BA 308B

Dr. Campbell

FREIGHT CONSOLIDATION
Example: A supplier ships goods from St. Louis to 3 cities. The supplier can ship every day,
every other day or every third day. There is a penalty of $0.20/cwt for each day delayed.
Consolidating shipments allows lower transportation costs from larger loads, but incurs penalty
costs due to the delay.
City
Rolla
Columbia
Kansas City

Transportation Rate ($/cwt)

LTL <25,000 lb
TL 25000 lb
1.20
1.00
1.05
0.80
2.00
1.20

Weight/day
8,000 lb = 80 cwt
10,000 lb = 100 cwt
7,000 lb = 70 cwt
25,000 lb = 250 cwt

What should be the shipping frequency (or how long should orders be held) to minimize total
cost?
Ship Every Day
R
C
KC

801.20 =
1001.05 =
702.00 =

$96
$105
$140

or
or
or

2501.00 =
2500.80 =
2501.20 =

$250
$200
$300

2501.00 =
2500.80 =
2501.20 =

$250
$200
$300

Total Cost = $341/day (no delay penalty)

Ship Every Other Day
R
1601.20 =
C
2001.05 =
KC
1402.00 =

$192
$210
$280

or
or
or

Transportation Cost = $672 every 2 days

Delay Penalty: 250 cwt delayed 1 day = 250 0.20 = $50 every 2 days
Total Cost = (672 + 50)/2 = $361/day
Ship Every Third Day
R
2401.20 =
C
KC
2102.00 =

$288

or

$420

or

2501.00 =
3000.80 =
2501.20 =

$250
$240
$300

Transportation Cost = $790 every 3 days

Delay Penalty: 250 cwt delayed 2 days = 250 0.20 2 = $100 every 3 days
250 cwt delayed 1 day = 250 0.20 1 = $ 50 every 3 days
Total Cost = (790 + 100 + 50)/3 = $313.33/day

BA 308B
Dr. Campbell

Solution: The lowest total cost is $313.33/day for shipping every third day.