Policy Recommendations for a Shipment-Consolidation Program

It is well appreciated by logistics professionals that combining several small orders into one larger load can reduce the total transportation cost to the shipper. Logistics specialists all recognize that such a decision to consolidate must take into account the shipper’s increased inventory carrying cost, and the possible impact on service to the customer (consignee), when an order is held for a longer time before dispatch. However, much of the literature on shipment consolidation is descriptive, not sufficiently quantitative to help a company develop a consolidation policy. This article is addressed to that end. Through a simulation mode, we consider three general strategies for dispatch of a consolidated shipment. These strategies are referred to a Time Policy, a Quantity Policy, and a Time-and-Quantity policy. Simulation results are discussed and understood in terms meaningful to distribution practitioners. For a large range of order-arrival rates and maximum holding times, we compare these policies on the basis of cost per load, cost per hundredweight, and average order delay. Appropriate consolidation policies are then suggested for various situations