OPM 4150 Module 2 Written Assignment: Truckload, LTL or Intermodal From Chicago? Example

Cheapest Rate or Lowest Total Cost? Choosing a Mode for Shipments From Chicago

Student Name

B.S.B.A. in Operations Management, Thomas Edison State University

OPM-4150: Logistics

Mentor Name

Month Day, Year

Cheapest Rate or Lowest Total Cost? Choosing a Mode for Shipments From Chicago

The Shipment

Each month we buy about $120,000 of take-out containers, cups and napkins from a manufacturer in Illinois, shipped as one 40,000-pound load. We pay freight and own the goods from the supplier's dock, so inventory in transit is ours. Our carrying cost is 25 percent of inventory value a year, which makes each day a load spends in transit worth $120,000 x 0.25 / 365, or about $82.19.

The Options

Gourdin (2006) describes the trade-offs among modes: motor carriers offer speed and flexibility, rail offers lower rates for heavy loads over long distances, and intermodal service combines truck pickup and delivery with a rail line haul. Coyle et al. (2017) note that shippers should evaluate modes on transit time and its variability, not rate alone, because both affect inventory.

Less-than-truckload is more expensive here because a 40,000-pound shipment fills most of a trailer; LTL suits smaller loads. Chopra and Meindl (2016) frame the choice as a trade-off between transportation cost and responsiveness, which this lane shows clearly: the cheapest mode is also the slowest.

Counting Inventory Costs

The extra safety stock for intermodal covers its variable transit. We use about $4,000 of these items a day; holding three more days of stock, $12,000, at 25 percent costs $3,000 a year, or $250 a monthly load.

Intermodal's lower rate outweighs its inventory costs. It saves about $203 a load over truckload, or about $2,440 a year.

Service and Risk

The savings are modest, and service risk matters. During November and December, when restaurants order more and rail yards are congested, a seven-day transit could leave us short of take-out containers in our busiest weeks. A stockout of cups at a busy restaurant costs us more than a year of freight savings in goodwill. Gourdin stresses that transportation decisions should reflect customer service requirements as well as cost.

Other Considerations

Two further factors support the choice. First, the supplier's dock is open only on weekdays, and intermodal pickups follow the railroad's cutoff times, so the order must be released a day earlier than for truckload; our purchasing team can adjust to this with a standing monthly order. Second, intermodal produces lower emissions per ton-mile than long-haul trucking, and two of our restaurant chain customers now ask suppliers to report transport emissions. Coyle and colleagues note that sustainability is becoming a factor in mode selection alongside cost and service. Neither factor changes the cost result, but both make intermodal easier to defend.

The analysis also has limits. The extra safety stock assumes intermodal transit varies by about two days; if delays grew longer, the safety stock and its cost would rise. I will track actual transit times for six months and recompute.

Recommendation

Use intermodal rail for ten months of the year, saving about $2,000 annually, and switch to truckload for the November and December loads, when reliability matters most. Review the decision if the rate difference narrows or if the supplier moves closer.

References

Chopra, S., & Meindl, P. (2016). Supply chain management: Strategy, planning, and operation (6th ed.). Pearson.

Coyle, J. J., Langley, C. J., Novack, R. A., & Gibson, B. J. (2017). Supply chain management: A logistics perspective (10th ed.). Cengage Learning.

Gourdin, K. N. (2006). Global logistics management: A competitive advantage for the 21st century (2nd ed.). Blackwell.