Logistics Problem 19 - Shipping, Storage, & Distribution

Analyzing Logistics and Distribution

A major coffee supplier has warehouses in Seattle and San

Jose. The coffee supplier receives orders from coffee retailers

in Salt Lake City and Reno.

- The retailer in Salt Lake City needs 400 pounds of coffee - The retailer in Reno needs 350 pounds of coffee

- The Seattle warehouse has 700 pounds of coffee available

- The warehouse in San Jose has 500 pounds of coffee available.

The cost of shipping from Seattle to Salt Lake City is $2.50 per

pound; from Seattle to Reno $3 per pound; from San Jose to Salt

Lake City $4 per pound; and from San Jose to Reno $2 per

pound.

Your Assignment:

Find the number of pounds to be shipped from each

warehouse to each retailer to minimize the cost.

x = pounds of coffee shipped from San Jose to Salt Lake City

y = pounds of coffee shipped from San Jose to Reno

Seattle warehouse

400 x 700 350 y

$2.50 $3

Salt Lake Reno retail store

City retail store 350

400

$4 $2

x y

San Jose warehouse

500

x = pounds of coffee shipped from San Jose to Salt Lake City

y = pounds of coffee shipped from San Jose to Reno

Solution: Ship 400 pounds of coffee from Seattle to Salt Lake City, and 350

pounds of coffee from San Jose to Reno.

(400 lbs x $2.5) + (300 lbs x $2) = $1,700

Seattle warehouse

400 x 700 350 y

$2.50 $3

Salt Lake Reno retail store

City retail store 350

400

$4 $2

x y

San Jose warehouse

500

1. Transportation Mode Selection

Distribution planners must first decide on which mode or modes of transportation to use in distributing products. The

major transportation modes are

Airairplanes

Motortrucks, delivery vans, and cars

Railtrains, railroad cars

Waterships and barges

Pipelineliquid, gas, slurry

Intermodalcombination of two or more modes

Distribution planners select the lowest cost mode that also can get the

products there on time (speed), on a consistent basis (reliability), to

many different locations (location access), and without major damage

(quality). In the US, motor transportation (e.g., trucks) is the most

common mode of transportation that retailers use to distribute products

from distribution centers to their stores.

2. Transportation Supplier/Vendor

After selecting the mode of transportation,

distribution planners must then decide which

suppliers or vendors will transport their products.

They sometimes must decide whether to use their

own transportation equipment and employees (in-

house) or contract with another company (contract

out to supplier).

They make this choice based on a comparison of

cost, reliability, location access, and damage history.

The final choice is usually made on cost. Costs are

calculated based on number of units shipped per

mile.

A distribution planner for a hardware

store chain pays $0.25 per mile for every

case of bolts shipped from its

distribution center to the companys

stores.

One store is located 53 miles from the

distribution center. How much would it

cost the company to ship 50 cases to this

store? You must calculate per round trip.

3. Transportation Costs t = Transportation costs

n = Number of units (e.g., cases, pounds)

m= Number of miles transported

c = Cost per unit per mile

t = n x m x c

A distribution planner for a hardware

store chain pays $0.25 per mile for every

case of bolts shipped from its

distribution center to the companys

stores.

One store is located 53 miles from the

distribution center. How much would it

cost the company to ship 50 cases to this

store? You must calculate per round trip.

53 x 2 x $.25 x 50 = $1,325

3. Transportation Costs t = Transportation costs

n = Number of units (e.g., cases, pounds)

m= Number of miles transported

c = Cost per unit per mile

t = n x m x c

A distribution planner for a wholesale distributor is selecting

which trucking company to use to distribute 500 cases of holiday

candy from the central warehouse to 3 distribution centers of a

major retail customer. The round trip mileage from the

wholesale distributors warehouse and the retail distribution

centers are

Distribution Center 1 --- 132 miles



Advance Trucking charges $0.23 per case per mile

Midwest Trucking charges $0.28 per case per mile

Chicago Trucking charges $0.25 per case per mile

Which is the lowest cost trucking company?

3. Transportation Costs

Advance Trucking:

$0.23 x 132 x 500 = $15,180

$0.23 x 532 x 500 = $61,180

$0.23 x 432 x 500 = $49,680

$126,040

Advance Trucking:

$0.23 x 132 x 500 = $15,180

$0.23 x 532 x 500 = $61,180

$0.23 x 432 x 500 = $49,680

$126,040

Midwest Trucking:

$0.28 x 132 x 500 = $18,480

$0.28 x 532 x 500 = $74,480

$0.28 x 432 x 500 = $60,480

$153,440

Advance Trucking:

$0.23 x 132 x 500 = $15,180

$0.23 x 532 x 500 = $61,180

$0.23 x 432 x 500 = $49,680

$126,040

Midwest Trucking:

$0.28 x 132 x 500 = $18,480

$0.28 x 532 x 500 = $74,480

$0.28 x 432 x 500 = $60,480

$153,440

Chicago Trucking:

$0.25 x 132 x 500 = $16,500

$0.25 x 532 x 500 = $66,500

$0.25 x 432 x 500 = $54,000

$137,000

Advance Trucking has a history of 1% damage per shipment, offers a 2% 10 net 30 discount; ships in 3-5 days

Midwest Trucking has a history of .5% damage, offers no discount, and guarantees 1 day delivery within 500 miles

Chicago Trucking has a history of 2% damage per shipment offers a 5% 10 net 30 discount; ships in 3-5 days

Value of each case is $900

Which trucking company will you choose?



$126,050 x .02 = $2,520.80 discount; net $123,519.20

Inventory shrinkage $450,000 x .01 = $4,500







$126,050 x .02 = $2,520.80 discount; net $123,519.20



$153,440 shipping cost







$126,050 x .02 = $2,520.80 discount; net $123,519.20



$153,440 shipping cost



$137,000 x .05 = $6,850 Discount net: $130,150





: Figure 4.2 Transportation Rates by Distance of Route

rates = Dollar($) cost per case shipped

Miles Midwest

Trucking

Chicago

Trucking

Advance

Trucking

< 5 .34 .25 .30

5 49.99 .33 .25 .27

50 99.99 .32 .25 .25

100 + .28 .25 .23

1. What is the rate charged by Midwest Trucking to ship cases if the

routes are between 3 and 4 miles?

2. What is the rate charged by Chicago Trucking if the routes are longer

than 50 miles?

3. Which trucking company has the lowest rates for routes between 6

and 49 miles?



Miles Midwest

Trucking

Chicago

Trucking

Advance

Trucking

< 5 .34 .25 .30

5 49.99 .33 .25 .27

50 99.99 .32 .25 .25

100 + .28 .25 .23


routes are between 3 and 4 miles? $.34 per mile


than 50 miles?


and 49 miles?



Miles Midwest

Trucking

Chicago

Trucking

Advance

Trucking

< 5 .34 .25 .30

5 49.99 .33 .25 .27

50 99.99 .32 .25 .25

100 + .28 .25 .23




than 50 miles? $.25 per mile


and 49 miles?



Miles Midwest

Trucking

Chicago

Trucking

Advance

Trucking

< 5 .34 .25 .30

5 49.99 .33 .25 .27

50 99.99 .32 .25 .25

100 + .28 .25 .23




than 50 miles? $.25 per mile


and 49 miles? Chicago Trucking



Miles Midwest

Trucking

Chicago

Trucking

Advance

Trucking

< 5 .34 .25 .30

5 49.99 .33 .25 .27

50 99.99 .32 .25 .25

100 + .28 .25 .23

4. What would be the transportation costs for Midwest Trucking to ship 50

cases of product with a route distance of 7 miles? How much could

you save if you hired Advance Trucking to do the same shipment?



Miles Midwest

Trucking

Chicago

Trucking

Advance

Trucking

< 5 .34 .25 .30

5 49.99 .33 .25 .27

50 99.99 .32 .25 .25

100 + .28 .25 .23

4. What would be the transportation costs for Midwest Trucking to ship 50

cases of product with a route distance of 7 miles? How much could

you save if you hired Advance Trucking to do the same shipment?

Midwest Trucking: $.33 x 7 x 50 = $115.50

Advance Trucking: $.27 x 7 x 50 = $ 94.50

$ 21.00 Savings

A distribution planner for a paint store

chain is calculating the total handling

and storage costs. She will have to pay

to use a temporary storage warehouse to

distribute 2,300 cases of paint for a

special promotion. The warehouse

charges $0.66 per case handled and

stored at the warehouse.

4. Storage Costs

d = total handling and storage costs of a distribution center or warehouse

n = number units handled and stored

c = cost per unit handled and stored

d = n x c

How much will the planner have to pay to distribute the 2,300 cases

from the warehouse?

If the planner is charged $0.54 per case by another warehouse, how

much money would be saved by choosing the lower cost warehouse?



and storage costs. She will have to pay

to use a temporary storage warehouse to





4. Storage Costs




d = n x c


from the warehouse? 2,300 x $0.66 = $1,518





and storage costs. She will have to pay to

use a temporary storage warehouse to





4. Storage Costs




d = n x c


from the warehouse? 2,300 x $0.66 = $1,518 2,300 x $0.54 = $1,242 $1,518 - $1,242 = $276.00



Total distribution costs are a combination of handling and

storage costs at a distribution center and transportation costs

from the center to the stores.

The formula for calculating these costs is

r = d x t

5. Distribution Costs

r = total distribution costs

d = total handling and storage costs of a distribution center

t = total transportation costs

r = d x t





A distribution planner wants to calculate the total distribution cost

for distributing equipment parts to a construction site in rural

Illinois. He wants to ship the parts from the companys regional

distribution center, which is 23 miles away. He needs to make a

delivery of 50 cases of parts each month for three months.

The regional distribution center charges $0.25 per case, per month.

The cost of shipping by truck to the stores is $0.34 per case per

mile. (Hint: you must calculate round trip mileage.)

What is the total distribution cost to distribute the parts over the

three-month period?

r = d x t





r = ($0.25 x 50 x 3) x ($0.34 x 50 x 46 x 3)

r = $87,975

Logistics Problem 19 - Shipping, Storage, & Distribution

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