Do your customers receive multiple shipments from more than one outbound shipping node in your distribution network?  Perhaps your business has been operating through Direct Plant Shipments (DPS) to customers, but customers expressed dissatisfaction with lead times, shipment sizes, or frequency of shipments.  Whatever the current strategy, shippers may hold a misconception that the existing service model is justified.  How do you know for sure that the present approach is correct?  Has your organization financially evaluated current customer-specific strategy through a properly conducted shipment consolidation analysis or direct plant shipment analysis?  Are you confident that costs have been compared accurately and completely?

Case Study:

Consider the following example and how it may apply to your own circumstances.  A U.S. company specializing in refrigerated fresh foods with a shelf life ranging between 60-90 days produces goods made with fresh fruits and vegetables in the Southeast US and West Coast US, in close geographic proximity to the source of raw materials.  Dairy products and desserts are the lion’s share of the demand and are produced in the Midwest US close to the raw source. The main distribution center is co-located with Midwest production.  Top customers generally receive most offered brands and product groups.  Due to customer requirements or simply evolutionary shifts in ordering patterns with no clear strategy, some customers receive consolidated shipments from the Midwest Plant-DC acting as a mixing center, while others receive separate shipments from each of the three production plants.  It is time for this fresh food producer to evaluate the strategy for each individual customer to see if direct plant or consolidation is most cost effective and best able to satisfy lead time and service objectives.

Here are the key data inputs needed for a successful Shipment Consolidation Analysis:

  1. Current shipping profile by customer.
  2. Current demand by product group and source production plant.
  3. Applicable freight rates for alternative lanes.
  4. Transfer freight profile and freight rates.
  5. Handling charges for crossdocking/consolidation location.
  6. Future shipping profile calculation with consolidation.
  7. Lead time, time in transit, and ship frequency requirements.

The beneficial outputs and learning from the analysis are as follows:

  1. Total freight cost or savings by individual customers for consolidated shipments or direct plant shipments. This will include transfer and outbound freight.
  2. Expected improvements or changes in shipment profile.
  3. Additional handling cost associated with double handling for the purpose of consolidation.
  4. Total demand throughput cross-docked in a mixing center or consolidation location resulting in space needed for the operation.
  5. Total cost benefit analysis by individual customer from which to make informed decisions about future state distribution strategy.

 

Is your business a good candidate for Shipment Consolidation Analysis?

Shipment consolidation or direct plant shipments are not appropriate for every industry or business.  If your company meets the following criteria, however, then a shipment consolidation analysis may be beneficial.

  1. Customers receive split shipments from multiple distribution nodes.
  2. The shipper or receivers desire but do not already receive completely full truckloads.
  3. Lead times to customers are too slow and shipment frequency is too few.
  4. Demand profiles have changed and there is a lack of clarity and confidence that customers are being serviced as efficiently as possible.
  5. Production plant locations have shifted or are expected to change.
  6. You are conducting a network analysis and would like to fully evaluate all possible opportunities.

If uncertainty about the best strategy to service customer demand exists in your distribution network, it may be beneficial to engage in a network analysis complete with a shipment consolidation and/or direct plant shipment analysis.  Such an effort will financially inform stakeholders and decision-makers about the feasibility of a shipment consolidation strategy.
 
—Eric Payne, St. Onge Company
 
 

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