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Teaching Supply Chain Management Students About Using Actual Motor Carrier Freight Rates In Purchase Lotsizing Models

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  • Michael Godfrey
  • Andrew Manikas

Abstract

In this paper, we analyze a purchase lot-sizing decision that includes transport cost using actual motor carrier freight rates. Lot-sizing models in the literature either estimate motor carrier freight rates with a continuous function or simplify less-than-truckload freight rates unrealistically by using too few weightbreak ranges. We present an Excel Solver model that we use in a supply chain management class to teach students the following principles: how to look up less-than-truckload freight rates using a carrier’s software, how to calculate less-than-truckload and truckload freight rates, to decide whether to overdeclare (artificially inflate) the weight of a less-than-truckload shipment to lower the freight charge, and how to find the purchase lot size that minimizes annual logistics cost. We assume that all-units purchase quantity discounts are offered by the supplier and the product is shipped Free On Board (FOB) Origin, Freight Collect. We discuss how to solve this model with Excel’s GRG Nonlinear Solver.

Suggested Citation

  • Michael Godfrey & Andrew Manikas, 2012. "Teaching Supply Chain Management Students About Using Actual Motor Carrier Freight Rates In Purchase Lotsizing Models," Business Education and Accreditation, The Institute for Business and Finance Research, vol. 4(2), pages 49-59.
    • Handle: RePEc:ibf:beaccr:v:4:y:2012:i:2:p:49-59
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    References listed on IDEAS

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    1. Burwell, Timothy H. & Dave, Dinesh S. & Fitzpatrick, Kathy E. & Roy, Melvin R., 1997. "Economic lot size model for price-dependent demand under quantity and freight discounts," International Journal of Production Economics, Elsevier, vol. 48(2), pages 141-155, January.
    2. Swenseth, Scott R. & Godfrey, Michael R., 2002. "Incorporating transportation costs into inventory replenishment decisions," International Journal of Production Economics, Elsevier, vol. 77(2), pages 113-130, May.
    3. W. J. Baumol & H. D. Vinod, 1970. "An Inventory Theoretic Model of Freight Transport Demand," Management Science, INFORMS, vol. 16(7), pages 413-421, March.
    4. Mendoza, Abraham & Ventura, José A., 2008. "Incorporating quantity discounts to the EOQ model with transportation costs," International Journal of Production Economics, Elsevier, vol. 113(2), pages 754-765, June.
    5. Higginson, James K., 1993. "Modeling shipper costs in physical distribution analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 27(2), pages 113-124, April.
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    More about this item

    Keywords

    Excel Solver; linear programming; logistics; purchase lot-sizing;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • N72 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - U.S.; Canada: 1913-

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