Consort, Inc.: Utilizing Consolidation to Lower Transportation Costs Manufacturer A B D Shipping Weight (lbs) each week 10,000 8,000 15,000 7,000 LTL Rate LTL Rate Manufacturer Manufacturer to Customer to DC (per CWT) (per CWT) $2.20 $0.85 $2.00 $0.70 $3.60 $1.30 $1.80 $0.60 TL Rate DC to Customer (per CWT) $1.10 $1.10 $1.10 $1.10 Figure 1: Consort Manufacturer Rates and Weights PART II: SHIP-DIRECT vs. TEMPORAL CONSOLIDATION "So Jason," Ferguson continued, What about the other type of consolidation, the temporal one. What is that?" "Well," Jason hesitated, "basically temporal is a fancy word for time. With temporal consolidation Consort would combine LTL shipments over time going to a single location into TL quantities to benefit from the lower TL rates per pound." "Perhaps we should use temporal consolidation to consolidate these shipments into larger, lower cost shipments rather than making a number of higher cost, small shipments," stated Patrachalski. "OK, Jason, I also want you to take a look at the possibility of using temporal consolidation from the ConSort Oklahoma City distribution center to each of our operations in Kansas. Temporal Consolidation Day 1 Day 2 Day 3 Option A (No Consolidation) Customer Option B (All 3 Days Consolidated) ConSort, Inc.: Utilizing Consolidation to Lower Transportation Costs "Use these rates to develop a negotiation strategy so we can negotiate a flat rate per CWT for each zone for what we expect to pay." Zone A Zone B Zone C Zone D Zone E Total Weight Shipped Last Year (000s lbs): 56,250 100,850 57,800 42,200 28,100 Weight (lbs) 0 to 499.9 $ 2.60 $ 2.35 $ 2.55 500 to 999.9 $ 2.56 $ 2.30 $ 2.50 1,000 to 1,999.9 $ 2.52 $ 2.25 $ 2.45 2,000 to 4,999.9 $ 2.47 $ 2.20 $ 2.41 5,000 to 9,999.9 $ 2.43 $ 2.17 $ 2.37 10,000 to 19,999.9 $2.40 $ 2.15 $ 2.30 20,000 to 29,999.9 $2.05 $ 1.85 $ 2.00 30,000 + $ 1.58 $ 1.40 $ 1.55 All rate information is based on cost per CWT. $2.70 $2.95 $ 2.66 $ 2.90 $ 2.61 $ 2.85 $ 2.57 $ 2.80 $ 2.53 $ 2.7: $ 2.50 $ 2.6 $ 2.15 $ 2.3 $ 1,65 $1.) Figure 5: ConSort Carrier Rates "Finally," Ferguson continued, "I am interested in your thoughts about the strategy of using a mid-sized freight forwarder with a 6.3% EBITDA. What do you think are the risks associited with this strategy? And, what would be the additional cost' to us of using a better performing freight forwarder with an EBITDA of 7.5%?" QUESTIONS If we use the ship direct model, using the data from Figure 1, what are our total costs over a 52i week period? $ ConSort, Inc.: Utilizing Consolidation to Lower Transportation Costs If we use the vehicular consolidation model, using the data from Figure 1, what are our total costs over a 52-week period? Do you recommend using the ship direct OR the vehicle consolidation model? Explain why. Also, determine at what handling cost per 1,000 pounds we would be indifferent between shipping direct and the vehicular consolidation approach. Consort, Inc.: Utilizing Consolidation to Lower Transportation Costs Manufacturer A B D Shipping Weight (lbs) each week 10,000 8,000 15,000 7,000 LTL Rate LTL Rate Manufacturer Manufacturer to Customer to DC (per CWT) (per CWT) $2.20 $0.85 $2.00 $0.70 $3.60 $1.30 $1.80 $0.60 TL Rate DC to Customer (per CWT) $1.10 $1.10 $1.10 $1.10 Figure 1: Consort Manufacturer Rates and Weights PART II: SHIP-DIRECT vs. TEMPORAL CONSOLIDATION "So Jason," Ferguson continued, What about the other type of consolidation, the temporal one. What is that?" "Well," Jason hesitated, "basically temporal is a fancy word for time. With temporal consolidation Consort would combine LTL shipments over time going to a single location into TL quantities to benefit from the lower TL rates per pound." "Perhaps we should use temporal consolidation to consolidate these shipments into larger, lower cost shipments rather than making a number of higher cost, small shipments," stated Patrachalski. "OK, Jason, I also want you to take a look at the possibility of using temporal consolidation from the ConSort Oklahoma City distribution center to each of our operations in Kansas. Temporal Consolidation Day 1 Day 2 Day 3 Option A (No Consolidation) Customer Option B (All 3 Days Consolidated) ConSort, Inc.: Utilizing Consolidation to Lower Transportation Costs "Use these rates to develop a negotiation strategy so we can negotiate a flat rate per CWT for each zone for what we expect to pay." Zone A Zone B Zone C Zone D Zone E Total Weight Shipped Last Year (000s lbs): 56,250 100,850 57,800 42,200 28,100 Weight (lbs) 0 to 499.9 $ 2.60 $ 2.35 $ 2.55 500 to 999.9 $ 2.56 $ 2.30 $ 2.50 1,000 to 1,999.9 $ 2.52 $ 2.25 $ 2.45 2,000 to 4,999.9 $ 2.47 $ 2.20 $ 2.41 5,000 to 9,999.9 $ 2.43 $ 2.17 $ 2.37 10,000 to 19,999.9 $2.40 $ 2.15 $ 2.30 20,000 to 29,999.9 $2.05 $ 1.85 $ 2.00 30,000 + $ 1.58 $ 1.40 $ 1.55 All rate information is based on cost per CWT. $2.70 $2.95 $ 2.66 $ 2.90 $ 2.61 $ 2.85 $ 2.57 $ 2.80 $ 2.53 $ 2.7: $ 2.50 $ 2.6 $ 2.15 $ 2.3 $ 1,65 $1.) Figure 5: ConSort Carrier Rates "Finally," Ferguson continued, "I am interested in your thoughts about the strategy of using a mid-sized freight forwarder with a 6.3% EBITDA. What do you think are the risks associited with this strategy? And, what would be the additional cost' to us of using a better performing freight forwarder with an EBITDA of 7.5%?" QUESTIONS If we use the ship direct model, using the data from Figure 1, what are our total costs over a 52i week period? $ ConSort, Inc.: Utilizing Consolidation to Lower Transportation Costs If we use the vehicular consolidation model, using the data from Figure 1, what are our total costs over a 52-week period? Do you recommend using the ship direct OR the vehicle consolidation model? Explain why. Also, determine at what handling cost per 1,000 pounds we would be indifferent between shipping direct and the vehicular consolidation approach