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.

Seattle
400 x

warehouse

700
$2.50

Salt Lake
City retail store
400
$4
x

350 y
$3
Reno
350

retail store

$2
y
San Jose
500

warehouse

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

y = pounds of coffee shipped from San Jose to Reno

Seattle
400 x

warehouse

700
$2.50

Salt Lake
City retail store
400
$4
x

350 y
$3
Reno
350

retail store

$2
y
San Jose
500

warehouse

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

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 (inhouse) 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.

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=nxmxc

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=nxmxc

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
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
Distribution Center 2 --- 532 miles
Distribution Center 3 --- 432 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?

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

3. Transportation Costs
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?

3. Transportation Costs
Advance Trucking has a history of 1% damage per
shipment, offers a 2% 10 net 30 discount; ships in 3-5 days
$126,050 x .02 = $2,520.80 discount; net $123,519.20
Inventory shrinkage $450,000 x .01 = $4,500
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?

3. Transportation Costs
Advance Trucking has a history of 1% damage per
shipment, offers a 2% 10 net 30 discount; ships in 3-5 days
$126,050 x .02 = $2,520.80 discount; net $123,519.20
Inventory shrinkage $450,000 x .01 = $4,500
Midwest Trucking has a history of .5% damage, offers no
discount, and guarantees 1 day delivery within 500 miles
$153,440 shipping cost
Inventory shrinkage
$450,000 x .005 = $2,250
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?

3. Transportation Costs
Advance Trucking has a history of 1% damage per
shipment, offers a 2% 10 net 30 discount; ships in 3-5 days
$126,050 x .02 = $2,520.80 discount; net $123,519.20
Inventory shrinkage $450,000 x .01 = $4,500
Midwest Trucking has a history of .5% damage, offers no
discount, and guarantees 1 day delivery within 500 miles
$153,440 shipping cost
Inventory shrinkage
$450,000 x .005 = $2,250
Chicago Trucking has a history of 2% damage per shipment
offers a 5% 10 net 30 discount; ships in 3-5 days
$137,000 x .05 = $6,850
Discount net: $130,150
Inventory shrinkage
$450,000 x .02 = $9,000
Value of each case is $900
Which trucking company will you choose?

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?

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? $.34 per mile
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?

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? $.34 per mile
2. What is the rate charged by Chicago Trucking if the routes are longer
than 50 miles? $.25 per mile
3. Which trucking company has the lowest rates for routes between 6
and 49 miles?

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? $.34 per mile
2. What is the rate charged by Chicago Trucking if the routes are longer
than 50 miles? $.25 per mile
3. Which trucking company has the lowest rates for routes between 6
and 49 miles? Chicago Trucking

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

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?

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

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

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=nxc

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.

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?

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=nxc

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.

How much will the planner have to pay to distribute the 2,300 cases
from the warehouse? 2,300 x $0.66 = $1,518
If the planner is charged $0.54 per case by another warehouse, how
much money would be saved by choosing the lower cost 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=nxc

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.

How much will the planner have to pay to distribute the 2,300 cases
from the warehouse? 2,300 x $0.66 = $1,518
2,300 x $0.54 = $1,242
$1,518 - $1,242 = $276.00

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

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

5. Distribution Costs
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=dxt

r = total distribution costs

d = total handling and storage costs of a distribution center
t = total transportation costs

5. Distribution Costs
r=dxt
r = total distribution costs
d = total handling and storage costs of a distribution center
t = total transportation costs

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?

5. Distribution Costs
r=dxt
r = total distribution costs
d = total handling and storage costs of a distribution center
t = total transportation costs

r = ($0.25 x 50 x 3) x ($0.34 x 50 x 46 x 3)
r = $87,975