Case Study: Fowler Distributing Company

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Case Study

Fowler Distributing Company

Student Name: Shaheen SardarCourse Name: Logistics Management

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Fowler Distributing Company(Beer and wine distributor)

• Roy Fowler (Owner).

• Inefficient transportation of products to customer accounts (Local warehouse to various retail accounts).

• Roy has his own trucks.

• Roy is pleased with the selling efforts of drivers.

• Roy is interested in minimizing the number of trucks and miles driven.

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Delivery operations

REGULAR ROUTE (Commission accounts):

• Assignment of retail and other accounts to a particular driver and truck.

• Drivers are paid on a commission basis.

• Drivers earn $4000 per week during a good selling period.

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Delivery operations

SECONDARY ROUTE (Pre-sell accounts):

• Place an order advance of delivery rather than wait for the route salesperson to drop it.

• No sales commission is paid (no selling by drivers takes place).

• Orders can be put on truck separate from commission accounts and routed as desired.

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A typical problem

• 21 pre-sell accounts might occur on a typical day (Table 1, Figure 1).

• 250 operating days per year.

• Average speed is 25 miles per hour.

• 5 vehicles available for use for pre-sell accounts.

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Table 1: Account Data

Account No Coordinates Case demanded Delivery time, min.

Time windowsX Y

1 7.5 28.5 120 60 8:00 A.M. – 5:00 P.M.2 10 9 200 90 8:00 A.M. – 10:30 A.M.3 12 24 120 60 8:00 A.M. – 5:00 P.M.4 13 30 150 80 8:00 A.M. – 5:00 P.M.5 13.5 34 50 40 8:00 A.M. – 5:00 P.M.6 17.5 16.5 90 50 8:00 A.M. – 5:00 P.M.7 23 38.5 140 70 8:00 A.M. – 8:30 A.M.8 23 16.5 60 40 8:00 A.M. – 5:00 P.M.9 23.5 25 110 60 8:00 A.M. – 5:00 P.M.

10 27 33.5 180 90 8:00 A.M. – 10:45 A.M.11 29 28 30 20 8-11 A.M. & 2-4 P.M.12 11 40 90 50 8:00 A.M. – 8:30 A.M.13 32 40 80 50 8:00 A.M. – 10:00 A.M.14 7.5 18 50 30 12:30 P.M. – 5:30 P.M.15 5 13.5 160 90 8:00 A.M. – 12:45 P.M.16 23 8 100 60 8:00 A.M. – 5:00 P.M.17 27 8 140 60 8:00 A.M. – 5:00 P.M.18 36 8 50 30 8:00 A.M. – 5:00 P.M.19 32 4 90 50 12:00 P.M. – 4:00 P.M.20 32.5 22 150 70 8:00 A.M. – 5:00 P.M.21 31.5 13 80 40 8:00 A.M. – 5:00 P.M. Total 2240 1190

Warehouse 15 35

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A typical problem

• Each vehicle (truck) capacity: 500 cases, a price $20000, and an operating cost of $0.90 per mile.

• Driver are paid $13 per hour (including 30% fringe benefits package).

• The trucks must leave the warehouse between 6:30 A.M. and 8:00 A.M.

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A typical problem

• Above 8 hours per day: Drivers are paid double the standard rate of pay (excluding fringe benefits and lunch breaks).

• Roy does not like to pay overtime.

• Lunch break (30 minutes): between 11:30 A.M. and 1:30 P.M.

• Several accounts require delivery between specified time windows.

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A typical problem

• Truck is not to make a delivery at a stop before the time windows opens or after it closes.

• These requirements are sometimes not met.

• Current company dispatching gives a route design as specified in Table 2.

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A typical problem(Current route design)

Route Start time Stop sequence1 7:45 A.M. (465) 12,15,1,14,52 7:22 A.M. (442) 2,3,43 7:22 A.M. (442) 6,16,17,8,194 8:00 A.M. (480) 11,20,18,21,95 7:39 A.M. (459) 7,13,10

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Problem summary

Variables:• Stop sequence.• Number of trucks and their sizes.• Warehouse location.• Time windows.

• Objective: Less expensive, more efficient way to meet customer’s delivery needs.

Questions

Question 1: Determine the best number of trucks and routes, and the stop sequence on each route. Is it fair to compare this design with the current one?

Question 2: What does it cost Roy Fowler to serve the restrictive time windows other than the 8:00 A.M. to 5:00 P.M. Time windows? Is there anything that he might do to reduce this cost?

Question 3: If larger trucks, priced at $35000 and having a capacity of 600 cases, are available, should they be purchased? They are expected to increase operating costs by $0.05 per mile.

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Questions

Question 4: If Roy can use an outside transport service to deliver to all accounts with demand of 50 cases or less for a price of $35.00 per account, should he do it?

Question 5: The union is negotiating for a 71/2 hour workday, excluding lunchtime, before overtime begins. What implication does this have for route design and costs?

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Questions

Question 6: Roy would like to consider a more central location for the warehouse at coordinates X = 20, Y = 25. The lease cost for the building is the same as the current location, but the pre-sell demand portion of the on-time moving cost is $15000. Is such a move economically attractive for pre-sell demand?

Question 7: How would you go about implementing a computerized software package such as ROUTER for truck dispatching on a daily basis? What problems would you anticipate, and how would you deal with them?

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Question 1Question 1: Determine the best number of trucks and routes, and the stop sequence on each route. Is it fair to compare this design with the current one?

Answer:• First we analyze the current design.

• Running the current route design in ROUTER establishes a benchmark.

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Question 1

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Question 1

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Question 1

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Question 1

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Question 1

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Question 1

• The design requires 334 miles of travel with 5 trucks.

• The daily routing cost is $764.62.

• Now, we plan the routes to minimize total miles driven and number of trucks needed to serve the customers subject to the restrictions of truck capacity, time windows, total time on route, etc.

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Input data

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Question 1 (Input data)

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Question 1 (Input data)

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Question 1 (Input data)

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Question 1 (Input data)

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Optimized current route design (Question 1)

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Optimized current route design (Question 1)

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Optimized current route design (Question 1)

• Optimizing current design, given no change in data or restrictions, gives the revised benchmark design.

• The design requires 317 miles of travel with 6 trucks.

• The daily routing cost is $739.93.

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Question 2

Question 2: What does it cost Roy Fowler to serve the restrictive time windows other than the 8:00 A.M. to 5:00 P.M. Time windows? Is there anything that he might do to reduce this cost?

Relaxed time windows constraints

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We use 8:00 A.M.

to 5:00 P.M.

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Question 2

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Route design with relaxed time windows constraints

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Question 2

• The routes mileage is 272 miles per day for 5 trucks.

• The total cost is $676.79 per day.

• This is an additional cost reduction of ($739.93 - $676.79)*250 = $15785 per year.

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Question 2

• Questions for management are: How restrictive are the time windows? Can deliveries be made outside of the account’s

open hours, such as by giving the driver the key to a safe storage area?

Can management offer a small incentive to widen the time window when it otherwise would not be convenient for the account?

• Relaxing such time windows is often one of the important sources for cost savings in routing problems.

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Question 3

Question 3: If larger trucks, priced at $35000 and having a capacity of 600 cases, are available, should they be purchased? They are expected to increase operating costs by $0.05 per mile.

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Question 3

• When there are no truck capacity restriction on a routing problem, the most efficient route design would be to use one large to serve all accounts. Therefore, we would expect that trucks of larger capacity would reduce the total distance travelled.

• We make, a ROUTER optimizing run with 600 case capacity trucks and setting other conditions at the current design.

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Question 3

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Question 3

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Question 3• Compared with optimized current design,

the potential savings is ($739.93-$735.32 )* 250 = $1152.50.

• Two 600-case trucks would be needed, along with 3 smaller trucks.

• Although, there is a positive savings associated with using larger trucks, the savings seems quite small and perhaps not worth switching to some larger trucks at this time.

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Question 4

Question 4: If Roy can use an outside transport service to deliver to all accounts with demand of 50 cases or less for a price of $35.00 per account, should he do it?

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Question 4

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Question 4

• From the incremental costs in the detailed report of the optimized current design, we can see that account 14 costs $39.05 and account 19 costs $35.04 to make the deliveries.

• Since the volume of account 19 is 90 cases, and exceeds the 50 case capacity of an outside transport service, account 19 cannot be considered for alternate delivery.

• If it only costs $35 for an outside delivery service to handle account 14, then a cost savings can be realized.

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Question 4

• Dropping this account and redesigning routes shows that only five trucks are needed for a route cost of $690.17+ $35 (outside delivery service) = $725.17.

• Compared with the optimized current design, this is an annual savings of ($739.93-$725.17) * 250 = $3690.

• Economically, Roy should use the outside transportation.

• However, losing direct control over the deliveries and possible adverse reactions from route salesmen may give him second thought about it.

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Question 5

Question 5: The union is negotiating for a 71/2 hour workday, excluding lunchtime, before overtime begins. What implication does this have for route design and costs?

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Question 5

• Make two ROUTER runs to determine the effect of a shorter workday before overtime begins.

If no overtime is allowed (71/2 hours + 30 minutes lunchtime = 8 hours).

If some overtime is allowed (8 hours + 2 hours overtime = 10 hours).

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Question 5 (No overtime is allowed)

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Question 5 (No overtime is allowed)

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Question 5 (Some overtime is allowed)

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Question 5 (Some overtime is allowed)

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Question 5

• If no overtime is allowed, then 6 trucks are required for a total daily routing cost of $761.54.

• If some overtime is allowed, then route cost can be reduced to $741.90 with 6 trucks required.

• Compared with the optimized current design, Roy would seem to be putting himself at a disadvantage by not wanting to pay overtime.

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Question 6

Question 6: Roy would like to consider a more central location for the warehouse at coordinates X = 20, Y = 25. The lease cost for the building is the same as the current location, but the pre-sell demand portion of the on-time moving cost is $15000. Is such a move economically attractive for pre-sell demand?

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Question 6

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Question 6

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Question 6

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Question 6• Moving the warehouse to a more central location would have the

appeal of being closer to all stops and would result in shorter routes.

• Testing this shows that total route distance can be reduced to 305 miles with a daily cost of $716.91. However, in order to meet the time window and other constraints, an extra truck (7 trucks) is needed.

• There is a potential annual savings of ($793.93 - $716.91)* 250 = $5755.

• Since it costs $15000 to make the move, a simple return on investment (ROI) would be ($5755/$15000) = 0.38 = 38%.

• At this ROI, the move should be seriously considered.

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Question 7

Question 7: How would you go about implementing a computerized software package such as ROUTER for truck dispatching on a daily basis? What problems would you anticipate, and how would you deal with them?

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Question 7

• Expected problems in implementation of software can be solved with the help of other similar delivery problems.

• Routing and scheduling beer trucks from a central depot is quite similar to delivery problems found in manufacturing, retail, and service industries.

Examples:

• Making deliveries from a plant location to warehouses and then picking up supplies from vendors on the return trip.

• Making retail deliveries from a warehouse.

• Making deliveries (and pickups) of medical records to doctor's offices and other locations from a central record-keeping location such as a hospital.

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Run type Miles

Cost Trucks

Clarifications

Current design 334 $764.62

5 Find cost of current design

Optimized current 317 $739.93

6 Improved cost than current design

No time windows restrictions

272 $676.79

5 Time windows relaxed

Trucks at 600-case capacity

304 $735.32

5 Two routes require larger trucks

71/2 hour workday- no overtime

332 $761.54

6 Route time allowed to be no longer than 8 hours

71/2 hour workday- with overtime

317 $741.90

6 Route time allowed to exceed 8 hours

New warehouse location

305 $716.91

7 Warehouse moved to more central location

Results of ROUTER for different runs

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Recommendation to Roy• Consider optimizing route design to reduce operating costs.

• Relax the time windows.

• Consider serving of accounts by an outside transport service.

• Consider relaxing his rigid policy of not wanting to pay overtime.

• Carefully evaluate cost reduction by increasing truck capacity or relocating the warehouse.

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References

• Ballou, Ronald H. (2004). “Business Logistics/ Supply Chain Management: Planning, Organizing, and Controlling the Supply Chain.” (5th Edition) with LOGWARE Software.