The main aim of this study is to identify methods of cutting transportation costs in a logistics supply chain. Management of logistics supply chain is of particular importance for companies to ensure that their customers get the products in time and in the desired quantity. Besides manufacturing companies, logistics supply chain also involves logistics providers and retailers (Shapiro, 2001).
Consolidation of goods is a transport strategy in logistics supply chain management, which involves shipping of multiple orders on a single vehicle, and to a single market region. This strategy reduces overall transportation costs, whether in terms of item, order or weight. The most important barrier to this implementation, however, is maintaining customer satisfaction. While consolidation, it is to be ensured that customers get their orders in time and in the correct order of priority.
It is to be noted here that consolidation is not just limited to transportation of a single item or to a single market region. For example, multiple orders of different products, to be transported to different areas in the same geographical region, can be combined and shipped at discounted rates to a central facility in that region. In this manner, small orders can be combined with bulk orders, enough to make it qualify as volume freight.
In general, there are three types of shipment consolidation methods:
- Transport vehicle consolidation: Involves consolidation of multiple small shipments into a single vehicle;
- Inventory consolidation: Involves consolidation of orders in the inventory, based on type and location of stocking points;
- Terminal consolidation: Involves consolidation of orders brought from different locations at the central facility (Hall, 1987).
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Shipments can also be consolidated based on location of distribution points. For instance, a shipper can implement a consolidation strategy and ship consolidated orders directly to the customers. Instead, the consolidated shipment can also be sent to a central facility, where the orders are sorted out and distributed to respective customers. Another method is where the transportation decisions are made by carriers, who receive shipments from different locations and at random intervals. Here, consolidation is done by the carrier who may choose to send orders directly to the respective customers, or may send it to a central facility, where they are sorted out and distributed according to different order requirements (Higginson, 1992). Both these configurations are depicted in the figure shown below:
Aim & Objectives
The primary aim of this study is to develop a model for saving transportation costs in a logistic supply chain. For this purpose, the research will be divided into the following research objectives:
- To identify consolidation strategies for a single shipment, arriving at random intervals;
- To identify consolidation strategies for multiple orders, arriving at random intervals and to be distributed according to different order requirements;
- To identify consolidation strategies for situations when transportation decisions are made by carriers instead of shippers.
Hall, R. W. (1987), Consolidation strategy: inventory, vehicles and terminals, Journal of Business Logistics, 15, pp. 87 – 112.
Higginson, J. K. (1992), Shipment Consolidation in Business Logistics Management, Ph.D. University of Waterloo.
Shapiro, J. F. (2001), Modeling the Supply Chain, NY: Duxbury Press.