Question $10(1$ point$)$

Dhiman Electronics

This case is important because the supply function is frequently given responsibility for transportation. As a leader in the supply organization, you need to understand sourcing options for transportation services and how transportation services can influence performance of your organization.

Read the following case on Dhiman Electronics and then answer the questions that follow.

Dhiman Electronics

In early August, Lauren Michell started her first full$-$time job as a buyer at Dhiman Electronics $($Dhiman$)$ in Brampton, Ontario. Lauren had recently graduated from a local college with a specialization in supply chain management and was anxious to make a favorable first impression. After spending the first week on orientation and training, her first assignment was to review the company$$s spend on outbound transportation services. Her boss, Alanna Yao, supply chain manager at Dhiman, provided the following direction: $$We spend about $$170,000$ a year on outbound freight. This is an area that we have not really paid enough attention to$,$ and our suppliers are telling us to expect price increases next year of $3$ to $5$ percent because of rising fuel prices and wage costs. Take a couple of days to dig into this and let me know what you think.$$

Dhiman supplied electrical products for the electrical power generation and the transmission and distribution industries. The privately owned company was started approximately $25$ years ago by its CEO, Andy Dhiman. Its main products included circuit breakers, surge protection devices, and switches. With about $90$ people at its Brampton plant, including $30$ office staff, annual revenues were $$35$ million$\mathrm{.}6$

Demand for Dhiman$$s products had been strong in recent years. The transition to sustainable energy systems was creating changes to electricity generation, transmission, and distribution networks in North America as energy producers transformed their networks to favor renewable energy sources. At the same time, electricity producers were being required to expand electrical power generation capacity to meet increasing demand. As a result, energy companies and utilities were upgrading and updating their electrical infrastructure. Dhiman$$s customers were electrical energy producers, utilities and their suppliers, including contractors, maintenance services providers, and distributors.

FREIGHT SERVICES SUPPLIERS

Dhiman$$s customers specified shipping terms in their purchase orders $($POs$),$ with several taking responsibility for shipping using their own carriers $[$e$.$g$.,$ FOB $($free on board$)$ origin, freight collect$].$ Other customers preferred to have Dhiman handle shipping $($e$.$g$.,$ FOB destination, freight prepaid$),$ in which case these costs were built into the price when submitting quotations. As a general policy, Dhiman specified FOB destination for inbound freight from its suppliers to minimize the hassles associated with scheduling shipments.

Lauren learned that Dhiman used four trucking suppliers to ship finished products to locations in Canada and the United States: FedEx, JW Express $($JW$),$ Martins Forwarding $($Martins$),$ and Orford Freight $($Orford$).$ FedEx was a multinational logistics services company that provided transportation, e$-$commerce, and related services. Founded in the $1950$s$,$ JW was one of the largest transportation companies in Canada, providing full truckload $($FTL$)$ and less$-$than$-$truckload $($LTL$)$ services to a wide range of industries. In contrast, Martins was a small local trucking company that offered both FTL and LTL services. Orford was a large diversified Canadian logistics services company that provided transportation and third$-$party logistics $(3$PL$)$ services to its customers in North America.

Lauren collect data from company purchase orders and supplier invoices for the most recent $12$ months, separating the information for shipments to Canada and the United States. Pricing depended on shipment size and distance. Shipment size comprised three categories: single skid, LTL $($two to seven skids$),$ and FTL $($more than seven skids$).$ Meanwhile cost structure was based on shipments for three distances: less than $500$ miles $($e$.$g$.,$ Ontario, Quebec, Michigan, and New York$),500$ to $1,000$ miles $($e$.$g$.,$ Missouri, New Brunswick, and North Carolina$),$ and $1,000$ to $2,500$ miles $($e$.$g$.,$ Alberta, British Columbia, and Arizona$).$ These combinations provide nine different pricing structures $($Exhibits $1$ and $2).$

As part of her investigation, Lauren spoke to Pat Mulherin, the shipping coordinator. Pat seemed generally happy with the on$-$time delivery performance and service provided by the four suppliers, indicating that $$among the group, Martins had been the most aggressive pursuing additional routes with Dhiman.$$ A summary of the annual spend for outbound freight by supplier is provided in Exhibit $3.$

EVALUATING OPTIONS

Based on the information she had collected, it appeared to Lauren that pricing structure for freight services was based