Reference no: EM13895230

Spartan Plastics

Elise Lovejoy, the new logistics coordinator at Spartan Plas- tics, was looking at the stack of papers before her and at the two computer screens in front. It was Friday afternoon-the Friday before the long weekend-and she still had not come to resolution. She knew that first thing Tuesday morning she would have a meeting with Bob Barley, CEO and major owner of Spartan Plastics. The issue that they would be discussing: how to get the increasing shipping costs under control. With the forecasts for the upcoming year looking promising, shipping volumes were expected to increase by 10 to 25 percent. Consequently, the shipping costs had to be addressed because, simply put, they were too high.

Spartan Plastics-Background Information

Spartan Plastics was a medium-sized producer of high- quality, highly engineered plastic components. These com- ponents were typically found on the interior of most trucks and cars. They tended to come in variety of colors and finishes-everything from small door panels to panels that looked like wood. Typically, their critical major custom- ers consisted of the Big Three (General Motors, Ford, and Chrysler) and were located in the Detroit-Toledo-Lansing area. During the last year, Spartan Plastics had shipped approximately 10,000 pounds of components per day to each assembly plant served.

Located in St. Louis, MO (where the company was known for its aggressive policy of recruiting minorities for its workforce and for its progressive supplier diversifica- tion program), Spartan Plastics employed 450 people: 200 direct assembly line employees, 150 engineers, and 100 others.

Originally begun in 1976, the company had grown quickly. However, management's primary focus was on engineering and product design. Management's mantra was simple and known to everyone: high-quality compo- nents, designed right, built right, sold at a fair price, and delivered on-time.

The Shipping Problem

Logistics and shipping, as a result, were traditionally not a high priority at Spartan Plastics. Until recently, shipping was seen as simply being a clerical task. Consequently, this responsibility was assigned to a shipping clerk who simply called a local shipping company. Unsurprisingly, shipping costs tended to be high.

In the past, Spartan Plastics had used an LTL carrier from its plant to each of the assembly plants. The carrier charged Spartan Plastics $0.05 per hundredweight per mile. What this policy meant was that to ship one day's worth of components to the Lansing plant, for example, it would cost Spartan Plastics $2,435 (over $600,000 per year).

With its customers becoming more cost sensitive, top management agreed that something had to be done. The first step was to increase the "professionalism" of the logis- tics and shipping department. One of the first actions trig- gered by this step was the hiring of Elise Lovejoy. Elise had previously worked as a manager in a shipping department of a local St. Louis company that was widely respected for its expertise in this area. Upon arriving at Spartan Plas- tics, Elise undertook an assessment. After three weeks, she agreed with top management-the shipping costs were simply too high; there were no controls on them.

Consequently, she approached several Midwestern logistics/shipping companies and asked them to submit proposals in response to her RFQ (request for quotes). After an initial screening review, she identified two pro- posals that seemed to be highly attractive.

Consolidated Shipping LLC (CS): The first proposal rec- ommended a consolidated delivery approach. That is, CS would consolidate the three shipments into one 30,000- pound truckload. The carrier would then use a "milk-run" approach in which the truck would stop first at the Lan- sing assembly plant, then continue on to Detroit, and finish in Toledo. The carrier's charge for the milk-run approach would be based on distance only with a charge of $6.00 per truck mile, plus a stop-off charge of $250/stop, including the final stop in Toledo.

Amalgamated Integrated Services (AIS): The second proposal came from AIS, who could provide both trans- portation and cross-docking capability. AIS proposed to handle deliveries to the various automotive plants by con- solidating the shipments into a full truckload in St. Louis. This full truckload would then travel from St. Louis to Ypsilanti, MI, where the shipment would then be broken down into cross-docked shipments for delivery to the appropriate assembly plants (again handled by AIS). AIS established a cost of $6.00 per mile to the cross-dock facility, and then a flat cost per delivery to each assembly plant from Ypsilanti of $500.

To help in evaluating these two proposals, Elise put together a mileage table for all of the relevant origin/des- tination points. She also knew that she would have to consider the cost implications of the alternatives. Yet, she felt that there were some potential qualitative and service considerations present as well.

 

Origin	Destination	Distance
St. Louis, MO	Lansing, MI	487 miles
St. Louis, MO	Detroit, MI	552 miles
St. Louis, MO	Toledo, OH	499 miles
Lansing, MI	Detroit, MI	88 miles
Detroit, MI	Toledo, OH	65 miles
St. Louis, MO	Ypsilanti, MI	521 miles

As Elise proceeded to turn off her computer and to put the various notes and calculations into her briefcase, she knew that on Tuesday, she would have to be ready with a comprehensive, well-reasoned analysis and set of recommendations.

Questions

1. What are the cost implications of each delivery option?

2. What are the qualitative and service characteristics of each delivery option?

3. Based on your analysis, what would you recommend to Bob?