Background and Setting
Seven manufacturing locations around the United States utilize several trucking firms each to deliver fiberglass insulation products to customers. Common carriers are differentiated by their delivery areas, their point to point delivery charges and the number of trucks they can provide. Carrier shipping regions permit deliveries to each customer by two or more carriers.
Annual contracts with each carrier are negotiated by a headquarters freight management department to establish delivery prices and minimum and maximum monthly truck utilization. A computer based freight cost file is maintained centrally to support these negotiations and to support accounts payable to the carriers.
All products are not manufactured at all plants, resulting in shipments from more than one plant to any given customer. Consequently orders are received at division headquarters so that they could be sourced to the closest appropriate plant. Therefore the system maintaining customer and open order files is also located at headquarters. However, a traffic management department is located at each plant in order to coordinate effectively with production schedules.
Client Business Objectives
- On a day to day basis ship orders at minimum cost subject to constraints on available trucks, and contractual obligations for utilization of the carriers.
- Provide transportation cost history and a pro-forma cost modeling tool to support annual negotiations with the common carriers.
How Did UIA Help?
An optimization system using linear programming was developed for use by plant traffic managers which accessed already existing production files located at headquarters. This system replaced the manual guidelines for selecting carriers that had been forwarded from the headquarters freight management department to the plant traffic managers. This system operates on a wide area network linking headquarters to the plants.
How the Client Benefited
All objectives were achieved.
A parallel study comparing optimized (dynamic) carrier selection with the manually generated( utilizing static rules) carrier selection was run. Freight expenditures were reduced by 7% for this period.
Annual savings amounted to $2,000,000 realizing a pay-back in less than three months.