Cheaper, Greener Transportation
Getting a capital project back on track
Situation
Two years after a multi million dollar warehouse consolidation plan had been implemented, a major US food manufacturer was facing the realization that not everything was OK. The capital proposal had projected a 15% reduction in transportation costs, their latest financial statements showed a 7% increase!
A major assumption in the distribution cost model was that the majority of their products would be shipped by rail. Not only was this significantly cheaper than road, but also more environmentally friendly. In reality, the majority of shipments were being made by truck!
"You cannot ship our product by rail."
SVP Logistics
Complications
The model did not take in to account the additional complications caused by rail shipments, and the perceived wisdom was that the additional complications were offsetting the potential benefits of rail shipments:
- Rail car delivery was unreliable and there had been some major customer service issues
- The additional inventory needed to compensate for unreliable schedules and longer transit times had required a significant increase in working capital
- The additional costs associated with loading rail cars and damage suffered in transit further contributed to the continued use of trucks
Results
Seven weeks after the start of an engagement with Stroud, this "dud" of a capital project was back on the right track. Rail shipments were up ten fold, damage and inventories were under control, and the financial statements were showing the results that the original capital proposal had projected.