Written Mini Case Study : Hidden Costs

Module 3 - Session 3

Written Mini Case Study : Hidden Costs

Date: Feb 06 ,2016

1. Problem:

The Logistics management is the governance of supply chain functions, Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply/demand planning, and management of third party logistics services providers, The Logistics Manager needs to understand the inventory trade-offs such like carrying cost, transportation cost, warehousing cost and order processing cost, etc.

In our case the Logistics manager was frustrated because he was shipping LTL shipment instead of FTL, and according to his point of view if he swath To FTL, that will reduce the shipment cost from $2000 for 10 pallets weekly, to $2500 for 26 pallets weekly, the shipment size increased 16 pallets weekly (160%), and the cost increased only $.500 per shipment, which is 25% only.

The Logistics Manager was wondering what the reasons  of not doing   that  strategy before.

1. Causes:

Obviously, the transportation management is an integral part of your business as logistics manager, then it is essential to learn the difference between LTL Shipments, Partial and Full Truck Load Shipments.  When you have a complete understanding of your shipping options, your transportation management plan will come together more efficiently and may even result in a reduction of your direct transportation spend, in the other hand there is a trade-off between the inventory and transportation ( LTL and FTL), for example when you order a full FTL, the transportation time will be less than the LTL, because LTL carriers collect freight from various shippers and consolidate that freight, partial truckload is generally intended for shipments that are larger than LTL, yet smaller than FTL. It is a shipping process that combines freight from various sources but with fewer stops than LTL. Multiple freight loads are combined onto a single truck and taken along a predefined route. This shipping option is not only ideal for certain size or weight-based shipments, but can also be a viable option for particularly time-sensitive shipments. the stock management's cost will be higher in case of FTL because the company will receive more fright, but the stock-out risk will decreased as well.  

sometime there would be a hidden cost which is not included in the total cost of transportation because of additional expenses, the Logistics Manager should knows that before he making any decision of switching from LTL to FTL because there would be a hidden cost like carrying cost, warehousing cost and Lot Quantity Costs, that costs must be taking into account before any changes.  

1. Analysis:

The logistics Manager was thinking that it's very simple to just switch from LTL to full truckload shipments to save cost and increase the size of the shipment, Previously in LTL they were shipping 10 pallets for $.2000 which means $.200 per pallet, in the proposed FTL shipment they will pay $.2500 for 26 pallets which is $.96.15 per pallet, almost 48.07% less.