How to define transportation cost from potential locations to customers?

[philmg]

Hello,

I am working on a warehouse location problem and was wondering how to calculate the transportation cost from potential locations to all the customers when there is a huge number of customers?
The no is too large to manually find out the actual transportation cost. I assume there should be some tool which can use geographical coordinates or something.
I already thought about taking an average $/(KG*KM) but then you would still need to know the distances between the potential locations and all customers, which brings you to the same problem. Manually impossible to find out.
How would you do that?

Regards
Phil

[Prabhu]

Hi,

You can group the destinations in proportion to distance slabs (Destinations lies within 5 kms, 5 to 12 kms, 13 to 22 kms….etc. from your warehouse, according to your convenience).

-Prabhu

[shanv83]

Mr.Phil,

The thought of having the average formula itself is wrong. If it is right, then how will you express the cost per unit by taking ($/(Kg*Km).

So try to understand the basics of measurement units


I hope that u got some idea from Mr. Prabhu's comment

[philmg]

Hi Prabhu,

yes, of course I was planning cluster the customers, but geeting the distances is problem which I was talking about in the first place. How do you do that if you have several 1000 customers and perhaps 10 potential locations?
It would take months to determine these distances manually.

@shanv83: I totally don't get your point. The shipping cost is of course dependent on the distance travelled aswell as the weight or could be m^3 aswell. So how else do you measure shipping cost if not Dollar per kg and km?

Regards
Phil

[Prabhu]

Hi Phil,
Whether you are working to find out the cost accrued on every individual customer? Or just to find out the rough cost to find out the transportation cost? Or Working to pay for any 3pl?

If it is possible to find out Transit time, you can fix some approx. distance (90000km/year) as an index and work out based on the transit time depleted per movement.

Anyhow, as Mr. Shan said, we calculate the transportation cost based on

1. $ per km/MT - if transit time, distance and mass are variable. Or
2. $ per Hour or $ per Day - if both distance and mass are fixed or as an average enough. Or
3. $ per Km - if mass, speed (rate) are fixed or as an average enough. Or
4. $ per MT - if distance and transit time are fixed or as an average enough.

-Prabhu

[philmg]

Thank you both for clarification!

Regards
Phil

[TopLink]

Do you have or can you get, geo codes (Lat Long) for all the locations? If you can do that, you can use a spreadsheet to work out all the distances. Just a simple A to B distance calculator.

[philmg]

Yes I thought about that and I think I will either use this way or use google maps distance calculator. It's around the same effort.
Thanks

[secondreview]

Shipping costs are determined by availability of a shipping route, i.e. roads, intermodal systems, accessibility, demand for the shipping on that route, and availability of conveyances. All of which tie in together. The calculation and rate is then based on a unit of measure, weight, dimension or even km.

If a location is only 10 km from the origin or destination, it could well be across a marsh, near the top of a mountain (where there could only be one carrier) or in fact impassable. I would never recommend basing a transport cost on distance.

[netquantum]

I have done a similar analysis myself trying to figure out the per kg per km charge. I am now more confused than before with even more questions.

We get vehicles from open market. The per kg per km charge for e.g. 6 ton vehicle varies with the km. Perhaps this is because the total charge is built up of a fixed charge and variable charge.

As the distance goes up, the variable charge goes up and fixed charge goes down. For close by cities within 20 km, the per kg per km cost is very high. Around $ 0.25. Whereas in farther areas it is as low as $0.06.

Then i have tried looking at freights in terms of other variables like road quality, hilly terrain, backload, season for certain items impacting back freight, etc. However, i am still not sure why so much fluctuation is there.

My best bet is that it depends on kms. Plus since these are market rates, the demand and supply forces play a huge role and can make the prices deviate from the actual cost.

It is also possilble to do a regression analysis on this data and get the y intercept which will be the fixed cost component.

However, my objective is to work on an arrangement where we are paying the same per kg per km charge. How can i do that ? Is it not possible to implement fully in a market based arrangement ? Will i have to go for an arrangement for dedicated vehicles only to acheive this ? What factors do i need to look out for dedicated vehicles e.g. utilization, vehicle reaching back in time etc ?