ACADEMIC CASE STUDY1
ConSort, Inc.
Utilizing Consolidation to Lower Transportation Costs
An Academic Learning Case Study written for the
Council of Supply Chain Management Professionals
Prepared by
Dr. Ted Farris
University of North Texas
Copyright notice: This document is provided for personal use and will not be transmitted or
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ConSort Inc. is a mid-sized distributor based in the southeastern United States. The ability to
distribute their products in a cost efficient manner is imperative to remaining competitive in
their niche.
Transportation manager Peter Patrachalski stopped by the office of Fred Ferguson, ConSort’s
VP of Supply Chain. “What’s new, boss?” asked Patrachalski.
“We have a student intern named Jason starting today from Possum State University,” replied
Ferguson, “I’m going to assign him to you.”
“Excellent!” exclaimed Patrachalski. “This gives me an opportunity and the resources to look at
that ‘if I had time’ wish list and test drive a potential future employee – and the experience can
be rewarding for the intern as well, since it gives him real world experience and increases his
market value for his first career position. It also comes with an obligation to shape and help him
learn how to apply his classroom learning. If we do it right, it can be a very symbiotic gain-gain
relationship. When can I meet him?”
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This version is shortened and modified by Dung Nguyen
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“You actually walked right past him outside my office.” Grinning, Ferguson looked at his open
door and bellowed, “Jason, come into my office. You need to meet your boss and we need to
discuss our transportation strategies.”
As Jason walked through the door, Ferguson began, “Jason, this is your boss, Peter Patrachalski.
Say, you took a transportation course last semester with Professor Bess – tell me what you
know about transportation consolidation.”
PART I: SHIP DIRECT vs. VEHICULAR CONSOLIDATION
“Professor Bess taught us that truckload (TL) rates per pound are lower than less-than-
truckload (LTL) rates per pound. “Jason replied. “ With LTL you are handling many smaller
shipments for different customers. Truckload shipments are often made up of a few shippers so
you get kinda’ an ‘economies of scale’ thing: fewer delivery points, less handling, more profit
for the carrier. Transportation rates reflect this and that is why TL rates are lower per pound.
Strategically, you consolidate your freight into larger quantities so you can get the lower TL
rate. There are two main types of consolidation: vehicle consolidation and temporal
consolidation. Vehicle consolidation combines LTL shipments from various sources together into
TL quantities so you can qualify for the lower TL rates.
“Correct,” agreed Patrachalski. “ConSort can either use a ship direct model where our four
manufacturers ship LTL directly to our customer and we pay the higher LTL freight charges, or
we could switch to vehicle consolidation where the four manufacturers ship LTL to our
distribution center at our expense and we combine these items into consolidated TL shipments
to our customer. Not only would we be able to reduce dock congestion for our customer but
we may also be able to reduce transportation costs.”
“As long as we can efficiently run our distribution center,” cautioned Ferguson, “our
distribution center costs run $3.60 per 10 pounds handled.”
“Jason, I want you to take a look at our data (Figure 1) and complete an analysis comparing the
ship direct model and vehicle consolidation over 52 weeks of shipping,” stated Patrachalski
looking at Ferguson who was nodding his approval. “Quantify a recommendation about the
lowest cost strategy. And don’t forget to include our distribution center costs!”
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Figure 1. ConSort Manufacturer Rates and Weights
Manufacter Shipping weight LTL rate LTL rate TL rate DC to
(lbs) each week Manufacturer to Manufacturer Customer (per lbs)
Customer (per lbs) to DC (per lbs)
A 100 $2.00 $0.75 $1.00
B 80 $1.80 $0.60 $1.00
C 150 $3.40 $1.20 $1.00
D 70 $1.60 $0.50 $1.00
PART II: SHIP DIRECT vs. TEMPORAL CONSOLIDATION
“So Jason,” Ferguson continued, “What about the other type of consolidation, the temporal
one. What is that?”
“Well,” Jason hesitated, “basically temporal is a fancy word for time. With temporal
consolidation ConSort would combine LTL shipments over time going to a single location into TL
quantities to benefit from the lower TL rates per pound.”
“Perhaps we should use temporal consolidation to consolidate these shipments into larger,
lower cost shipments rather than making a number of higher cost, small shipments,” stated
Patrachalski. “OK, Jason, I also want you to take a look at the possibility of using temporal
consolidation from the ConSort Oklahoma City distribution center to each of our operations in
Kansas.
Use the history of average past orders to three Kansas cities over consecutive three day periods
(Figure 2) and assume this is representative of demand every three days throughout the year
(e.g., Day 4 shipments will be identical to those on Day 1).
Complete an analysis using our current rates (Figure 3) comparing no consolidation (e.g., daily
shipments) versus temporal consolidation of three days of shipments over a 30 day period.
Quantify and make a recommendation based on the lowest cost.”
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Figure 2. Historic ConSort shipments to Kansas operations
Day 1 Day 2 Day 3
Topeka 50 230 160
Kansas City 70 120 210
Wichita 320 380 310
“But Peter, if we delay shipments, our customer service levels will drop. That has to cost us
something,” cautioned Ferguson.
“True,” responded Patrachalski, “so Jason, in your analysis assume the cost of the delayed
shipments to the customer will result in an aggregating loss of $200 (cost of poor service) of all
three locations for each three-day period.”
“This all sounds complicated,” pointed out Jason, “Why don’t we use a freight broker or a
freight forwarder to handle ConSort freight?”
“Well, Jason,” Parachalski chortled, “I guess the answer to your question is, um, another
question. What IS the difference between freight broker and freight forwarder? Why don’t you
compare and contrast the similarities and differences for me to consider.”
Figure 3. Current transportation rates
Topeka Kansas City Wichita
0 - 99.9 lbs. $2.35 $2.20 $2.40
100 - 199.9 lbs. $2.12 $1.98 $2.16
200 - 299.9 lbs. $1.80 $1.68 $1.84
300 lbs. and over $1.44 $1.35 $1.47
All rate information is based on cost per lbs. Assume that once you reach the 300 pound rate the carrier may use
multiple trucks if needed but will still charge you the 300 pound rate.
QUESTIONS
1. If we use the ship direct model, using data from Figure 1, what are our total costs over a
52 week period?
2. If we use the vehicular consolidation model, using the data from Figure 1, what are our
total costs over a 52 week period?
3. Do you recommend using the ship direct OR the vehicular consolidation model? Explain
why.
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4. If we use the ship direct model, using the data from Figure 2 and 3, what are our total
costs over a 30 day period?
5. If we use the three day temporal consolidation model, using the data from Figure 2 and
3, what are our total costs over a 30 day period?
6. Do you recommend using the ship direct model OR the three day temporal consolidation
model? Explain why.
