Case Study: Trading off
production and transport economics
A dairy company wanted to assess the
method of supply of milk to multiple retailers. When a retailer obtains
supplies from a large number of dairies, they may obtain low inbound
transport costs but do not obtain the benefits of working a small number
of dairies to their maximum capacity. Concentrating supply on a small
number of dairies increases transport costs, but gives lower unit costs
of production as the dairies reach capacity and their fixed costs are
spread over the maximum output.
We used the CAPS Supply Chain Designer to evaluate this trade off
between production and transport economics. Transport cost models were
built from vehicle schedules produced with the Paragon system, which
reflected the level of service that retailers require. We built a series
of models, each of which was focussed on a particular multiple retailer.
The models were each a microcosm of the industry, as they included
dairies that were not owned by our client, in order to produce the best
result from the retailers' perspective.
The models indicated that the production benefits far outweighed the
additional transport cost. In some scenarios, many millions of pounds
per annum were available from a fundamental change in supply policy.
