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DHL Global Forwarding Consolidation

Program - Group Assignment
CASE ANALYSIS

Submitted To: Prof. Gajanand

Submitted By: Group 8
Date: 24-Dec-2021
Group Members
Joyabrata Burman
Nitin Shankar
Madhukiran Shetty
P Balakrishna Bandi
Basaveswarlu Boyapati
Naveen Singh

TABLE OF CONTENTS
COMPANY AND BACKGROUND 3

THE CURRENT CONSOLIDATION PROGRAM 4

THE PROPOSED CONSOLIDATION PROGRAM 7

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ADDING THE ROAD TRANSPORTATION CONSTRAINT 8

ADDING THE ROAD TRANSPORTATION CONSTRAINT AND THE FIVE DAY DELIVERY CONSTRAINT 10

APPENDIX 12
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Company and Background

DGF was a division of Deutsche Post DHL group and was the top forwarding agent worldwide. DGF’s recent
global growth had been momentous, with the introduction of a new multi-modal service between china and
japan. In 2015, DGF had accumulate revenue of 14.89 billion euros and operating profit of 181, million euros.

DGF was the market leader among the many forwarders operating in India, which includes companies such as
Kuehne + Nagel, DB Schenker, Agility, Nippon Express, Ceva logistic and some more.

DGF’s operations in South India mainly catered to the states of Tamil Nadu, Karnataka, Kerala, Andhra, Pradesh,
and Telangana.

The firm received batches of consignments in its warehouses, located at Hyderabad, Bengaluru, and Chennai.
These goods where then consolidated, repackaged, and dispatched to Europe- the most common destination
being Frankfurt, Germany.

On October 13, 2015, the regional director of DHL Global Forwarding (DGF) was reviewing reports in preparation
for a team meeting in Bengaluru, India. DGF provided air and ocean freight forwarding services. In September,
the regional director’s team had successfully rolled out a new consolidation program in three Indian cities:
Hyderabad, Bengaluru, and Chennai. While glancing through the respective consolidation teams’ reports,
however, several questions occurred to the director: Was DGF paying more to airlines on specific days of the
week in these three cities? Should the company continue to run the consolidation program in these locations?
How could DGF consolidate its clients’ requirements across these cities? Would such consolidation benefit the
company? The director had just one day to come up with a new plan for presentation at the next team meeting.

Also, there was a thought of considering road transportation and if it would be beneficial to incorporate that in
the consolidation to achieve better economies of Scale.
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The Current Consolidation Program

DGF (DHL GLOBAL FORWARDING) has 3 warehouses in 3 different cities Hyderabad, Bangalore, and Chennai in
India. All client requirements must be shipped to Frankfurt (Germany), it takes approximately 48 hours using
cargo space available in passenger airlines. The data available to analyse the current scenario is given below

The Demand from Clients is provided below

Exhibit1:
Shipment
Origin Client Size Per
Day (kg)
Hyderabad A 100
Hyderabad B 1000
Hyderabad C 300
Bengaluru D 100
Bengaluru E 1500
Bengaluru F 400
Bengaluru G 250
Bengaluru H 50
Bengaluru I 200
Chennai J 700
Chennai K 300
Chennai L 500
Chennai M 2000

Based on the Above data we can derive that the Quantities delivered each day and at each location:
Derivation 1: (In PGSCM08-5, Derivations Tab)
Location Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Hyderabad 1400 1400 1400 1400 1400 1400
Bengaluru 2500 2500 2500 2500 2500 2500
Chennai 3500 3500 3500 3500 3500 3500

The weekly consolidation currently is provided below

Exhibit 2:
Day Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Demand
Saturday Tuesday Thursday
accumulated
and and and Holiday
across the
Monday Wednesday Friday
week
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Based on the data we can derive that the Quantities being shipped out on the specific days at each location.
Derivation 2: (In PGSCM08-5, Derivations Tab)
Location Tuesday Thursday Saturday
Hyderaba
2800 2800 2800
d
Bengaluru 5000 5000 5000
Chennai 7000 7000 7000

The availability of different flights options from all the three cities to Frankfurt is given below Each flight takes 48
hours to reach the destination
Exhibit 3:
Thursda
Airline Origin Monday Tuesday Wednesday Friday Saturday Sunday
y
Hyderabad           Available  
Etihad
Bengaluru   Available   Available      
Airways
Chennai       Available      
Hyderabad              
Qatar
Bengaluru   Available       Available  
Airways
Chennai   Available          
Hyderabad   Available         Available
Lufthansa Bengaluru Available Available Available Available Available Available Available
Chennai Available Available Available Available Available Available Available
Hyderabad Available Available Available Available Available Available Available
Emirates Bengaluru Available Available Available Available Available Available Available
Chennai Available Available Available Available Available Available Available

The Cost per kg for each flight based on the number of kgs is given below
Exhibit 4:
Shipment Size Etihad Qatar
Lufthansa Emirates
(kg) Airways Airways
<= 100 135 150 145 130
101 - 500 125 135 130 120
501 - 1000 105 120 110 100
> 1000 95 110 100 90

Based on the Data provided, and the Load needed each day we can arrive at the following conclusion of the
Least Cost per day per location per kg needed for the transportation (In PGSCM08-5, Derivations Tab)
Derivation 3:
Location Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Hyderabad 100 100 100 100 100 95 100
Bengaluru 100 90 100 95 100 90 100
Chennai 100 90 100 95 100 100 100
Total Cost 300 280 300 290 300 285 300
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Based on Derivation 2 and Derivation 3, the data needed to compute the Total cost of the current Consolidation
program can be considered as the following.

TUE- THU- THU- SAT-

FROM TO TUE-Cost
SHIPMENT SHIPMENT Cost SHIPMENT
HYD FRA 2800 100 2800 100 2800
BLR FRA 5000 90 5000 95 5000
CHE FRA 7000 90 7000 95 7000

The Constraint Considered would be as follows:

Node NetFlow- Demand- Demand- NetFlow- Demand-

  NetFlow-THU    
s TUE TUE THU SAT SAT
HYD 2800 = 2800 2800 = 2800 2800 = 2800
BLR 5000 = 5000 5000 = 5000 5000 = 5000
CHE 7000 = 7000 7000 = 7000 7000 = 7000
FRA -14800 = -14800 -14800 = -14800 -14800 = -14800

By using the Solver method Shown in the Excel working under the Tab Current Consolidation in the excel file
named PGSCM08-2 the total shipping cost for the current working is Rs. 4,19,600

However, in reaching economies of scale, the shipments accumulated at one of the three locations on
certain days were not beneficial.

DGF’s Trend of revenue and operating Profit(2009-2015) provided in the case shows us from 2012 to 2015
the revenue is constant, and the operating revenue is decreasing dramatically.

To Solve for this we would be proposing a new consolidation methodology using the data available.

Parameters for the Solver

model

A. Decision Variable =
Quantity to be shipped
from warehouse to
Destination

B. Objective = Minimize
Shipping Cost

C. Constraint = Network
at Node=Net Quantity
Required

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The Proposed Consolidation Program

In order to propose a new consolidation model we should follow a series of steps and gather the all the data
available to us. We have already gathered some data while deriving the cost for the current consolidation
program. Some of the Data sets we have already Identified are:

1. Identify the size of Shipment delivered to every city for shipment to Frankfurt. (Derivation 1)
2. Identify the lowest cost airline for every city every day according to the shipment size (Derivation 3)

Apart from the above 2 derivations we also have another data set to consider while formulating a new program.
The dataset to be considered is the road shipment cost and time.

The Road Shipment is an overnight shipment. The cost per kg with from and to locations is provided below with
a risk of 2% for delays for shipments by road
Exhibit 5:
From/To Hyderabad Bengaluru Chennai
Hyderabad - 8 9
Bengaluru 8 - 4
Chennai 9 4 -

For the Purpose of consolidation we can also derive from derivation 3 that Tuesdays Thursdays and Saturdays
are the cheapest days to ship material out from the locations. This has been highlighted in the below table as
well.
Derivation 3:
Location Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Hyderabad 100 100 100 100 100 95 100
Bengaluru 100 90 100 95 100 90 100
Chennai 100 90 100 95 100 100 100
Total Cost 300 280 300 290 300 285 300

Considering the opportunity that the road transportation option presents and with the available data using
solver we can conclude that there is a more cost effective way to supply the material.

There are 2 additional constraints (opportunities) available to add in solver to get a more cost effective Solution
1. Adding the Road transportation Opportunity
2. Adding the fact that the material needs to reach Frankfurt within 5 days of delivery to the warehouse.
(Given in the case that this is the industry norm for maximum transit time)

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Adding the Road transportation Constraint

Using the Solver we can see that by using the road transportation constraint there is a more cost effective way
to do the shipments.

TUE- THU- SAT-

FROM TO TUE-Cost THU-Cost SAT-Cost
SHIPMENT SHIPMENT SHIPMENT
HYD FRA 0 100 2800 100 2800 95
BLR FRA 5000 90 5000 95 5000 90
CHE FRA 7000 90 7000 95 0 100
HYD BLR-R 2800 8 0 8 0 8
HYD CHE-R 0 9 0 9 0 9
BLR HYD-R 0 8 0 8 0 8
BLR CHE-R 0 4 0 4 0 4
CHE BLR-R 0 4 0 4 7000 4
CHE HYD-R 0 9 0 9 0 9
HYD-R FRA 0 100 0 100 0 95
BLR-R FRA 2800 90 0 95 7000 90
CHE-R FRA 0 90 0 95 0 100

The Constraint Considered would be as follows:

NetFlow- Demand- NetFlow- Demand- NetFlow- Demand-

Nodes      
TUE TUE THU THU SAT SAT
HYD 2800 = 2800 2800 = 2800 2800 = 2800
BLR 5000 = 5000 5000 = 5000 5000 = 5000
CHE 7000 = 7000 7000 = 7000 7000 = 7000
HYD-R 0 = 0 0 = 0 0 = 0
BLR-R 0 = 0 0 = 0 0 = 0
CHE-R 0 = 0 0 = 0 0 = 0
FRA -14800 = -14800 -14800 = -14800 -14800 = -14800

The Network Diagram For the same would be as below

Thursday, [7000], 95
CHN
Load
Saturday load Tuesday, [7000], 90
shipped Cost per Kg
Friday night,
Tuesday, [5000+2800], 90
[7000], 4
Thursday, [5000], 95 FRA
BLR
Saturday, [5000+7000], 90
Tuesday load
shipped
Thursday, [2800], 100
Monday night,
[2800], 8
Saturday, [2800], 95
HYD

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We can derive the following The Solver method shown in the Excel working under the Tab With Road-Constraint
in the excel file named PGSCM08-3.

It indicates that the Shipments should be moved from Hyderabad to Bangalore on Monday night for the Tuesday
shipment and then shipped to Frankfurt together with the products from Bangalore and the products from
Chennai should be sent directly to Frankfurt.

For Thursday, the Solver indicates that the Shipments must be sent directly to Frankfurt from the city of origin.

It indicates that the Shipments should be moved from Chennai to Bangalore on Friday night for the Saturday
shipment and then shipped to Frankfurt together with the products from Bangalore and the products from
Hyderabad should be sent directly to Frankfurt.

According to the this, the total cost would have a reduction from Rs. 41,96,000 to Rs. 41,48,400 which is a
saving of Rs. 47,600 per week.

Considering one more parameter that there is a 2% chance that there will be a delay and DHL will have to Pay
the cost of transportation for those goods where there is a delay. Considering that based on the risk probability
and that there will be 104 shipments in the year, there is a possibility of 2 shipment in a year having a delay.

Taking the worst case scenario that both these shipments are Chennai shipments the cost incurred would be
7000*2*100 = Rs. 14,00,000 (taking 100 as the mode shipping cost per kg).

This is still lesser than the overall cost saved in the year (47600*52 = 24,75,200) and hence we can suggest this
model to the company without a doubt.

Parameters for the Solver

model

A. Decision Variable =
Quantity to be shipped
from warehouse to
Destination

B. Objective = Minimize
Shipping Cost

C. Constraint = Network
at Node=Net Quantity
Required

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Adding the Road transportation Constraint and the Five day delivery Constraint

It is cheaper to ship on Tuesday with the different combination. This means that by considering this fact we must
send all the products according to the schedule of this day. i.e. We should consolidate in a manner that all
shipments are consolidated on Tuesday first, then Saturday(as it is the second least costed day) and lastly on
Thursday.

In this point we must consider then one more constraint which is the lead time DHL promises to its
clients which is a maximum time of 5 days after they deliver the product in the Destination city.
By considering this we can derive that the loads can be proportioned based on the table below

Dispatch
Origin Destination Mode of Transport Shipment Load
Day
Tuesday Hyderabad Bangalore Road Friday and Saturday
Bangalore Frankfurt Air Friday, Saturday and Monday
Chennai Frankfurt Air Friday, Saturday and Monday
Thursday Hyderabad Frankfurt Air Monday
Bangalore Frankfurt Air -
Chennai Frankfurt Air Tuesday
Tuesday, Wednesday and
Hyderabad Frankfurt Air
Saturday Thursday
Tuesday, Wednesday and
Bangalore Frankfurt Air
Thursday
Chennai Bangalore Road Wednesday and Thursday

We can derive the above using The Solver method shown in the Excel working under the Tab With 5 Day-
constraint in the excel file named PGSCM08-4.

TUE- TUE- THU- THU- SAT- SAT-

FROM TO
SHIPMENT Cost SHIPMENT Cost SHIPMENT Cost
HYD FRA 0 100 1400 100 4200 95
BLR FRA 7500 90 0 95 7500 90
CHE FRA 10500 90 3500 95 0 100
HYD BLR-R 2800 8 0 8 0 8
HYD CHE-R 0 9 0 9 0 9
BLR HYD-R 0 8 0 8 0 8
BLR CHE-R 0 4 0 4 0 4
CHE BLR-R 0 4 0 4 7000 4
CHE HYD-R 0 9 0 9 0 9
HYD-R FRA 0 100 0 100 0 95
BLR-R FRA 2800 90 0 95 7000 90
CHE-R FRA 0 90 0 95 0 100

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The Node Flow Considered would be as follows:

NetFlow- Demand- NetFlow- Demand- NetFlow- Demand-

Nodes      
TUE TUE THU THU SAT SAT
HYD 2800 = 2800 1400 = 1400 4200 = 4200
BLR 7500 = 7500 0 = 0 7500 = 7500
CHE 10500 = 10500 3500 = 3500 7000 = 7000
HYD-R 0 = 0 0 = 0 0 = 0
BLR-R 0 = 0 0 = 0 0 = 0
CHE-R 0 = 0 0 = 0 0 = 0
FRA -20800 = -20800 -4900 = -4900 -18700 = -18700

According to the this, the total cost would have a reduction from Rs. 41,96,000 to Rs. 40,98,900.

Considering one more parameter that there is a 2% chance that there will be a delay and DHL will have to Pay
the cost of transportation for those goods where there is a delay. Considering that based on the risk probability
and that there will be 104 shipments in the year, there is a possibility of 2 shipment in a year having a delay.

Taking the worst case scenario that both these shipments are Chennai shipments the cost incurred would be
7000*2*100 = Rs. 14,00,000 (taking 100 as the mode shipping cost per kg).

This is still lesser than the overall cost saved in the year (97100*52 = 50,49,200) and hence we can suggest this
model to the company without a doubt.

Hence we can conclude that this method is the most optimal solution to reduce cost of the transportation given
the constraints and data available.

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Parameters for the Solver

model Appendix
A. Decision Variable = Details of Group Members
Quantity to be shipped
Name
from warehouse to Registration ID IIM Email ID
Joyabrata Bruman
Destination OP-777419 joyburman.pgcscm02@iimtrichy.ac.in
P Balakrishna Bandi OP-757938 balubandi.pgcscm02@iimtrichy.ac.in
Nitin Shankar OP-761552 nitinshankar.pgcscm02@iimtrichy.ac.in
B. Objective = Minimize
Madhukiran Shetty OP-731724 madhukiranshetty.pgcscm02@iimtrichy.ac.in
Shipping Cost
Basaveswarlu Boyapati OP-757327 basaveswarlu.pgcscm02@iimtrichy.ac.in
C. Constraint = Network
at Node=Net Quantity
Required

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