Fowler Distributing Company Proposal Consultants: Anthony Vatterott, Brian Vincenz, Tiffany Bowen Good evening ladies and gentlemen of the Board, my name is Brian Vincenz and this is Tiffany Bowen and Anthony Vatterott. Our consulting firm was contracted by Fowler Distributing Company to provide an analysis of the current beer and wine distribution network. The President of the Board asked us to analyze and optimize 3 different scenarios involving vehicle routing. In each scenario, we were asked to minimize costs while meeting various constraints such as truck capacity and customer time windows. In the first scenario, we used Fowler’s current fleet of trucks and optimized the various routes needed to service Fowler’s customers. In the second scenario, we had the option of using any combination of the current trucks or larger capacity trucks to minimize total cost. In the third scenario, we analyzed the impact of the customer time windows to determine their impact on total costs. Tonight, we will present our findings and make our recommendation.

Background Information Fowler Distributing Company Beer and wine distributor 5 vehicles available for use Vehicle capacity = 500 cases of beer Distributing from local warehouse to 21 different “pre-sell accounts” located 1 to 35 miles from the warehouse Various time window challenges to meet Find less expensive, more efficient way to meet customer’s delivery needs First, let’s start with a little background on Fowler Distributing company. Fowler is a regional beer and wine distributor founded by Vietnam War veteran Roy Fowler. Mr. Fowler owns a fleet of 5 trucks and is responsible for the maintenance and fuel costs associated with these trucks. The fleet of trucks are operated by union drivers who earn $13 per hour plus fringe benefits. Drivers may earn overtime if they work longer than eight hours but Mr. Fowler really dislikes paying overtime. Each of the 5 delivery vehicles have a capacity of 500 cases of beer or wine. The current fuel cost for the 5 trucks is $1.20 per mile. From the local warehouse, Fowler provides distribution services to 21 customers who order beer and wine in advance. Each of these 21 “pre-sell” accounts require distribution services 250 days a year and are located anywhere from 1 to 35 miles from the warehouse. There are various time windows for each of the 21 “pre-sell accounts” which Fowler is asked to meet and these time windows range from a half an hour to nine hours. To further complicate matters, each of the “pre-sell” accounts have different demands that must be satisfied by Fowler. Delivery trucks must leave the warehouse between 6:30 and 8:00 am. With the current fleet of trucks and route configuration, Fowler is able to meet both the vehicle capacity and time window constraints. However, Mr. Fowler wants to find more efficient ways to meet his customers’ demands in order to reduce costs.

Current Routes - Summary Baseline cost $216,180 per year Five routes Overtime cost - $295 per year Time windows met Some inefficiencies To begin our analysis, we reviewed the current route configuration for Fowler and used this as a baseline for evaluating proposed route modifications. The total baseline cost using the current trucks and route configuration is $216,180 per year. This route configuration uses all five trucks to meet the demands of Fowler’s 21 pre-sell customers. The overtime cost for this configuration is $295 per year which is minimal but we would like to reduce this cost to zero. There are 2 benefits to using this route design. First, the drivers and customers are familiar with this configuration. Second, the routes are capable of meeting all of the customer time windows and do not violate the 500 case capacity constraint for the delivery vehicles. However, there are several inefficiencies in this design which I will point out in the next slide.

Before After On this slide we have the current route configuration displayed on the left and our optimized design on the right. The route design on the left has several inefficiencies which increase costs for Fowler. The first inefficiency is found in the route serving customers 12,15,1,14, and 5. This route serves customer 12 and then passes by customer 1 to serve 15. The route then serves customer 1 and goes back to serve customer 14. Finally, the route serves customer 5 on the way back to the warehouse. This route has obvious inefficiencies in the back and forth trip it makes to serve customer 1 and 14. The next inefficiency is found in the general design of the route serving 2,3, and 4. In general, a well designed vehicle route will have a tear drop shape and this route is nearly a straight line out to serve the customers and another straight line back to the warehouse. The final inefficiency is found the route serving customers 6,16,17,8, and 19. This route also makes back and forth trip to serve customers 8 and 19. To create our improved route design on the right we used the savings method and the ROUTER program. This improved design eliminates the back and forth trips shown on the left and creates routes that have a tear drop shape.

Improved Routes - Summary Baseline cost $188,652 per year Time windows met Five routes No overtime Savings of $110.11 per day Annual savings of $27,527 (12.7%)! Here are the enhancements we were able to make using our improved route design. The total baseline cost for our improved routes is $188,652 per year. All of the time windows and vehicle capacity constraints were met. We used five routes and were able to eliminate the need to pay overtime to drivers. This improved design yielded a savings of $110.11 per day which translates into annual savings of $27,527 a year of 12.7%. Based on our analysis, we believe that this is the best solution because there is no overlapping in any single route and all routes have the classic tear drop shape. Now I’ll turn it over to Tiffany who will discuss the second scenario.

Savings With Larger Trucks? Option to replace some or all 500 case capacity trucks with 800 case capacity trucks 30¢ more per mile ($1.50 vs. $1.20) Solution: No combination of 800 and 500 trucks gives a better solution.

Use Larger Vehicles Best route using one or more 800 capacity trucks. Cost: $195,793/ year FOUR routes Three 800 capacity One 500 capacity Annual cost increase: $7,140

Cash Flow with Larger Trucks Sell 4 used 500 case capacity trucks + $10,000 each = $40,000 Buy 3 new 800 case capacity trucks - $ 3,523 each = $10,568 Maximum cost per truck to break even after 4 years $10,568 for three trucks is not realistic

Rising Fuel Costs If fuel costs increase more than 80¢ per mile, 800 capacity trucks become more cost-effective.

Without time windows With time windows

No Time Windows - Summary Cost $187,985 per year Five routes No overtime cost Removed time windows – affects 2 customers Time windows cost Fowler $667 per year

Time Windows – Ranked List Customer(s) Time Window 1 12 & 7 8:00am – 8:30am 2 13 8:00am – 10:30am 3 10 8:00am – 10:45am These customers’ time windows have the greatest impact on costs.

Financial Incentive Options Cust Current Time Window Time Change Annual Incentive Annual Incentive 12 8:00am – 8:30am 6:45am – 8:00am $300 1:00pm – 2:00 pm 7 No change - 11:00 – 12:30pm 13 8:00am – 10:30am 10 8:00am – 10:45am 10:45am – 12:30pm

Financial Incentives - Summary Very small incentive Difficult to get customers to agree to the changes Annual savings for Fowler after incentives is only $67.50 Is saving $667 per year worth asking customers to consider other delivery times?

Key Issues Change warehouse location. Address union fringe benefits. The cost of fuel is always unknown, so this is a variable risk. Adjust warehouse working hours. Utilize one or two smaller trucks to save fuel expenses.

Our Proposal Adjust the routes to optimal solution $188,652 per year Use 500-capacity trucks Saves Fowler $27,527 per year All time windows met No overtime costs No additional vehicle purchases Do not offer incentives for adjusting time windows since savings is insignificant.