Fowler Distributing Company

1. Case Study
Fowler Distributing Company
Student Name: Shaheen Sardar
Course Name: Logistics Management
1

2. Fowler Distributing Company
(Beer and wine distributor)
• Roy Fowler (Owner).
• Inefficient transportation of products to customer
accounts (Local warehouse to various retail accounts).
• Roy has his own trucks.
• Roy is pleased with the selling efforts of drivers.
• Roy is interested in minimizing the number of trucks and
miles driven.
2

3. Delivery operations
REGULAR ROUTE (Commission accounts):
• Assignment of retail and other accounts to a
particular driver and truck.
• Drivers are paid on a commission basis.
• Drivers earn $4000 per week during a good
selling period.
3

4. Delivery operations
SECONDARY ROUTE (Pre-sell accounts):
• Place an order advance of delivery rather than
wait for the route salesperson to drop it.
• No sales commission is paid (no selling by drivers
takes place).
• Orders can be put on truck separate from
commission accounts and routed as desired.
4

5. A typical problem
• 21 pre-sell accounts might occur on a typical day
(Table 1, Figure 1).
• 250 operating days per year.
• Average speed is 25 miles per hour.
• 5 vehicles available for use for pre-sell accounts.
5

6. Table 1: Account Data
Account No Coordinates Case
demanded
Delivery time,
min.
Time windows
X Y
1 7.5 28.5 120 60 8:00 A.M. – 5:00 P.M.
2 10 9 200 90 8:00 A.M. – 10:30 A.M.
3 12 24 120 60 8:00 A.M. – 5:00 P.M.
4 13 30 150 80 8:00 A.M. – 5:00 P.M.
5 13.5 34 50 40 8:00 A.M. – 5:00 P.M.
6 17.5 16.5 90 50 8:00 A.M. – 5:00 P.M.
7 23 38.5 140 70 8:00 A.M. – 8:30 A.M.
8 23 16.5 60 40 8:00 A.M. – 5:00 P.M.
9 23.5 25 110 60 8:00 A.M. – 5:00 P.M.
10 27 33.5 180 90 8:00 A.M. – 10:45 A.M.
11 29 28 30 20 8-11 A.M. & 2-4 P.M.
12 11 40 90 50 8:00 A.M. – 8:30 A.M.
13 32 40 80 50 8:00 A.M. – 10:00 A.M.
14 7.5 18 50 30 12:30 P.M. – 5:30 P.M.
15 5 13.5 160 90 8:00 A.M. – 12:45 P.M.
16 23 8 100 60 8:00 A.M. – 5:00 P.M.
17 27 8 140 60 8:00 A.M. – 5:00 P.M.
18 36 8 50 30 8:00 A.M. – 5:00 P.M.
19 32 4 90 50 12:00 P.M. – 4:00 P.M.
20 32.5 22 150 70 8:00 A.M. – 5:00 P.M.
21 31.5 13 80 40 8:00 A.M. – 5:00 P.M.
Total 2240 1190
Warehouse 15 35
6

7. 7

8. A typical problem
• Each vehicle (truck) capacity: 500 cases, a price
$20000, and an operating cost of $0.90 per mile.
• Driver are paid $13 per hour (including 30% fringe
benefits package).
• The trucks must leave the warehouse between 6:30
A.M. and 8:00 A.M.
8

9. A typical problem
• Above 8 hours per day: Drivers are paid double the
standard rate of pay (excluding fringe benefits and lunch
breaks).
• Roy does not like to pay overtime.
• Lunch break (30 minutes): between 11:30 A.M. and 1:30
P.M.
• Several accounts require delivery between specified
time windows.
9

10. A typical problem
• Truck is not to make a delivery at a stop
before the time windows opens or after it
closes.
• These requirements are sometimes not met.
• Current company dispatching gives a route
design as specified in Table 2.
10

11. A typical problem
(Current route design)
Route Start time Stop sequence
1 7:45 A.M. (465) 12,15,1,14,5
2 7:22 A.M. (442) 2,3,4
3 7:22 A.M. (442) 6,16,17,8,19
4 8:00 A.M. (480) 11,20,18,21,9
5 7:39 A.M. (459) 7,13,10
11

12. Problem summary
Variables:
• Stop sequence.
• Number of trucks and their sizes.
• Warehouse location.
• Time windows.
• Objective: Less expensive, more efficient way to
meet customer’s delivery needs.
12

13. Questions
Question 1: Determine the best number of trucks and
routes, and the stop sequence on each route. Is it fair
to compare this design with the current one?
Question 2: What does it cost Roy Fowler to serve the
restrictive time windows other than the 8:00 A.M. to 5:00
P.M. Time windows? Is there anything that he might do
to reduce this cost?
Question 3: If larger trucks, priced at $35000 and having
a capacity of 600 cases, are available, should they be
purchased? They are expected to increase operating
costs by $0.05 per mile.
13

14. Questions
Question 4: If Roy can use an outside
transport service to deliver to all accounts
with demand of 50 cases or less for a price
of $35.00 per account, should he do it?
Question 5: The union is negotiating for a
71/2 hour workday, excluding lunchtime,
before overtime begins. What implication
does this have for route design and costs?
14

15. Questions
Question 6: Roy would like to consider a more
central location for the warehouse at coordinates
X = 20, Y = 25. The lease cost for the building is the
same as the current location, but the pre-sell
demand portion of the on-time moving cost is
$15000. Is such a move economically attractive for
pre-sell demand?
Question 7: How would you go about
implementing a computerized software package
such as ROUTER for truck dispatching on a daily
basis? What problems would you anticipate, and
how would you deal with them?
15

16. Question 1
Question 1: Determine the best number of trucks and
routes, and the stop sequence on each route. Is it fair
to compare this design with the current one?
Answer:
• First we analyze the current design.
• Running the current route design in
ROUTER establishes a benchmark.
16

17. Question 1
17

18. Question 1
18

19. Question 1
19

20. Question 1
20

21. Question 1
21

22. Question 1
• The design requires 334 miles of travel with 5
trucks.
• The daily routing cost is $764.62.
• Now, we plan the routes to minimize total
miles driven and number of trucks needed
to serve the customers subject to the
restrictions of truck capacity, time
windows, total time on route, etc.
22

23. Input data
23

24. Question 1 (Input data)
24

25. 25
Question 1 (Input data)

26. 26
Question 1 (Input data)

27. 27
Question 1 (Input data)

28. Optimized current route design
(Question 1)
28

29. Optimized current route design
(Question 1)
29

30. Optimized current route design
(Question 1)
• Optimizing current design, given no
change in data or restrictions, gives the
revised benchmark design.
• The design requires 317 miles of travel
with 6 trucks.
• The daily routing cost is $739.93.
30

31. Question 2
Question 2: What does it cost Roy Fowler
to serve the restrictive time windows other
than the 8:00 A.M. to 5:00 P.M. Time
windows? Is there anything that he might
do to reduce this cost?
31

32. Relaxed time windows constraints
32
We use
8:00 A.M.
to
5:00 P.M.

33. Question 2
33

34. Route design with relaxed time
windows constraints
34

35. Question 2
• The routes mileage is 272 miles per day
for 5 trucks.
• The total cost is $676.79 per day.
• This is an additional cost reduction of
($739.93 - $676.79)*250 = $15785 per
year.
35

36. Question 2
• Questions for management are:
How restrictive are the time windows?
Can deliveries be made outside of the
account’s open hours, such as by giving the
driver the key to a safe storage area?
Can management offer a small incentive to
widen the time window when it otherwise would
not be convenient for the account?
• Relaxing such time windows is often one of
the important sources for cost savings in
routing problems.
36

37. Question 3
Question 3: If larger trucks, priced at
$35000 and having a capacity of 600 cases,
are available, should they be purchased?
They are expected to increase operating
costs by $0.05 per mile.
37

38. Question 3
• When there are no truck capacity
restriction on a routing problem, the most
efficient route design would be to use one
large to serve all accounts. Therefore, we
would expect that trucks of larger capacity
would reduce the total distance travelled.
• We make, a ROUTER optimizing run with
600 case capacity trucks and setting other
conditions at the current design.
38

39. Question 3
39

40. Question 3
40

41. Question 3
• Compared with optimized current design,
the potential savings is ($739.93-$735.32 )*
250 = $1152.50.
• Two 600-case trucks would be needed,
along with 3 smaller trucks.
• Although, there is a positive savings
associated with using larger trucks, the
savings seems quite small and perhaps not
worth switching to some larger trucks at
this time.
41

42. Question 4
Question 4: If Roy can use an outside
transport service to deliver to all accounts
with demand of 50 cases or less for a price
of $35.00 per account, should he do it?
42

43. Question 4
43

44. Question 4
• From the incremental costs in the detailed report of
the optimized current design, we can see that account
14 costs $39.05 and account 19 costs $35.04 to
make the deliveries.
• Since the volume of account 19 is 90 cases, and
exceeds the 50 case capacity of an outside transport
service, account 19 cannot be considered for
alternate delivery.
• If it only costs $35 for an outside delivery service to
handle account 14, then a cost savings can be
realized.
44

45. Question 4
• Dropping this account and redesigning routes shows
that only five trucks are needed for a route cost of
$690.17+ $35 (outside delivery service) = $725.17.
• Compared with the optimized current design, this is an
annual savings of ($739.93-$725.17) * 250 = $3690.
• Economically, Roy should use the outside
transportation.
• However, losing direct control over the deliveries
and possible adverse reactions from route
salesmen may give him second thought about it.
45

46. Question 5
Question 5: The union is negotiating for a
71/2 hour workday, excluding lunchtime,
before overtime begins. What implication
does this have for route design and costs?
46

47. Question 5
• Make two ROUTER runs to determine the
effect of a shorter workday before
overtime begins.
If no overtime is allowed (71/2 hours + 30
minutes lunchtime = 8 hours).
If some overtime is allowed (8 hours + 2
hours overtime = 10 hours).
47

48. Question 5
(No overtime is allowed)
48

49. Question 5
(No overtime is allowed)
49

50. Question 5
(Some overtime is allowed)
50

51. Question 5
(Some overtime is allowed)
51

52. Question 5
• If no overtime is allowed, then 6 trucks are
required for a total daily routing cost of $761.54.
• If some overtime is allowed, then route cost can
be reduced to $741.90 with 6 trucks required.
• Compared with the optimized current design, Roy
would seem to be putting himself at a
disadvantage by not wanting to pay overtime.
52

53. Question 6
Question 6: Roy would like to consider a
more central location for the warehouse
at coordinates X = 20, Y = 25. The lease
cost for the building is the same as the
current location, but the pre-sell demand
portion of the on-time moving cost is
$15000. Is such a move economically
attractive for pre-sell demand?
53

54. Question 6
54

55. Question 6
55

56. Question 6
56

57. Question 6
• Moving the warehouse to a more central location would have
the appeal of being closer to all stops and would result in
shorter routes.
• Testing this shows that total route distance can be reduced to
305 miles with a daily cost of $716.91. However, in order to
meet the time window and other constraints, an extra truck (7
trucks) is needed.
• There is a potential annual savings of ($793.93 - $716.91)*
250 = $5755.
• Since it costs $15000 to make the move, a simple return on
investment (ROI) would be ($5755/$15000) = 0.38 = 38%.
• At this ROI, the move should be seriously considered.
57

58. Question 7
Question 7: How would you go about
implementing a computerized software
package such as ROUTER for truck
dispatching on a daily basis? What
problems would you anticipate, and how
would you deal with them?
58

59. Question 7
• Expected problems in implementation of software can be solved with the
help of other similar delivery problems.
• Routing and scheduling beer trucks from a central depot is quite similar to
delivery problems found in manufacturing, retail, and service
industries.
Examples:
• Making deliveries from a plant location to warehouses and then picking
up supplies from vendors on the return trip.
• Making retail deliveries from a warehouse.
• Making deliveries (and pickups) of medical records to doctor's offices
and other locations from a central record-keeping location such as a
hospital.
59

60. Run type Miles Cost Trucks Clarifications
Current design 334 $764.62 5 Find cost of current
design
Optimized current 317 $739.93 6 Improved cost than
current design
No time windows
restrictions
272 $676.79 5 Time windows relaxed
Trucks at 600-case
capacity
304 $735.32 5 Two routes require
larger trucks
71/2 hour workday- no
overtime
332 $761.54 6 Route time allowed to
be no longer than 8
hours
71/2 hour workday-
with overtime
317 $741.90 6 Route time allowed to
exceed 8 hours
New warehouse
location
305 $716.91 7 Warehouse moved to
more central location
Results of ROUTER for different runs
60

61. Recommendation to Roy
• Consider optimizing route design to reduce operating
costs.
• Relax the time windows.
• Consider serving of accounts by an outside transport
service.
• Consider relaxing his rigid policy of not wanting to pay
overtime.
• Carefully evaluate cost reduction by increasing truck
capacity or relocating the warehouse.
61

62. References
• Ballou, Ronald H. (2004). “Business Logistics/
Supply Chain Management: Planning,
Organizing, and Controlling the Supply Chain.”
(5th Edition) with LOGWARE Software.
62