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"Reducing Logistic Costs for Ladner Building Products"

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Introduction

"Reducing Logistic Costs for Ladner Building Products" Introduction: Ladner is a National building materials distributor with 15-distribution centres nation wide. Recently, the company had been experiencing a loss due to high costs. This issue has become a dangerous problem at Ladner, and top management is now looking to understand the causes of this problem. Recommendations: Ladner can take one or a combination of the following options to improve its situation: - Reducing transportation costs by re-organizing the deliveries and encouraging pick-ups. - Changing staff evaluation methods so that they are aware of costs involved in Ladner's processes. - Changing and re-organizing the customer and product base. Analysis of transportation process: It is easy to see from a first look at exhibit 3 and exhibit 4 (that are provided in the readings) that the delivery process always produces losses. The total cost is always more than what the customer is charged. This is mainly due to customer rebates on delivery charges. Which means this loss in the delivery process is eating up from the profit margins of the company. ...read more.

Middle

If possible, force customers to make large purchases, or accumulate purchases until it is profitable to deliver them to the customers. It should be mentioned that pick-up orders are highly favourable for Ladner. They increase customer satisfaction (products reaching customer faster) and they reduce the loss from the delivery process to zero. Ladner should encourage pick-up orders heavily by increasing the quality of that service, and by giving discounts to customers who pick up their orders. For example, if the estimated loss from delivery per customer is 2%, Ladner could give a discount of 1% to customers with pick-up orders. That way, they can instantly cut their losses hassle free. Finally, it is mentioned in the case that sometimes trucks leave without a full load because of weight requirement limitations. It is very important to manage these heavy products in order to manage successfully the number of trips and drops made by each carrier. To do that, more information is required such as which products are the heaviest? Which customers order these products the most? ...read more.

Conclusion

(Since Ladner only has 5% of market share, we can safely assume that it can increase its market share in any product if enough effort and promotion is put into it). It will be useful here to find out what are the actual numbers for this trade off? Then Ladner can form a strategy to increase overall profit margins by changing the customer base. For example, if the costs of storage and handling are relatively higher, then Ladner could try to increase sales of industrial products, which have a relatively high profit margin and medium SKU space requirements. On the other hand, it could reduce sales of allied products, which have high SKU space requirements. This product base management can be done in an indirect way as well. It is mentioned in the case that Ladner's sales staff are evaluated on the basis of product gross margins. This ignores the costs of handling, storage and transportation. Ladner's management can introduce a new evaluation method that would include these costs. The end result would be that sales representatives would try to sell the most profitable product to the most profitable customer after taking into consideration all the costs. In other words, better customer and product base selection. ...read more.

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