Question

You are the logistics manager for a national retailer with 100’s of retail locations around the country in which your suppliers currently deliver directly to the retail stores. Based on what we discussed in class, explain how you might use warehousing to minimize these less than truckload (LTL) shipments. What is the relationship of the number of warehouses you have and the effect on inventory levels? What are the basic tradeoffs in this relationship?

Answer 1

Less than Truckload (LTL) is the type of transportation in which the shippers send the products having weight in the range of 100 pounds to 10000 pounds in a cost effective manner. LTL is quite a cost effective method and offers operational flexibility to the shippers. Supply chain costs can be managed by integrating the following principles of warehousing with LTL:

• Objective must be to improve the overall order fill rates
• The carrier must aim at reducing the DSO (days sales outstanding)
• Long haul shipments can be clubbed into 1
• Emergency risk profile can be managed
• Vendor compliance adherence is facilitated

The relationship between number of warehouses and inventory can be explicitly stated by the Square Root Law. This law states that the value of total safety stock can be estimated by multiplying total inventory with the square root value of no of future warehouses divided by the number of existing warehouses.

X2 = (X1) * √ (n2/n1)

Where n1 = number of existing warehouses

n2 = number of future warehouses

X1 = existing inventory

X2 = future inventory

https://rzuidwijk.files.wordpress.com/2012/11/21-chap-10-fleischmann.pdf

http://opexanalytics.com/resource/white-paper-impact-inventory-and-the-number-of-warehouses/