Logistics cost involve a vast part of the overall costs of a company but through the optimized supply chain process it can be reduced (United Parcel Service of America, n.d.). Analysis of these costs shows that transportation cost are the vital part of overall logistics of company. (United Parcel Service of America, n.d.)
Logistics and transportation operations act as specialized competitive feature of any company. (Zhang’s, 2015) Transportation optimization, forecasting and implementation are mainly focused company’s cost and service, deficiency in any of these can disappoint the end users and also leads to pay for the poor service (Zhang’s, 2015). The efficient process of moving products through productive transportation management system lower down the costs and end user satisfaction high level. (Zhang’s, 2015)
The objective of this paper is to optimize transportation cost and also identify and explain various different types of strategies to use for the transportation optimization. In this paper different assumptions are made to make the strategies so that the company can reduce its transportation cost.
Presentation of the Danish company “Medical Supplier Super Company”
Medical supplier super company is a manufacturing company based in Denmark which was founded in 1975. The company deals in medical devices in more than 100 countries across the world and is one of the largest manufacturers globally within its industry and has worldwide market share of greater than 20 percent.
The Transportation setup of the company is like the mode of transportation with the current organization is through Road, Air and courier as shown in the company’s overview of primary freight flows. The main international flows and domestic markets measured by transportation spend among different countries in which USA is the top most country. Transportation spend per supplier is also analyzed and among all the ten supplier DHL is the top supplier and local post is the least used supplier. The most used mode of transportation is courier and lest is road. And now if talk about spend per service level the most spend is on next day end of day service. Spend per type of distribution is mostly on the final distribution. So therefore the most used transportation mode is courier and the most spend type of distribution is final distribution. The use of road and air is least used and spend least.
Presentation of the Case
Medical supplier super company has recently recognized some problems; such as increased competition from competitors and margin pressure from both the customer and supplier side. One of the largest spend categories is transportation cost. Thus, focus of today is on the company’s significant supplier spend on transportation, company is looking for the strategies to minimize the transportation cost and maximize revenue.
Transportation cost is a cost spend on sending or supplying the goods and services from one place to another or one country to another. Transportation cost is the main and vital part of any supply chain.
Transportation cost includes fixed costs and variable costs in the process of transportation. Most of the multinationals manufacturers However, these costs have direct and indirect both relation with time window constraints, ruled by end users’ arrival times. (Zhang’s, 2015). Company pay fines or any extra cost or service when time-window constraints get breached which increases the cost of goods sold. (Zhang’s, 2015).
So therefore to minimize the cost, there are various framework which manufacturer can apply in his supply chain. An understanding of how to optimize purchasing and supply chain operations and overcome any related problems is very important role of manufacturer to optimize transportation. (Zhang’s, 2015).
The European transport logistics sector is a major contribution to the European economy and is more dependent on the other external phases that makes the need and pattern for the consumption and production. (Ojsteršek, 2018).
Today, transport is major component of the distribution and logistics which includes warehousing, inventory, packaging and information flows. Moreover, there is planning for the systems and also at the same time considering the other constraints also like cost and service levels which is the core task of the modern logistics (Ojsteršek, 2018).
The main aim of the European transport is long term goal in which it has to lower down the congestion, pollution, noise and limit their dependency on fossil fuels (Ojsteršek, 2018).
The important driver for the EU transport is the change in the information and communication system that play role as a means of integration of links in the supply chain and logistics. (Ojsteršek, 2018).
The case company is Denmark based company and as per the source, Danish companies more focus on limited market and limited customers but they lack focuses on information system and advanced supply chain design (Larson, 2010).
There are different components of the transportation cost, however, there us two basic types of cost used by the companies which are variable and fixed costs. Variable cost includes, insurance, maintenance, depreciation, fuel, labour, expedition cost, etc. variable cost depends upon the distance and is related to the cost and consumption of the mentioned factors (Aleksandr Nikolaevich Lada, 2016).
It can be calculated using various methods but in generally it is calculated through the distance from the place of previous unloading to the loading place plus the distance from the loading place to unloading place. (Aleksandr Nikolaevich Lada, 2016)
On the other hand fixed cost includes truck load, truck unload, salary , vehicle lease payments, payment for vehicle satellite tracking system etc. and it also depend on the cost of other operations which takes place during the process of supply chain (Aleksandr Nikolaevich Lada, 2016).