Introduction

At 6:30 p.m. on a Monday evening in February, 2018, Mr. Ramesh Ray, Manager-
Logistics of the ABC Electrical Company was getting ready to go home. He had just
finished the fortnightly meeting with the top managers of the company. In the meeting,
they discussed the need for developing a model for carrier selection. The new model
should take into consideration all the costs associated with carrier selection. Everyone
present in the meeting agreed on the need to have a proper model for carrier selection.
Mr. Ravi Tandon, the CEO and founder of the company, is very serious about the new
carrier selection model. He said “The there is scope to save cost by selecting appropriate
carrier”. Management wants to develop a model for carrier selection which would
minimize the total inbound logistics cost. The responsibility of developing the carrier
selection model was assigned to Mr. Ray and he understands the importance of the
carrier selection model. The decision regarding the logistics carrier company with which
a company contracts is as an important planning decision.
The ABC Electrical is a major electrical appliance manufacturer with a plant at Haldia
in Eastern India. It is the market leader in Eastern India and is one of the most
competitive electrical appliance makers in North India as well. It procures all the motors
required for its appliance from Bajaj Motors located near Patna. Currently, Speedline
Carrier Company handles the shipment of motors from Bajaj Motors to ABC Electrical
Company’s plant in Haldia by using the roadways mode of transport.
Speedline Carrier has been handling the shipment of ABC Electrical Company for the
past two years at the same rate and now it wants to increase its rate. However, the much-
awaited Inland Waterway Authority of India project for transport from Haldia (West
Bengal) to Varanasi across the Ganga finally has finally seen the light of the day in
January, 2018. The water transportation mode is a boon for companies located near the
Ganga River as the waterway freight charge is cheaper than any other mode of surface
transport. The senior management of ABC Electrical Company feels that there is a
possibility to decrease the logistics cost and it has asked for proposals from other carrier
companies. The ABC Electrical Company has received several proposals from Carrier
companies including Speedline Carriers and must decide which one to accept. Just three
months ago, Mr. Ray joined ABC Electrical Company as the Manager-Logistics and now
he is assigned with the responsibility to develop the model for carrier selection for the
next two years. However, Mr. Ray realizes the difficulty of developing a model for
carrier selection as he requires all the relevant information. So he decides that he will
have a discussion with some of his experienced colleagues and obtain the relevant data
for carrier selection model that would minimize the inbound logistics cost.

The Next Stage

After talking with his colleagues, Mr. Ray reconfirmed the critical role of carrier
selection in reducing the inbound logistics cost. A proper carrier selection would offer
great opportunity for the ABC Electrical Company to reduce inbound logistics costs and
differentiate itself from its competitors.
Over the last week, Mr. Ray spent most of his time in data collection. For the purpose
of his analysis, he decided to collect the following information from various sources: the
demand data, transportation cost rate, lead time and inventory policy followed by the
ABC Electrical Company.
Last year, the ABC Electrical Company purchased 1,50,000 motors from Bajaj
Motors. The demand has been fairly constant for the last two years and it is expected to
stay that way. At its assembly plant at Haldia, the ABC Electrical Company carries a
safety stock equal to 50% of the average demand for motors during the delivery lead
time. The ABC Electrical Company’s annual cost of holding is 30 percent. Bajaj Motors
ships each ABC Electrical Company’s order within two days of receiving it. The price of
motor is Rs.9000 per piece and each motor weights about 5 kg. Mr, Ray went through the
proposals submitted by the various carriers and gathered the relevant data which he
thought would be required for developing the carrier selection model. The details are
given in Table 1.

Table 1: Carrier company-wise transportation mode, transportation time, lot-size and

shipping cost details.

Carrier company Transport Transportation Minimum Lot Shipping cost

mode time in days size in kg in Rupees/kg
Speedline Carriers Roadways 2 2000 90
Waterways 5 3000 67
Railways 3 3500 75
Eastern Truckers Roadways 2 2500 95
National logistics Roadways 3 1500 75
Railways 3 3000 73
Riverline Carriers Waterways 5 4000 65

Now that Mr. Ray had all the relevant data in place, he hoped that he would be in a
position to apply the concepts that he had learnt in the executive MBA program to
develop the carrier selection model. Mr. Ray had been trying to make some sense out of
the data without any breakthrough; he is in a dilemma surrounding selection of carrier
based on minimum inbound logistics cost.

1. Calculate the total logistics costs and for all the alternatives and select the carrier
based on the minimum cost.