Freight Transportation Optimum Capacity Allocation

Project Description:

Transportation is a key logistics function of supply chains and an important driver of supply chain performance. It enables the movement of goods and materials from suppliers through to customers (B2C) or stores (B2B). Given the complexity of this function, businesses usually opt to outsource this function to third-party logistics (3PL) service providers like Dicom that specialize in transportation. Small to mid-sized businesses do not have large enough volumes to fill a truck and use dedicated Less-Than-Truckload (LTL) services, so 3PL firms have considered the possible benefits of combining LTL and parcels to fill a truckload. A parcel shipment can be an individual parcel that occupies a fraction of the truck space, while an LTL shipment can consist of a single or several pallets but do not take up the space allocated for a full truck load. In addition to their weight and dimensional differences, parcels are usually much more time-sensitive and are more commonly B2C deliveries, while an LTL shipment is usually a less time-sensitive B2B service.

The challenge for 3PLs is to minimize the empty space in trucks by allocating an optimum amount of capacity to the mix of LTL and parcel loads to accumulate as much volume as possible. Currently, many carrier companies prefer to manage the LTL and parcel services with separate and dedicated fleets, because consolidation can cause delays, and as a result, a time-sensitive parcel may miss its delivery date. This current lack of consolidation, however, results in much higher transportation costs per item. Therefore, the main research problem becomes: how to model and improve the allocation of the existing transportation capacity among LTL and Parcel customers while maximizing the expected revenue? The following objectives were developed to answer the research question: (i) Give a detailed description of the LTL and parcel business and the challenges faced by 3PLs, (ii) Provide a literature survey of the existing solutions similar industries and businesses, (iii) Construct an analytical model based on revenue management methodology to allocate LTL and parcels in the same transportation fleet optimally, and (iv) Validate the model by using simulation tools and real data from Dicom.

The proposed research project has benefits to Dicom, to Canadian industry, and to the environment. Firstly, it helps Dicom enhance the efficiency and profitability of its transportation network by supporting Dicom’s transportation capacity allocation decisions to avoid unnecessary investments required for their transportation capacity expansion. Furthermore, using the outcomes of this study, Dicom can increase the volume in its transportation network while improving capacity utilization and maximizing revenue. Secondly, from an industry perspective, this can be used as a model to spend less money on supply chain and logistic networks. Finally, from an environmental perspective, this research project lowers truck emissions and reduces Greenhouse Gas Emissions as increasing the individual capacity of each truck trip means that fewer trucks are needed overall.

Ultimately, this research project provided a great opportunity for students to identify the issues and strategies of private sector supply chain management. Students learned how to apply their theoretical knowledge from courses to a real business problem. Students were also able to improve their analytical skills by conducting simulation and optimization scenarios.

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