Logistics Company

I: Your client is a logistics company looking to optimize their costs. Help them understand how should they proceed?

C: Sure. Firstly I would like to understand the business of the client in detail. How does the value chain look like? Where exactly the client is operating?

I: The client is having 4 warehouses in different parts of the country. The client is responsible for transporting small automobile spare parts to the wholesalers.

C: Understood. Is the client also manufacturing these parts? And what are these automobile parts exactly?

I: The client is only handling the logistics and not the manufacturing. The manufacturers pay us for maintaining the warehouses and transporting the products. They deal with spare parts like wheel bearings, sun visors, springs, etc.

C: I would like to analyze this case using the supply chain analysis. Here I would focus only those parts of the chain where the client has a touch point: ie, Warehousing, Transportation & Distribution.

I: Sure. Let’s focus on cost optimization avenues in the transportation bucket.

C: I would like to understand the mode of transport currently being used by the client. Also, I would like to know where are the wholesalers exactly located?

I: So the client uses its own diesel trucks to transport the parts to wholesalers who are located within a 100 km radius of each warehouse owned by the client.

C: Okay. According to me, the transportation costs can be divided into the labour (driver) cost and the fuel cost of journey. Should I focus on either of these first?

I: Sure, go ahead with the fuel costs.

C: The fuel costs can be broken down as: Cost per l of Diesel * (Avg distance travelled per truck trip / Average Mileage of truck) * Total No. of truck trips. We can reduce the fuel costs by reducing the Diesel costs, reducing the average trip distance, improving the truck’s mileage or reducing the total number of truck trips.

C: Diesel costs is not in our hands and let’s assume the average mileage can also not be changed. Let’s focus on reducing the number of truck trips. Assume that a truck usually takes multiple trips to a particular distributor.

I: Alright! So the number of truck trips to a typical distributor can be given as: Total material to be transported/ Material transported per trip. To reduce the number of trips, we need to increase the material transported per trip. This can be done in two ways: Increasing the capacity of every truck and increasing the % capacity utilized.

C: The trucks’ load carrying capacity is constant. But we are unable to transport the material equal to the carrying capacity somehow.

I: This could be because of three reasons: Volume lower then the truck capacity onloaded , Loss of volume during truck journey, Volume lost/damaged during offloading.

C: We are onloading a volume equal to the truck capacity, but it seems there is some volume lost during the truck journey. Can you identify why is this happening?

I: Sure. This again could be because of carelessness/rash driving by the driver, thefts by driver or external thefts.

C: No external thefts have been reported by the driver. What can we do monitor the volume loss?

I: We can follow the following recommendations:

C: 1)Install CCTV cameras within the truck to avoid thefts by the driver.

I: 2)GPS Tracking of the trucks.

C: 3)Aligning driver incentives with volume delivered / penalizing drivers for volume lost.

I: Apart from this, fuel costs can also be reduced by reducing the average distance per truck trip. Do you want me to focus on the same as well?

C: Sure, carry on!

I: To reduce the distance per truck trip, the driver needs to optimize the travel routes. He can search for short cuts and avoid travelling off the route.

C: Further, we can focus on reducing the driver costs as well.

I: That’s alright! We can close the case here.