Least Cost Solution - Essay Example

In transportation, certain costs are incurred without regard to the actual movement per se.

The route chosen for analysis is: from P2 (125 trucks) to W1 (80 trucks) to W2 (45 trucks). This route does not need transfer points. On the one hand, shipping modes could be optimized on a package-by-pack- age basis, with the resulting mix of processing and transit times contributing to unpredictable overall performance. This is because processes to move individual packages may not work efficiently at higher volumes. High-volume operations do not re-supply their warehouses. They use scheduled dedicated trucks. In other words, just because some companies can ship the necessary quantity to a single customer does not mean that using transfer points is the most efficient way to move a large quantity of material from one place to another (Frame 2002). Another route is: from P1 (75 trucks) to W4 (75 trucks). The third route is: from P3 (100 trucks) to W3 (70 trucks), to W2 (20 trucks) to W4 (10 trucks).

In the case of Canbide, cost is an important determining factor in making decisions. Direct delivery should be recommended since it produces the most effective result on a per-customer basis. In that regard, all measures, including cost-effectiveness analysis, must be treated as simple decision aids and nothing more. As anyone familiar with project evaluation should know, the ultimate decision will always rest with the decision makers, their familiarity with the problem, their goals and objectives, and the constraints facing their decision. By integrating efforts across processes, each effort acquires more relevance, and greater overall benefits can be gained (Champy 1996).

Products delivered by Canbide are classified as low-risk products. Carriers are required to provide connections and construct sidings for delivery of carload shipments to private sidings and to provide "team" tracks for loading and unloading. Switching services for these tracks must be provided on a reasonable basis. As a matter of practice, railroads often organize subsidiary switching and terminal companies, on a joint basis, to perform these services. Since the firm is small and often closely held, it is not surprising that the organization of the motor carrier is the typically simple line type with a flow of authority from the owner downward through the organization. The flexibility of the trucks also accounts for another substantial advantage, speed. While there is little or no difference in the absolute speed potential of surface vehicles (i.e., the miles per hour capacity of trucks and locomotives are about the same), the motor truck generally provides the shipper with superior service regarding elapsed time (transit time), which is the ultimate measure of time for the shipper. Transportation services, like many other services or products, are sometimes produced under conditions of common cost; viz., in some instances, the same productive units produce distinct products, and the costs cannot be traced to their origins. It can be seen that this is only partially true in most instances (Brauner 2000). The cost of maintaining tracks and structures, such as bridges and fuel stations, is not influenced by the nature of the class of service provided. Some of these costs cannot be allocated except artificially for accounting purposes. Some direct costs are thus avoided, but these costs are likely to be a small part of the total costs. However, some non-cost advantages accrue, in that the carrier may free managerial time and talent to pursue what appears to be the more profitable process, viz., freight transportation (Frame 2002). In large part, the high level of fixed costs in the industry stems from the large scale on which the firm is constructed. Within these limits, the scale of operations under analysis, or of any specific operation, may be modified as the technology changes. Both cost and non-cost elements must be taken into consideration (Champy 1996).

In sum, this new supply chain helps Canbide to shift toward a more strategic vision expanded beyond the traditional approach. It is based on more sophisticated and more strategic purchasing activities. This approach helps to meet low costs that can be expressed in precise monetary terms. Where monetary measures are not available, it is possible to use surrogates or proxies, but defining surrogates that will accurately measure the benefits and costs of a project is a difficult exercise. Taking the structure of shipment into consideration, one then breaks down the numerical statements of plans into constituent parts; this enables the budgets to correlate planning and allows the authority to be delegated with­out loss of control. Plans reduced to specific figures show where transfer points are not necessary because it helps to save time and money in delivering the products to the endpoints.