ACME Pump Company Case Study
Posted on March 10, 2013 by Brad
ACME Pump Company is spending over 7 million a year between inbound and outbound shipments. Additionally they are recording losses of over $36,000 in emergency shipments. The logistics costs are too high and must be reduced to ensure both short and long term stability due to long distances traveled between locations.
* Furthest outbound shipment York PA to Savannah, GA (667 Miles)
* Furthest inbound shipment Greensboro, NC to York PA (402 Miles)
Outbound from Scranton, Pennsylvania:
* Negotiated Previously: One-way truckload rate of $4 per mile and a 45% discount off of class rates ...view middle of the document...
* Powdered form in plastic lined, corrugated boxes.
* Purchased FOB Shipping Point, Pre-paid, and billed and ships at class 60
* Industrial Paints is billing ACME $450 for each shipment.
* Average shipment is 1,000Lbs per day.
* ACME Purchasing department questioned Pump Gutts and Amalgamated Casting about transportation expense a couple years ago, both suppliers estimated that just 5% of the purchase price was being charged to cover transportation expense and built into the price of the product. At the time ACME seemed satisfied
* Last two years have seen logistics costs at ACME increase at an unacceptable pace.
Taking this information into consideration, two models were built to understand the costs of transportation.
Company | From/To | Mileage | Pounds | Class 60 Rate | Mileage * Rate | 45% Discount | $4/ Mile | $4 /Mile Total | Fuel Surcharge (20%) | TOTAL |
ACME | York, PA to Columbia, SC * | 571 | 2500 | $50 | $2,855 | $1,570 | $4 | $2,284 | $314 | $4,168 |
ACME | York, PA to Charlotte, NC * | 497 | 3500 | $50 | $2,485 | $1,367 | $4 | $1,988 | $273 | $3,628 |
ACME | York, PA to Savannah, GA* | 667 | 1500 | $50 | $3,335 | $1,834 | $4 | $2,668 | $367 | $4,869 |
| | | | | | | | | | $12,666 |
| | | | | | | | | Annual: | $4,622,908 |
* ACME is spending on average $12,666 per day, which equates to 4,622,908 a year.
* This is way too high and creating an unfavorable operating ratio.
* ACME is traveling 578 Miles to each location on average
* This is way too high and essentially is a main bottleneck of the business from increasing profitability.
* Industrial Paints should drop the $450 charge.
* Business is done every day with them and could easily be dropped.
Company | From/To | Mileage | Pounds | Rate | Milage * Rate | Emergency Air Annual | Annual |
Industrial Color Designs | Greensboro, NC, to York, PA* | 402 | 1000 | 52.75 | $2,120 | N/A | $773,800 |
Pump Gutts | Richmond, VA to York, PA | 201 | 1900 | 70.25 cwt | $1,335 | 36,400 | $523,584 |
Almalgamated Castings | Greenville, SC to York* | 591 | 5000 | 48.25 | $2,851 | N/A | $1,040,615 |
| | | | | | Annual —-> | $2,337,999 |
Logistics costs are way too high. Roughly 7 million/year is being spent on transportation, which is a bottleneck for company expansion. ACME is having forecasting problems due to the fact that airfreight is being sent twice a week for emergency components that is by no means cost effective. The long distance between suppliers and the factory in York seems to be the core issue that is jacking up transportation costs and incurring problems. It seems like there is a lack of communication between suppliers, transportation managers and the factory in York, PA. Creating a Lean, sustainable supply chain that is beneficial to all parties is the objective.
Recommendations: Short and...