Case Study - Montgomery Plastics
Kathy Johnson, the new logistics manager at Montgomery Plastics, was looking at the pile of papers on her desk and at the spreadsheets on her computer monitor in front of her. It is Friday afternoon and she still was not able to come to a decision regarding the best shipping options for her company products. She knew that first thing on Monday morning she would meet with Barry Cross, CEO of Montgomery Plastics. The issue under discussion is how to arrest the increasing shipping costs that the company is experiencing. The issue was crucial in view of the forecast that future shipping volumes are expected to increase by 20 to 25 percent. The shipping costs had to be controlled as they were simply too high.
Montgomery Plastics-Historical Background
Montgomery Plastics is a medium-sized producer of high-quality specialty plastic parts that are typically used in the auto industry. The parts come in a variety of shapes, colors and finishing-from small door panels to large panels that look like wood. The major customer for the company are the key automakers General Motors, Ford, and Chrysler who are located in the cities: Detroit, Toledo, and Lansing respectively. During last year, Montgomery Plastics had shipped approximately 11,000 pounds of parts per day to each assembly plant served.
Montgomery Plastics, which is known for recruiting minorities in its workforce and for adopting progressive supplier diversification programs, is located in Montgomery, MO. The company currently employ 500 people: 250 as direct assembly line employees, 125 engineers, and 125 others.
The company started its operations in 1980 and has managed to grow in size quite rapidly. However, the management main attention was on engineering and product design aspects of the business. The company declared mission was "to build high-quality components in a cost effective manner to be sold at a fair price and delivered on-time."The logistical Problem
Until recently, the handling of logistics and shipping activities were not seen as a high priority for Montgomery Plastics. The tasks were usually assigned to clerks who would call local shipping companies to send their trucks to transport the goods to customers. As a result, the shipping cots tended to be high.
Typically, the company would use a less-than-truck-load (LTL) shipping carrier to transport parts from its manufacturing plant to its assembly plants. The carrier charged Montgomery Plastics $0.06 per hundredweight per mile. What this meant is that the daily cost to ship parts to the Toledo plant, for example, would be $3,293.4 (which is over one million dollar per year).
As its customers were becoming more cost conscious, the top management in Montgomery Plastics decided to hire a professional logistics manager to properly take care of this important operation. Kathy Johnson had previously worked as a manager in the shipping department of a local company and was recognized for expertise in that domain. After joining Montgomery Plastics, Kathy conducted a thorough assessment of the situation and confirmed that indeed the shipping costs were high and that there were no existing controls to contain them.
Kathy contacted several logistics/shipping companies and requested them to submit their proposals in response to her Request for Quotes (RFQ). After reviewing the proposals, Kathy shortlisted the following two offers that looked attractive to her.
United Shipping LLC (US): the first offer proposed a consolidated shipping approach. US would consolidate three shipments from the Montgomery plant into one 33,000-pound truckload. The carrier would then use a round-trip approach in which the truck would stop first at the Lansing assembly plant, then continue on to Detroit, and finish in Toledo before repeating the trip on the next day. The carrier's charge for the round-trip were based on distance only with a charge of $6.5 per truck mile, plus a stop-off charge of S350/stop including the final stop at Toledo.
Integrated Shipping Services (155): the second offer was from ISS who could provide both transportation and cross-docking services. The company proposed to consolidate the deliveries of all produced goods into a full truckload in Montgomery. This truckload would then travel to Ann Arbor, Ml, where the shipment would be broken down to smaller shipments to be delivered to the appropriate assembly plant by ISS. ISS proposed a charge of $6.5 per mile to the cross-dock facility, and then a flat rate per delivery to each assembly plant from Ann Arbor of $750.
To evaluate the two offers, Kathy built a mileage table for all the travel distances for the relevant origin/destination points. She knew she would have to consider the cost implications
of both alternatives. However, she felt that there are some potential qualitative and service considerations to be taken into account as well.
|
Origin
|
Destination
|
Distance |
| Montgomery, MO |
Lansing, MI |
487 miles |
| Montgomery, MO |
Detroit, MI |
552 miles |
| Montgomery, MO |
Toledo, OH |
499 miles |
| Lansing, MI |
Detroit, MI |
88 miles |
| Detroit, MI |
Toledo, OH |
65 miles |
| Montgomery, MO |
Ann Arbor, MI
|
521 miles |
| Ann Arbor, MI |
Lansing, MI |
75 miles |
| Ann Arbor, MI |
Detroit, MI |
42 miles |
| Ann Arbor, MI |
Toledo, OH |
55 miles |
As Kathy was collecting her notes into her briefcase, she knew that on Monday, she would have to be ready for a comprehensive, well-reasoned analysis and set of recommendation to present to the company CEO.
Questions
1. What are the cost implications of each of delivery option?
2. What are the qualitative and service characteristics of each delivery option?
3. Based on your analysis, what would you recommend to Barry on Monday?