Distribution/Logistics

Transportation involves cost structures for suppliers that depend upon the choice of packaged geographic lots or routes whose service costs depend heavily upon synergies. Servicing adjacent regions or contiguous routes entail savings. These cost structures are tied to the specific capabilities of individual providers. Ideal route lengths for waste collection providers depend on the size of refuse trucks in their fleet and the distance to depot and dumping locations. For these reasons, it is preferable to allow suppliers construct collection zones that permit maximal utilisation of their resources.

Example of Present Inefficiencies

Consider a hypothetical scenario in which there are many customers for diesel dispersed across a wide area. Each delivery location has a storage capacity and required frequency of delivery. When suppliers bid on individual locations it tends to result in outcomes with dispersed locations to be serviced and little opportunities for efficiencies. In most existing tenders it is impossible to bid on desirable combinations of drop-off points so trucks that pass locations with a negligible marginal increase in cost cannot do so because their customer base is fragmented. This leads to very significant inefficiencies. The ability to consolidate customer locations would lead to cost savings but requires an expressive bid communication procedure. A factory gate price combined with a transport cost-per-mile is an improvement but can be bettered significantly.

Solution

The solution is to reduce the lot size and allow configurable construction of multiple geographic lots that offer efficiencies. Given three locations, A, B and C, with B lying directly between A and C then the marginal cost of servicing B would be greatly reduced if both contracts for A and C were secured. Conditional discounts related to turnover and contiguous route-planning offer large savings that can be captured via Keelvar’s ability to compute the optimal solution. More participation by SMEs in a lower cost outcome can be expected when the purchaser facilitates expressiveness and flexibility in this manner. Reduced reliance on a single vendor also improves the robustness and risk manageability of a solution because the failure of a single supplier can be addressed by rebalancing of the existing supply network.