Reducing Logistic Costs for Ladner Building Products Essay -- Business

Reducing Logistic Costs for Ladner Building Products Introduction: Ladner is a National building materials distributor with 15-distribution centres nation wide. Recently, the company had been experiencing a loss due to high costs. This issue has become a dangerous problem at Ladner, and top management is now looking to understand the causes of this problem. Recommendations: Ladner can take one or a combination of the following options to improve its situation: - Reducing transportation costs by re-organizing the deliveries and encouraging pick-ups. - Changing staff evaluation methods so that they are aware of costs involved in Ladner's processes. - Changing and re-organizing the customer and product base. Analysis of transportation process: It is easy to see from a first look at exhibit 3 and exhibit 4 (that are provided in the readings) that the delivery process always produces losses. The total cost is always more than what the customer is charged. This is mainly due to customer rebates on delivery charges. Which means this loss in the delivery process is eating up from the profit margins of the company. Ladner has a few options here. They can cancel all delivery rebates for all future deliveries (or reduce them), they can increase the charge on deliveries, and/or they can organize their deliveries better to reduce costs. The latter option is more favourable and is discussed in the following three paragraphs. Taking the Ontario region as an example that represents all regions, one can analyze the two transportation costs: when transporting to a local customer, and when transporting to a customer in a rural region. (See exhibit D) For local runs, the carriers were paid a high hourly salary ($34), and a relatively low per kilometre rate ($0.37). As a result, for Ladner to reduce its transportation costs for local runs, it should minimize the travelling time. In other words, each time the courier should make one trip to serve all customers who are located in the same area and make as many drops as possible. Moreover, it would be useful here to find out what?s the longest segment in the process of delivering to customers? Is it the trip to a certain area, or the drop-off time? If it was the drop-off time, then maybe the deliveries should be organized to minimize drop-offs. Maybe Ladner should... ...afely assume that it can increase its market share in any product if enough effort and promotion is put into it). It will be useful here to find out what are the actual numbers for this trade off? Then Ladner can form a strategy to increase overall profit margins by changing the customer base. For example, if the costs of storage and handling are relatively higher, then Ladner could try to increase sales of industrial products, which have a relatively high profit margin and medium SKU space requirements. On the other hand, it could reduce sales of allied products, which have high SKU space requirements. This product base management can be done in an indirect way as well. It is mentioned in the case that Ladner?s sales staff are evaluated on the basis of product gross margins. This ignores the costs of handling, storage and transportation. Ladner?s management can introduce a new evaluation method that would include these costs. The end result would be that sales representatives would try to sell the most profitable product to the most profitable customer after taking into consideration all the costs. In other words, better customer and product base selection.