Operations and Supply Chain Management The Core

452 OPERATIONS AND SUPPLY CHAIN MANAGEMENT
the efficient shipping of the 20- and 40-foot containers.
These are the same containers that are loaded onto rail cars
in the United States.
Currently, about 190,000 cubic meters of material are
shipped annually from China and Taiwan. This is expected
to grow about 15 percent per year over the next five years.
About 89 percent of all the volume shipped from China and
Taiwan are sent directly from the suppliers in 20- and 40-foot
containers that are packed by the supplier at the supplier site.
Approximately 21 percent are packed in the 20-foot containers
and 79 percent in 40-foot containers. The 20-foot containers
can hold 34 cubic meters (CBM) of material and the
40-foot containers, 67 CBM. The cost to ship a 20-foot container
is $480 and a 40-foot container, $600 from any port
location in China or Taiwan and to either Los Angeles or
Seattle. Grainger estimates that these supplier-filled containers
average 85 percent full when they are shipped.
The remaining 11 percent shipped from China and Taiwan
go through consolidation centers that are located at each port.
These consolidation centers are run by the freight forwarding
company and cost about $75,000 per year each to operate. At
the volumes that are currently running through these centers,
the variable cost is $4.90 per CBM. The variable cost of running
a consolidation center could be reduced to about $1.40
per CBM using technology if the volume could be increased
to at least 50,000 CBM per year. Now there is much variability
in the volume run at each center and it only averages about
5,000 CBM per site.
Material at the consolidation centers is accumulated on
an ongoing basis and as containers are filled they are sent to
the port. Volume is sufficient that at least one 40-foot container
is shipped from each consolidation center each week.
Grainger has found that the consolidation centers can load all
material into 40-foot containers and utilize 96 percent of the
capacity of the container.
Grainger ships from four major port locations.
Approximately 10 percent of the volume is shipped from
the north China port of Qingdao and 42 percent is shipped
from the central China port of Shanghai/Ningbo. Another
10 percent is shipped from Kaohsiung in Taiwan. The final
38 percent is shipped from the southern Yantian/Hong Kong
port. Consolidation centers are currently run in each location.
Grainger management feels that it may be possible to
make this part of its supply chain more efficient.
Specific Questions to Address in
Your Analysis
1. Evaluate the current China/Taiwan logistics costs.
Assume a current total volume of 190,000 CBM and
that 89 percent is shipped direct from the supplier plants
in containers. Use the data from the case and assume
that the supplier-loaded containers are 85 percent
full. Assume that consolidation centers are run at each
of the four port locations. The consolidation centers
use only 40-foot containers and fill them to 96 percent
capacity. Assume that it costs $480 to ship a 20-foot
container and $600 to ship a 40-foot container. What
is the total cost to get the containers to the United
States? Do not include U.S. port costs in this part of
the analysis.
2. Evaluate an alternative that involves consolidating
all 20-foot container volume and using only a single
consolidation center in Shanghai/Ningbo. Assume that
all the existing 20-foot container volume and the existing
consolidation center volume is sent to this single
consolidation center by suppliers. This new consolidation
center volume would be packed into 40-foot containers
filled to 96 percent and shipped to the United
States. The existing 40-foot volume would still be
shipped direct from the suppliers at 85 percent capacity
utilization.
3. What should be done based on your analytics analysis?
What have you not considered that may make your
analysis invalid or that may strategically limit success?
What do you think Grainger management should do?
Many thanks to Gary Scalzitti of Grainger for help with developing this
case.