<\/p>\n
Zone A:<\/p>\n
Zone B:<\/p>\n
Zone C:<\/p>\n
Zone D:<\/p>\n
Zone E:<\/p>\n
Q#10: What will be the savings in dollars ($) and as a percentage (%) compared to the old transportation spend?<\/p>\n
2<\/p>\n","protected":false},"excerpt":{"rendered":"
Cargo Haulers Inc. Cargo Haulers is a mid-sized distributor based in the central United States. The ability to distribute their products in a cost-efficient manner is imperative to remaining competitive in their field. Transportation Manager Earl Monroe stopped by the office of Fred MacMurray Cargo Hauler\u2019s VP of Supply Chain. \u201cWhat\u2019s new boss?\u201d asked Monroe. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[10],"class_list":["post-78531","post","type-post","status-publish","format-standard","hentry","category-research-paper-writing","tag-writing"],"_links":{"self":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/78531","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/comments?post=78531"}],"version-history":[{"count":0,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/78531\/revisions"}],"wp:attachment":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/media?parent=78531"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/categories?post=78531"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/tags?post=78531"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}