Reduction Of Logistics Cost Through Cross Consolidation Of Loads

Abstract

Logistics is a complex and challenging operation in any organization, it was initially used in military to transfer and store equipment and supplies. The term is now adopted in the business sector, specifically companies in the manufacturing sector to refer to how the resources are handled and transferred along the supply chain. As customers create the need for shippers to provide fast, accurate and high-quality products, logistics management is highly responsible for meeting customer demand. It is also important in creating a visibility into an organization. A good logistics management drives revenue to the organization and improved customer service can bring a good reputation to the company and generate more business. The visibility of supply chain creates an opportunity for cost savings in the field of operations.

A milk-run is an effective logistic system, which is round trip that facilitates either delivery or pick-up of the goods. Milk-run supply system can be primarily classified into two categories external milk-run system and internal milk-run system. Internal milk-run systems consist of supply of parts from origin to the destination that takes place inside the plant. External milk-run supply system involves product delivery from main warehouses (origin) to the customer (destination). Application of milk-run distribution systems in plants is to standardize the material handling system and eliminates the waste effectively.

The adoption of an optimized transportation system has become inevitable due to competitive business environment among the industries and higher expectations of customers. It has also been observed that congestion and variability in demand and travel times affect industries on four major service dimensions, such as; travel time, reliability, cost of transport and cost of inventory. These challenges have to be dealt efficiently to achieve effective supply chain.

This triggered this study to be undertaken with the prime objective of reducing transport cost for a large scale manufacturing industry. The underlying principle used in this study is to consolidate LTL (Less than Load) Transport into FTL (Full Truck Load) and apply milk-run system to analyse whether it results in reduced transport costs. The analysis, consolidation method and the cost savings as a result are discussed in detail in the paper.