Optimizing Supply Chain: Direct Shipping vs. Milk Runs & Transportation Mode Selection
0In this video, we dive deep into the complexities of supply chain management, focusing on two critical aspects: the comparison between direct shipping and milk runs for retail distribution, and the selection of transportation modes for importing products from China.
We analyze the costs associated with different shipping methods, including air freight and ocean shipping, and provide insights into how to choose the best option based on product characteristics, demand, and environmental impact.
Join us as we explore real-world scenarios, calculations, and recommendations that can help businesses optimize their logistics and reduce costs. Whether you're a supply chain professional or just interested in logistics, this video is packed with valuable information!
SOLVED:
• A retail chain has eight stores in a region supplied from four supply sources.
Trucks have a capacity of 40,000 units and cost $1,000 per load plus $100 per delivery.
Thus, a truck making two deliveries charges $1,200.
The cost of holding one unit in inventory at retail for a year is $0.20.
The vice president of the supply chain is considering whether to use direct shipping from suppliers to retail stores or setting up milk runs from suppliers to retail stores.
I. What network do you recommend if annual sales for each product at each retail store are 960,000 units?
II. What network do you recommend if sales for each product at each retail store are 120,000 units?
• Jackie Chen, vice president of China Imports, was looking to design a framework to select transportation modes for various products imported from China to the United States. His basic options were to either use air freight or ocean shipping in 20-foot containers. Air freight was faster and more reliable, but ocean shipping was much cheaper. He decided to evaluate the shipping decision for two very different product categories—consumer electronics, such as smartphones, and decorative hardware, such as door handles and hinges.
• China Imports provided a variety of products to its customers from a warehouse near the port of Long Beach, California. The company incurred a holding cost of 25 percent on all inventory held and aimed to provide a 98 percent cycle service level on its products. The high level of service aligned with the high quality of products that the company imported
• Air freight and ocean shipping were the two options available to move products from China to the United States. Air freight charged $10 per kilogram shipped and required a minimum shipment of 50 kg. Besides being fast, air freight was also quite reliable. The average lead time on air freight was one week, with a standard deviation of lead time of 0.2 weeks. Ocean shipping was much cheaper and cost $1,200 per 20-foot container. Given that each container could hold up to 15,000 kg, the shipping cost per kilo by ocean was more than a hundred times cheaper than as freight. Ocean shipping, however, took longer and was less reliable. The average lead time using ocean shipping was nine weeks, with a standard deviation of three weeks.
• Weekly demand for smartphones averaged 1,000 units and had a standard deviation of 400. Each laptop cost $300 and weighed 0.1 kg. The typical life cycle for a laptop was about one year; it was critical to not lose demand early in the life cycle because of a lack of product availability.
• Ed Hendrix, vice president of supply chain at 4Farmers, a large mixed-feed company in the Netherlands, Europe, was reading a new scientific report from CED (an independent research and advisory company specializing in environmental impacts) that analyzed the environmental effects of the importing of raw materials.
• 4Farmers is a modern international company producing feed and fodder for pigs, cows, poultry, and so on, importing grain from all over Europe.
• Ed asked his staff to propose different distribution alternatives for Poland: Nina Kramer on environmental issues and Leo Spoor on the costs, needs, and possibilities for the various transport modes. Leo figured out the following information: Monthly, demand of 4Farmers for Euro-Grain is about 3,500 tons of grain. From the farm near Warsaw, grain can be transported by rail to the train station in Wroclaw (320 km) or the train station in Rotterdam (1160 km).
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