Teaching Supply Chain Management Students About Using Actual Motor Carrier Freight Rates in Purchase Lot-sizing Models

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