BEAGLE INSTRUMENTS COMPANY

Beagle Instruments is an electronic instrumentation manufacturer servicing the manufacturing industry with measuring devices for industrial processing. It has grown from a small operation in New England
( on the East coast of America ) to become nationally known with total sales approaching $ 100 million per annum. Rather than establish branch plants Beagle have continued to produce all its product lines of predominantly high-value items in the one location. Most sales are made through industrial distributors, who tend to carry a very limited stock of the highest turnover items, ordering the majority of product as customers’ orders are received.

In Beagle’s market, Beagle has established itself as a pioneer in new product development. However they have developed products to the point of maturity in the product life-cycle, only to lose to competitors able to produce and supply similar equipment on the basis of faster service. The question of service revolves around order cycle time, which is particularly important to customers lying at significant distances from the plant. Recent cases where the salesmen had specified « ship via premium transportation », considerably more expensive than the normal shipment cost but with considerable service improvement, had awakened management to the need to improve service especially for distant customers.

Beagle’s present shipment policy is to ship directly from their plant-based distribution centre ( DC ) to the customer using less-than-truckload ( LTL ) movement provided by a continental haulage/distribution company Continental Carriers. Shipment sizes range from 300 to 2,000 lbs and sales are made on a delivered-price basis giving Beagle control over the transportation costs. Continental gives useful additional services such as computerised tracing and an expedited claims service on damaged or lost shipments. However this service is costly, as shown in the published tariff ( Exhibit 1 ) and delivery to their Western and South western customers required about ten days on average with occasional extremes of 12 days, making precise delivery commitments impossible.

Projections of demand indicate a total requirement for about 75,000 lbs per week of which 25% goes to localised customers. The management is mainly concerned for its western and south-western customers, especially California and Arizona, which is expected to take about 30,000 lbs per week ( 40% of sales ).

Your role is that of the Transportation Manager reevaluating the delivery service to this distant market in San Francisco, Los Angeles and Phoenix ( 2,800 miles, 3,100 miles and 2,650 miles respectively ).

You have a number of alternative options to consider including the use of distribution centres, private or contract truck transportation as a partial substitution for common carriage or possibly air freight. The following itemises the possible elements :

1. Open a regional distribution centre ( RDC ) or utilise a public warehouse facility at one of the three cities and supply the others from this. This will require a considerable inventory investment and carrying cost.

2. Engage a distribution agent who would charge for receipt of the goods, sort it and then employ local carriers on your behalf to provide the delivery.

3. Engage a local carrier who would absorb the reception and sortation task costs in return for the secondary distribution work.

4. Utilise an air forwarder who would provide air shipment and delivery.

5. Options 1 - 2 could utilise Continental’s full-truck-load delivery, a trans-continental carrier or Beagle could purchase and run their own vehicle.

EXHIBIT 1 : CONTINENTAL CARRIERS LTL CLASS RATES TO WEST COAST

|QUANTITY ( Lbs ) UP TO : RATE ( $ per 100 lbs ) |
| |
| 100 49.00 |
| |
| 500 47.50 |
| |
| 1,000 43.00 |
| |
| 2,000 37.00 |
| |
| 5,000 34.00 |
| |
| Truckload 21.00 |

This is a charge to one destination. For more than one destination on the same run an additional stop-off fee of $ 50 is charged for each extra stop.

NB : 2,000 US lbs = 1 ton

There are two elements to a consolidated movement to the West Coast :

1. setting up the movement from plant to RDC or the distribution point

This involves option 5. The use of a contract carrier, other than Continental, which has its return loads in place, would depend upon that carrier obtaining a return load contract with another company. If such a contract could be found there remained the problem as to whether it would interlock in terms of frequency with the Beagle shipments, and it might create a slippage of one or two days in the delivery schedule. Beagle operating its own transport creates the opportunities to bid for a return load contract themselves with the same potential problem. A recent change in the carrier rules ( the Toto decision ) makes it possible for own-account operators to ply for hire and reward but this is not a clear-cut decision. Other companies who have entered this area have found the need to establish transportation subsidiaries to keep costs and revenues separated from the rest of the business.
The other problem lies in the heavy competition for eastbound traffic from the west and southwest region.

2. arranging connecting carrier services from that point to the customers in the three cities. The connecting carriers generally provide uneven service for the west coast as a region. Some are strong in the San Francisco/Los Angeles markets, others are stronger in the Phoenix-Los Angeles markets, but rarely in all three. This implies that some customers will have to experience additional delays in receiving or else more than one carrier will need to be utilised.