Freight Strategy at Corvus Retail
Corvus Retail ships 1,100 pallets per week from a central DC to six regional depots. Current carriers charge $185 per LTL shipment; the average shipment is 4.2 pallets, and 22% of shipments are under 2 pallets. A dedicated FTL lane costs $1,450 for up to 26 pallets. The DC ships daily to all depots, but depot receiving docks are congested Tuesday to Thursday. On-time delivery is 96.5% for FTL and 88% for LTL; 14% of LTL shipments arrive with damage claims averaging $240. A 3PL proposes a milk-run with a 48-hour cycle at $0.075 per pallet-km; current average distance is 310 km. Annual volume is 57,200 pallets. The logistics manager wants to cut freight 8% without hurting service.
1. Calculate current annual LTL freight spend and cost per pallet. Compare with the proposed milk-run cost. What assumptions drive the comparison?
Read the worked answer
Shipments per week = 1,100 / 4.2 = 262. Weekly LTL spend = 262 x $185 = $48,470. Annual spend = $48,470 x 52 = $2,520,440. Cost per pallet = $2,520,440 / 57,200 = $44.06.
Milk-run cost = 57,200 pallets x 310 km x $0.075 = $1,329,900 per year, or $23.25 per pallet. The apparent saving is $1,190,540, about 47%.
That comparison assumes every pallet moves the full 310 km, the rate includes all stops and returns, no minimum charge applies, and the 48-hour cycle does not create extra handling. It also ignores damage. Current damage claims: 14% of 262 weekly shipments = 36.7 claims per week x $240 = $8,800 per week, or about $457,600 per year. If the milk-run reduces damage, the business case improves; if it adds depot handling, it weakens. Corvus should not accept the 47% figure without a lane-by-lane rate validation and a stop-cost schedule.
2. Evaluate the service and inventory impact of moving from daily LTL to a 48-hour milk-run. The depots currently hold five days of safety stock and order daily.
Read the worked answer
Moving from daily to every-other-day replenishment doubles the order cycle. If average daily depot demand is 1,100 / 7 = 157 pallets, daily ordering gives average cycle stock of about 78 pallets across the network; a 48-hour cycle gives about 157 pallets, an increase of roughly 79 pallets. The exact increase depends on depot-level volume and order multiples, but the direction is clear.
Safety stock also rises if lead-time variability increases. If safety stock is set as z x sigma x square root of lead time, doubling the replenishment interval increases the time-based component by about 41%, not 100%, but the current five days of safety stock may need review rather than automatic increase.
The bigger risk is service. LTL on-time is 88%, so a 48-hour cycle has less recovery time when a shipment is late. Depot receiving congestion Tuesday-Thursday could be reduced by scheduled milk-run windows, which is a benefit. The manager's 8% target is easily met on freight rate, but the net benefit must subtract added depot inventory and any stockout risk on fast movers. A hybrid is safer: milk-run slow and medium movers, keep daily LTL or a dedicated shuttle for urgent and high-value SKUs.
3. Recommend a freight strategy that meets the 8% target without hurting service. Include a pilot design and the metrics you would use.
Read the worked answer
Recommendation: do not move all volume to the 48-hour milk-run. Use a segmented network:
- Consolidate the 22% of shipments under 2 pallets into the milk-run. These are the most expensive per pallet and the least likely to justify daily service.
- Move stable, low-value pallet flows to the milk-run with scheduled dock windows at each depot.
- Keep daily LTL or a dedicated shuttle for fast movers, high-value products, and any depot with less than three days of cover.
- Use FTL only where a lane can be built to 20-26 pallets; at 4.2 pallets average, FTL at $1,450 is $55.77 per pallet versus $44.06 for LTL, so FTL is not a general solution.
Pilot two depots for 12 weeks. Track cost per pallet, OTIF by depot, damage claims per 100 shipments, depot inventory days, and dock turnaround. Set a go/no-go rule: at least 8% freight reduction, OTIF no lower than 95%, and damage claims reduced by 25%. If the pilot misses service, renegotiate the milk-run to 24 hours for the top 20% of SKUs rather than abandoning consolidation.