THE UKSANDS CORPORATION 7
Thefollowing is a case study of the UK Sands Corporation conducted bythe Supply chain director of the company. The company deals in miningand exportation of inorganic chemicals and has more than 60manufacturing operations in 21 countries. Specifically, the currentreport entails the possible alternatives of outbound operations ofsilica. It is a comprehensive report on the cost of logistics for themain UK site located in Northwest Manchester. It provides arecommendation of possible routes, based on the costs to both Spainand North America. Finally, the report provides the strengths andweaknesses of the individual modal options recommended for thecompany (Bloomberg & LeMay, 2002).
MAIN BODYFindingsand facts
InSpain, the supply chain adopted by the UKSands Corporation is becausethere are products solely produced by the UK site. The key reasonbehind the success of the business is the combination of processingtechnology and raw material quality. Consequently, the organisationrequires assessing available methods for delivery of products fromthe United Kingdom to Spain and North America (Chopra, & Meindl,2007).
Accordingto the current rates, there are four transportation options providedby various carriers: Turkon, M.C. Andrews, MSC (UK) and Maersk. Allthe four carriers offer a route from Spain to Barcelona. The costsfor each carrier are calculated as 15.53, 119, 215.4, and 232 poundsper tonne of product transported. The transit time offered by thecarriers is 14 days (Hugos, 2003).
Ofall the carriers, it is imperative to note the low costs provided byMac Andrews. For example, the original hauling costs include 368, 0,385, and 174 for Turkon, Mac Andrews, MSC (UK) and Maerskrespectively. The Origin Terminal Handling Costs (OTHC) for thecarriers also indicates 160, 15, 125 and 135 for Turkon, Mac AndrewsMSC (UK) and Maersk respectively. The carriers low costs extend toDestination Terminal Handling Costs (DTHC) where the company does notcharge compared to 456, 390, and 352 pounds charged by Turkon, MSC(UK) and Maersk respectively. Besides, the company does not involveother costs and charges similar to MSC (UK) (Wood, 2002).
Description of the problem
Thegeographical features bordering the two countries dictates theappropriate intermodal means of transport for products. It isimperative to check the available routes from the varioustransportation mean to ensure quick delivery of products. Anevaluation of geographical barriers and possible means of transportaugments decision making. After the choice of the available means androutes, it is much easier to compare the costs of transportation asdepicted by the rates of transport (Mentzer, 2001).
TheUKSands Corporation is located in the northern part of the UnitedKingdom. The United Kingdom is situated in the western part ofEurope. Spain is located in the west of the world relative to theUnited Kingdom. The two locations are separated by the AtlanticOcean and the North Sea (Hugos, 2003).
Overall analysis/ evaluation ofoutbound logistics
Thepresence of an ocean eliminates the sole use of road transport todeliver the products in Spain. Besides, it reduces the exclusive useof the railway but provides the option to use sea freight or theentire use pipelines. However, to use Sea freight, the company has toinvolve road transport to move its goods from the mainland to theport. Besides, there is a need for road transport to move goods fromthe Port of Spain to the premises of the UKSands distributor in Spain(Chopra, & Meindl, 2007).
First,the liquid nature of the products provides the option to use apipeline. The company can construct a pipeline from its UK site tothe Port of Spain. Once the product reaches the Port of Spain, it canbe loaded on to trucks to the Spain distributor’s site. Second,there is the option to use air transport to the seaport from thestore-keeping units. Besides, the company can use air travel from theport in Spain to the Spain distributor’s premises. Consequently,the costs of sea freight will involve the use of road, rail or airtransport and are important for price comparisons. However, the useof air transport is limited due to the bulky nature of the products(UKSands Corporation, 2013).
Giventhe available options for transport, it is possible to createintermodal means of transportation for the products. The firstintermodal means of transport involves the use of a pipeline from theUK to the Port of Spain. It entails the original cost of installingthe pipeline and road/ rail transport to deliver the product to itsdistributor in Spain (Bowersox & Closs, 2002).
Secondis the option to use road transport to get the goods from the StoreKeeping Unit (SKU) to the port in the United Kingdom. Upon arrival,the goods are loaded on a ship for Sea transport across the AtlanticOcean. After that, the company can employ road transport to get thegoods to the Spain distributor (Hugos, 2003).
Thethird intermodal alternative entails the use of rails to deliver thegoods to the port. Subsequently, the goods are shipped across theAtlantic Ocean to Spain. Upon arrival, the goods are transported byrail or road to the premises of the distributor in Spain (Khan,2007).
Analysis of North America outboundlogistics
Theevaluation of various costs revealed two alternatives concerning thetransit of products to North America sea and air transport. Thecalculations indicated that the annual sales for the UKSandsCorporation are 510 tonnes of Silica products. The cost per tonne foreach option are 4,673.42 for both air and sea transport models. Thecost price per annum under each transport alternative is 283,444.2for each alternative (Mentzer, 2001).
Theresearch findings revealed that air transport entailed highershipping costs per tonne compared to sea transit. Specifically, airtransport costs the firm 1,550 pounds compared to maritime shippingthat cost 185 pounds. The costs of transport by air are eight timeshigher than the cost by sea to North America. Consequently, theannual shipping costs by air amounted to 790,500 compared to 94,330by sea carriage (Wood, 2002).
Concerninginsurance, air transport was expensive compared to sea transport.Specifically, the cost of insurance by air amounted to 32,342compared to 29,463.8 by sea transport. The cost of insurance with airtransport was higher by 2,879 pounds compared to sea transport.Besides, the annual cost of duty by air transport was higher than seatransport at 18,247.25 and 92,621.98 respectively (Mentzer, 2001).
Theresearch analysed the average catalyst inventory in tonnes related tothe two modes of transportation. It was revealed that air transportrequired 70 tonnes of catalyst inventory while sea transport required170 tonnes of stock. The lower levels of inventory related to airtransport are due to the speed of delivery. Further analysis wasconducted to evaluate the total value of inventory associated withthe two modes of transportation. First, the study assessed the valueof stock per tonne for each alternative. It was revealed that thevalue of inventory associated with air transport amounted to 6,518.69pounds compared to 5,094.69 pounds of sea transport (Wood, 2002).
Consequently,the study results showed that air transport resulted in a lower totalvalue of inventory compared to sea transport. Specifically, the totalvalue of inventory associated air transport amounted to 456,308pounds compared to 866,116 pounds with sea transport. Subsequently,the related annual inventory holding costs under each method amountedto 68,446.2 and 129,917.4 for air and sea transport respectively. Airtransport had lower annual holding costs compared to sea transport(UKSands Corporation, 2013).
Thestudy further evaluated the related warehousing costs for eachalternative. It was revealed that warehousing remained constant at65,500 pounds per annum. In overall, the resultant costs for eachmethod showed that air transport was expensive compared to seatransport by 663,184 pounds. Specifically, the costs were 3,458,479and 2,795,295 for air and sea transport respectively (Chopra, &Meindl, 2007).
Advantages and disadvantages
Theprincipal advantage of air transport is speed that enables quickdelivery of products to their destinations and serves as a perfectoption for the UKSands Corporation. It reduces the lead-time. Thecompany can use air transport to meet emergencies caused by theshortage of supplies as well as plant downtime. In addition, airtransport is safer compared to sea and road transport (Hugos, 2003).
Thekey disadvantage of air transport is high cost. The high costsinclude high insurance that transfer to increases the cost ofproduction for the company. Consequently, it calls for the company toincrease the prices of their products to maintain theirprofitability. Besides, air transport has a limited capacity comparedto sea transport (Mentzer, 2001).
Incontrast, Sea transport is cheaper and can deliver a higher capacitycompared to road and rail. However, shipping is dependent on road andrail modes of transport to deliver the products to the port. The keydisadvantage of sea transport is increased lead times due to a slowerdelivery speed. Consequently, there is the need for warehousing toensure availability of products. Warehousing increases the costassociated with the use of sea transport. However, in the case ofUKSands Corporation, the use of sea transport has indicated cheapercompared to air transport (Wood, 2002).
Inconclusion, the use of air transport reduces the need to holdinventory by 100 tonnes. Besides, air transport reduces the lead-timerequired to deliver goods. Air transport is fast in delivery andcaters for emergencies such as upon shortage of supplies and duringplant breakdown. Consequently, air transport leverages the company’sability to provide to its customers and win loyalty. However, airtransport comes with an additional cost to the company. Theassociated costs override the savings from low levels of averageinventory (Hugos, 2003).
Thevarious results of the study have revealed that Air transport isefficient but expensive for the operations of the company. Therefore,the report revealed that:
The use of air transport requires an increase in the prices of goods to maintain profitability.
Air transport can be used selectively during selected times of need to save on costs and maintain supplies.
The company can use sea transport as the primary mode of transport and save the option to use air transport for emergencies (Chopra, & Meindl, 2007).
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