Reducing Logistic Costs for Ladner Building Products
Introduction:
Ladner is a National building materials distributor with
15-distribution centres nation wide. Recently, the company had been
experiencing a loss due to high costs. This issue has become a
dangerous problem at Ladner, and top management is now looking to
understand the causes of this problem.
Recommendations:
Ladner can take one or a combination of the following options to
improve its situation:
- Reducing transportation costs by re-organizing the deliveries and
encouraging pick-ups.
- Changing staff evaluation methods so that they are aware of costs
involved in Ladner's processes.
- Changing and re-organizing the customer and product base.
Analysis of transportation process:
It is easy to see from a first look at exhibit 3 and exhibit 4 (that
are provided in the readings) that the delivery process always
produces losses. The total cost is always more than what the customer
is charged. This is mainly due to customer rebates on delivery
charges. Which means this loss in the delivery process is eating up
from the profit margins of the company. Ladner has a few options here.
They can cancel all delivery rebates for all future deliveries (or
reduce them), they can increase the charge on deliveries, and/or they
can organize their deliveries better to reduce costs. The latter
option is more favourable and is discussed in the following three
paragraphs.
Taking the Ontario region as an example that represents all regions,
one can analyze the two transportation costs: when transporting to a
local customer, and when transporting to a customer in a rural region.
(See exhibit D)
For local runs, the carriers were paid a high hourly salary ($34), and
a relatively low per kilometre rate ($0.37). As a result, for Ladner
to reduce its transportation costs for local runs, it should minimize
the travelling time. In other words, each time the courier should make
one trip to serve all customers who are located in the same area and
make as many drops as possible. Moreover, it would be useful here to
find out what?s the longest segment in the process of delivering to
customers? Is it the trip to a certain area, or the drop-off time? If
it was the drop-off time, then maybe the deliveries should be
organized to minimize drop-offs. Maybe Ladner should...
... middle of paper ...
...afely assume that it can increase its market
share in any product if enough effort and promotion is put into it).
It will be useful here to find out what are the actual numbers for
this trade off? Then Ladner can form a strategy to increase overall
profit margins by changing the customer base. For example, if the
costs of storage and handling are relatively higher, then Ladner could
try to increase sales of industrial products, which have a relatively
high profit margin and medium SKU space requirements. On the other
hand, it could reduce sales of allied products, which have high SKU
space requirements.
This product base management can be done in an indirect way as well.
It is mentioned in the case that Ladner?s sales staff are evaluated on
the basis of product gross margins. This ignores the costs of
handling, storage and transportation. Ladner?s management can
introduce a new evaluation method that would include these costs. The
end result would be that sales representatives would try to sell the
most profitable product to the most profitable customer after taking
into consideration all the costs. In other words, better customer and
product base selection.
because of plain view. In the second case that we are going to argue, which
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