Department of Transport and Supply Chain Management
OVERVIEW
• Transport Mode Selection
• Principles Of Routing And Scheduling • Routing And Scheduling Decisions • Vehicle Operating Costs • Charge-out Rates
LOGISTICS 3 CHAPTER 6 2 TRANSPORT SELECTION TRANSPORT MODE SELECTION: BALLOU P 222, TABLE 7-2
An appliance manufacturer located in Pittsburgh purchases 3000 cases of plastic parts valued at R100 per case from two suppliers. Purchases are currently divided equally between the suppliers. A carrier earns 20% of case value shipped. Each supplier uses rail transport and achieves the same average delivery time. However, for each day that a supplier can reduce the average delivery time, the appliance manufacturer will shift 5 % of its total purchases, to the supplier offering the fastest delivery service. One of the suppliers would like to consider whether it would be beneficial to switch from rail to air or road modes. The following transportation rates per case and average delivery times are known for each mode. Advise the supplier on the most viable mode of transport. TRANSPORT TRANSPORT DELIVERY MODE RATE TIME
Rail (current mode of transport) R 3 per case 6 days
Road R 5 per case 3 days
Air R 8 per case 1 day
LOGISTICS 3 CHAPTER 6 3 Complete the Table
TRANSPORT CASES GROSS TRANSPORT NET
MODE SOLD PROFIT COST PROFIT
Rail
Road
Air
LOGISTICS 3 CHAPTER 6 4 Answer
MODE CASES GROSS TRANSPORT NET
SOLD PROFIT COST PROFIT
Rail 3000 / 2 Profit = 20% of 1500 x R3 per Revenue – Cost =
= 1500 R100 p case case Profit 1500 x (R100 x = R 4 500 R 30 000- R 4 500 20%) = R 25 500 = R 30 000 Road 1500 + (150 x 3) 1950 x(R100 x 1950 x R5 per R 39 000 - R 9 750 = 1500 + 450 20%) case = R 29 250 = 1950 = R 39 000 = R 9 750 Air 1500 + (150 x 5) 2250 x (R100 x 2250 x R8 per R 45 000- R 18 000 = 1500 + 750 20%) case = R 27 000 = 2250 = R 45 000 = R 18 000
THE MOST PROFITABLE OPTION IS ROAD TRANSPORT
LOGISTICS 3 CHAPTER 6 5 PRINCIPLES OF ROUTING AND SCHEDULING.
The objective of routing and scheduling is to minimise distance and time
travelled by vehicles. This objective is possible through the application of the following principles: 1. Vehicle routes should be formed around clusters of stops (delivery points) that are nearest to each other. 2. Shipments on different days should be arranged to produce tight delivery clusters. 3. Build routes beginning with the furthest delivery from the depot and then work back toward the depot. 4. The sequence of stops on a truck route should form a teardrop pattern. 5. Use the largest load capacity vehicles first if the maximum load capacity (FTL) can be realised. LOGISTICS 3 CHAPTER 6 6 6 Pickups should be integrated into the delivery route rather than done at the end of routes.
7 A delivery location that is far removed from a route cluster is
a candidate for an alternative means of shipment.
8 Negotiate delivery times with customers to coincide with the
planned routing and scheduling operation.
LOGISTICS 3 CHAPTER 6 7 ROUTING AND SCHEDULING DECISIONS Plot the delivery route on the geographical map below for a vehicle that departs (and returns to) Cape Town, with delivery points at Pretoria, Kimberley, East London, and Durban. Vehicle speed is 80 km/hr
12 KIMBERLEY PRETORIA 530 7 PRETORIA DURBAN 636 8 DURBAN EAST LONDON 674 8 EAST LONDON CAPE TOWN 1099 14
TOTAL 3 901 49 LOGISTICS 3 CHAPTER 6 11 Continued
• (c) The maximum allowable continuous driving time is 5 hours
before a resting period of 0.5 hours must be taken. Determine the total time required for the trip. • 49/5 = 9.8 = 10 stops; 10 x 0.5 hrs = 5 hours resting time; 49 + 5 = 54 hrs total • (d) The average fuel consumption of the vehicle is 12 km/L. Determine the fuel required for the journey. • 3 901 / 12 = 325 L • (e) If the price of fuel is R10.60 per litre, determine the cost of fuel for the journey. • 325 L x R10.60 = R 3 445
LOGISTICS 3 CHAPTER 6 12 Vehicle Operating Costs
Operating costs is the term used to express the total expenses incurred to operate a revenue earning vehicle.
This means that the total operational cost of a vehicle must include at least the following cost factors of that vehicle:
Fixed costs Variable costs A portion of the total overhead costs which is allocated to this vehicle.
Operational or running costs of a vehicle (or anything else), is the sum of the above cost elements, usually expressed over a period of time. A manager may consider the replacement of an asset when the operational or running costs of an asset becomes too expensive relative to the revenue generating capacity of the asset.
LOGISTICS 3 CHAPTER 6 13 EXAMPLE The cost data for a vehicle is given, while other costs must be calculated in the table below.
Costs to be calculated are:
Total fixed costs; Fuel costs; Tyre costs; Total variable costs; Total operating costs. FIXED OVERHEAD VARIABLE TOTAL COSTS OPERATING COSTS COSTS COSTS Licenses R 1 500 Allocated per
Insurance R 20 000 Fuel
vehicle
Wages/Salaries R 58 000 Tyres
Interest R 33 000 Maintenance R 25 000 Depreciation R 40 000 Lubricants R 70 000 Totals R 15 000 Distance 180 000 km Fuel consumption 14 L/100km Work weeks 45 Payload (Ton) 10 Fuel price R 14.00 per L Days/week 5 Deliveries/day 3 Tyre cost R 0.20 per km Hours/day 8
LOGISTICS 3 CHAPTER 6 14 Complete the template TOTAL ANNUAL OPERATIONAL COST OF VEHICLE TOTAL FIXED OVERHEAD VARIABLE OPERATIONAL COSTS COSTS COSTS COST Licenses R 1 500
e ic l Insurance R 20 000 Fuel R 352 800
eh Wages/Salaries R 58 000 Tyres R 36 000
rv pe Interest R 33 000 Maintenance R 25 000
d ate Depreciation R 40 000 Lubricants R 70 000
loc Totals R 152 500 R 15 000 R 483 800 R 651 300
Al Distance 180 000 km Fuel consumption 14 L/100km Work weeks 45 Payload (Ton) 10 Fuel price R 14.00 per L Days/week 5 Deliveries/day 3 Tyre cost R 0.20 per km Hours/day 8 Fuel: From the table, the fuel consumption was 14 Litre per 100 km for a distance of 180 000 km and the cost of fuel was R 14.00. There are 180 000 km = 1 800 sections of 100 km each using 14 L 100 km of fuel. 1 800 sections x 14 L = 25 200 L of fuel 25 200 x R 14.00 per litre = R 352 800 Tyres: From the table, the cost of tyre wear was R 0.20 per km over a distance of 180 000 km. The cost of tyres over this distance can now be recorded in the table as 180 000 km x R0.20 = R 36 000. LOGISTICS 3 CHAPTER 6 15 While it is handy to know what the operational cost of a vehicle is over a period of a year, for costing and pricing exercises, it is necessary to break down these figures to a practical unit of measurement such as cost per kilometre or cost per ton. The following template will assist in achieving this.
COST CALCULATION ANSWER
OPERATING COST PER ANNUM
OPERATING COST PER WEEK
OPERATING COST PER DAY
OPERATING COST PER HOUR
FIXED+ OVERHEAD COST PER DAY
FIXED+ OVERHEAD COST PER HOUR
VARIABLE COST PER DAY
VARIABLE COST PER HOUR
TOTAL OPERATING COST PER KM
TOTAL OPERATING COST PER TON
LOGISTICS 3 CHAPTER 6 16 COST CALCULATION ANSWER R 152 500 OPERATING COST PER ANNUM R 15 000 R 651 300 R 483 800 R 651 300 OPERATING COST PER WEEK 45 R 14 473.33
R 14 473 OPERATING COST PER DAY 5 R 2 894.67
R 2 894.67 OPERATING COST PER HOUR 8 R 361.83
R 167 500 FIXED+ OVERHEAD COST PER DAY 225 R 744.44
R 744.44 FIXED+ OVERHEAD COST PER HOUR 8 R 93.06
R 483 800 VARIABLE COST PER DAY 225 R 2 150.22
R 2 150.22 VARIABLE COST PER HOUR 8 R 268.78
R 651 300 TOTAL OPERATING COST PER KM 180 000 R 3.62
R 651 300 TOTAL OPERATING COST PER TON 6 750 R 96.49 LOGISTICS 3 CHAPTER 6 17 CHARGE-OUT RATES
• In order to determine transport charge-out rates (prices) and
compile quotations for customers, the Transport Manager will assume that the short-term overhead cost is fixed and that the vehicle running cost is variable. From this basis, a fairly accurate foundation can be established for determining a profitable fee for transport services.
• The process of cost recovery and making a profit is explained in
the following example. This is a process of detailing budgeted overhead costs for a specific period and then calculating the cost of capital employed, as well as the inclusion of the desired return on capital. • Totals are then divided by projected working hours in order to determine a charge-out rate per hour.
LOGISTICS 3 CHAPTER 6 18 PROJECTED OVERHEAD AND CAPITAL EXPENDITURE Capital employed (book value): Vehicles R750 000 Trailers R100 000 Loading/off-loading equipment R 70 000 TOTAL R920 000
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