GSCM 520 – Foundations in Global Supply Chain Management

COURSE PROJECT

GLOBAL SUPPLY CHAIN RESOURCE

PLANNING AND MANAGEMENT
Anthony Owens
Dritan Papazisi

Submitted to Professor
Alek Granderson , MBA, MPM, PMP
AGranderson@devry.edu

Sunday, December 9, 2018

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Table of Contents
Current State of the Grainger Global Sourcing Supply Chain (Jacobs and Chase, 2017) .............................. 3
GRAINGER’s Product Flow from Asia to US .................................................................................................. 5
1. Evaluate the current China/Taiwan logistics costs. Assume a current total volume of 190,000 CBM
and that 89% is shipped direct from the supply is plants in containers. Using the data from the case and
assume that the supplier-loaded container is 85% full. Assume that consolidation centers are run at each
of the four port locations. The consolidation centers only use 40-foot containers and fill them to 96%
capacity ......................................................................................................................................................... 5
2. Assume that it costs $480 to ship a 20-foot container and $600 to ship a 40-foot container. What is
the total cost to get the containers to the United States? Do you include U.S. port costs in this part of
the analysis?................................................................................................................................................ 12
References .................................................................................................................................................. 15

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Current State of the Grainger Global
Sourcing Supply Chain (Jacobs and
Chase, 2017)
W. W. Grainger, Inc. is a leading supplier of
maintenance, repair, and operating (MRO) products to
businesses and institutions in the United States,
Canada, and Mexico with an expanding presence in
Japan, India, China, and Panama. The company works
with more than 3,000 suppliers and runs an extensive
Web site (www.grainger.com), where it offers nearly
900,000 products. The products range from industrial adhesives used in manufacturing, to hand
tools, janitorial supplies, lighting equipment, and power tools. When something is needed by one
of its 1.8 million customers, it is often needed quickly, so quick service and product availability are
key drivers to Grainger’s success.

Your assignment involves studying a specific part of Grainger’s supply chain. Grainger
works with over 250 suppliers in the China and Taiwan region. These suppliers produce products
to Grainger’s specifications and ship to the United States using ocean freight carriers from four
major ports in China and Taiwan. From these ports, product is shipped to U.S. entry ports in either
Seattle, Washington, or Los Angeles, California. After passing through customs, the 20- and 40-
foot containers are shipped by rail to Grainger’s central distribution center in Kansas City, Kansas.
The containers are unloaded, and quality is checked in Kansas City. From there, individual items
are sent to regional warehouses in nine U.S. locations, a Canadian site, and Mexico.

The contracts that Grainger has with Chinese and Taiwanese suppliers currently specify
that the supplier owns the product and is responsible for all costs incurred until the product is
delivered to the shipping port. These are commonly referred to as free on board (FOB) shipping
port contracts. Grainger works with a freight forwarding company that coordinates all shipments
from the Asian suppliers.

Currently, suppliers have the option of either shipping product on pallets to consolidation
centers at the port locations or packing the product in 20- and 40-foot containers that are loaded
directly on the ships bound for the United States. In many cases, the volume from a supplier is
relatively small and will not sufficiently fill a container. The consolidation centers are where
individual pallets are loaded into the containers that protect the product while being shipped

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across the Pacific Ocean and then to Grainger’s Kansas City distribution center. The freight
forwarding company coordinates the efficient shipping of the 20- and 40-foot containers. These
are the same containers that are loaded onto rail cars in the United States.

Currently, about 190,000 cubic meters of material are shipped annually from China and Taiwan.
This is expected to grow about 15 percent per year over the next five years. About 89 percent of
all the volume shipped from China and Taiwan are sent directly from the suppliers in 20- and 40-
foot containers that are packed by the supplier at the supplier site. Approximately 21 percent are
packed in the 20-foot containers and 79 percent in 40-foot containers. The 20-foot containers can
hold 34 cubic meters (CBM) of material and the 40-foot containers, 67 CBM. The cost to ship a
20-foot container is $480 and a 40-foot container, $600 from any port location in China or Taiwan
and to either Los Angeles or Seattle. Grainger estimates that these supplier-filled containers
average 85 percent full when they are shipped.

The remaining 11 percent shipped from China and Taiwan go through consolidation
centers that are located at each port. These consolidation centers are run by the freight forwarding
company and cost about $75,000 per year each to operate. At the volumes that are currently
running through these centers, the variable cost is $4.90 per CBM. The variable cost of running
a consolidation center could be reduced to about $1.40 per CBM using technology if the volume
could be increased to at least 50,000 CBM per year. Now there is much variability in the volume
run at each center and it only averages about 5,000 CBM per site.

Material at the consolidation centers is accumulated on an ongoing basis and as

containers are filled they are sent to the port. Volume is enough that at least one 40-foot container
is shipped from each consolidation center each week. Grainger has found that the consolidation
centers can load all material into 40-foot containers and utilize 96 percent of the capacity of the
container.

Grainger ships from four major port locations. Approximately 10 percent of the volume is
shipped from the north China port of Qingdao and 42 percent is shipped from the central China
port of Shanghai/Ningbo. Another 10 percent is shipped from Kaohsiung in Taiwan. The final 38
percent is shipped from the southern Yantian/Hong Kong port. Consolidation centers are currently
run in each location.

Grainger management feels that it may be possible to make this part of its supply chain
more efficient.

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 1. Evaluate the current China/Taiwan logistics costs. Assume a current total volume of
190,000 CBM and that 89% is shipped direct from the supply is plants in containers. Using
the data from the case and assume that the supplier-loaded container is 85% full.
Assume that consolidation centers are run at each of the four port locations. The
consolidation centers only use 40-foot containers and fill them to 96% capacity.

GRAINGER’s Product Flow from Asia to US

10%

42%

38%

10%

Below in are shown the calculations for the present Year Vol. (m3) Tr. Cost Op Cost Tot Cost Cost/Unit
0 190,000 $ 1,993,400 $ 402,410 $ 2,395,810 12.61
year and the other 5 years by assuming 15% growth as 1 218,500 $ 2,292,400 $ 417,772 $ 2,710,172 12.40
2 251,275 $ 2,636,400 $ 435,437 $ 3,071,837 12.23
it is forecasted. Calculations include the transportation 3 288,966 $ 3,031,200 $ 455,753 $ 3,486,953 12.07
4 332,311 $ 3,485,600 $ 479,116 $ 3,964,716 11.93
cost and the Operation’s cost of each consolidation
5 382,158 $ 4,009,200 $ 505,983 $ 4,515,183 11.81
center.
Cost/Unit
Cost per unit is calculated as ratio of total cost for the 12.80
total m3 product transported from Asia to USA. 12.60 y = -0.1585x + 12.571
12.40 R² = 0.9897

Data are summarized on the table right. 12.20

12.00
Analysis indicates that at the present situation 11.80
3 11.60
Grainger’s cost is $12.61/m but increase of the volume
0 1 2 3 4 5
15%/yr will bring $0.1585/m3 unit’s cost reduction. Year

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Exhibit 1.0 Present Year – Cost Break Down

Total Container Size Quantities Cost TRANSPORTATION COST

Vol. (m3 ) Origin
3
% Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost
190,000 Direct Shipments 89% 169,100 %
20' 34 21% 35,511 $ 400.00 85% 1229 $ 491,600
40' 67 79% 133,589 $ 600.00 85% 2346 $ 1,407,600

Direct Shipments 169,100

Total m3

Container Size Quantities Cost TRANSPORTATION COST OPERATION's COST

3
Origin % Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost FIXED VARIABLE
Cons. Centers 11% 20,900
Qingdao 40' 67 10% 2,090 $ 600.00 96% 33 $ 19,800 $75,000 $ 10,241
Shanghai/Ningbo 40' 67 42% 8,778 $ 600.00 96% 137 $ 82,200 $75,000 $ 43,012
Kaohsiung (Taiwan) 40' 67 10% 2,090 $ 600.00 96% 33 $ 19,800 $75,000 $ 10,241
Yantian (Hong Kong) 40' 67 38% 7,942 $ 600.00 96% 124 $ 74,400 $75,000 $ 38,916

Cons. Centers Total 20,900 m3

TRANSPORTATION COST
Direct Shipments $ 1,899,200
Cons. Centers $ 94,200

Total Transportation $ 1,993,400

OPERATION's COST
FIXED $ 300,000
VARIABLE $ 102,410

Total Operation's Cost $ 402,410

Total Cost $ 2,395,810

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Exhibit 1.1 Year +1 – Cost Break Down

Total Container Size Quantities Cost TRANSPORTATION COST

Vol. (m3 ) Origin
3
% Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost
218,500 Direct Shipments 89% 194,465 %
20' 34 21% 40,838 $ 400.00 85% 1414 $ 565,600
40' 67 79% 153,627 $ 600.00 85% 2698 $ 1,618,800

Direct Shipments 194,465

Total m3

Container Size Quantities Cost TRANSPORTATION COST OPERATION's COST

3
Origin % Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost FIXED VARIABLE
Cons. Centers 11% 24,035
Qingdao 40' 67 10% 2,404 $ 600.00 96% 38 $ 22,800 $75,000 $ 11,777
Shanghai/Ningbo 40' 67 42% 10,095 $ 600.00 96% 157 $ 94,200 $75,000 $ 49,464
Kaohsiung (Taiwan) 40' 67 10% 2,404 $ 600.00 96% 38 $ 22,800 $75,000 $ 11,777
Yantian (Hong Kong) 40' 67 38% 9,133 $ 600.00 96% 142 $ 85,200 $75,000 $ 44,753

Cons. Centers Total 24,035 m3

TRANSPORTATION COST
Direct Shipments $ 2,184,400
Cons. Centers $ 108,000

Total Transportation $ 2,292,400

OPERATION's COST
FIXED $ 300,000
VARIABLE $ 117,772

Total Operation's Cost $ 417,772

Total Cost $ 2,710,172

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Exhibit 1.2 Year +2 – Cost Break Down

Total Container Size Quantities Cost TRANSPORTATION COST

Vol. (m3 ) Origin
3
% Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost
251,275 Direct Shipments 89% 223,635 %
20' 34 21% 46,963 $ 400.00 85% 1626 $ 650,400
40' 67 79% 176,671 $ 600.00 85% 3103 $ 1,861,800

Direct Shipments 223,635

Total m3

Container Size Quantities Cost TRANSPORTATION COST OPERATION's COST

3
Origin % Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost FIXED VARIABLE
Cons. Centers 11% 27,640
Qingdao 40' 67 10% 2,764 $ 600.00 96% 43 $ 25,800 $75,000 $ 13,544
Shanghai/Ningbo 40' 67 42% 11,609 $ 600.00 96% 181 $ 108,600 $75,000 $ 56,884
Kaohsiung (Taiwan) 40' 67 10% 2,764 $ 600.00 96% 43 $ 25,800 $75,000 $ 13,544
Yantian (Hong Kong) 40' 67 38% 10,503 $ 600.00 96% 164 $ 98,400 $75,000 $ 51,466

Cons. Centers Total 27,640 m3

TRANSPORTATION COST
Direct Shipments $ 2,512,200
Cons. Centers $ 124,200

Total Transportation $ 2,636,400

OPERATION's COST
FIXED $ 300,000
VARIABLE $ 135,437

Total Operation's Cost $ 435,437

Total Cost $ 3,071,837

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Exhibit 1.3 Year +3 – Cost Break Down

Total Container Size Quantities Cost TRANSPORTATION COST

Vol. (m3 ) Origin
3
% Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost
288,966 Direct Shipments 89% 257,180 %
20' 34 21% 54,008 $ 400.00 85% 1869 $ 747,600
40' 67 79% 203,172 $ 600.00 85% 3568 $ 2,140,800

Direct Shipments 257,180

Total m3

Container Size Quantities Cost TRANSPORTATION COST OPERATION's COST

3
Origin % Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost FIXED VARIABLE
Cons. Centers 11% 31,786
Qingdao 40' 67 10% 3,179 $ 600.00 96% 50 $ 30,000 $75,000 $ 15,575
Shanghai/Ningbo 40' 67 42% 13,350 $ 600.00 96% 208 $ 124,800 $75,000 $ 65,416
Kaohsiung (Taiwan) 40' 67 10% 3,179 $ 600.00 96% 50 $ 30,000 $75,000 $ 15,575
Yantian (Hong Kong) 40' 67 38% 12,079 $ 600.00 96% 188 $ 112,800 $75,000 $ 59,186

Cons. Centers Total 31,786 m3

TRANSPORTATION COST
Direct Shipments $ 2,888,400
Cons. Centers $ 142,800

Total Transportation $ 3,031,200

OPERATION's COST
FIXED $ 300,000
VARIABLE $ 155,753

Total Operation's Cost $ 455,753

Total Cost $ 3,486,953

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Exhibit 1.4 Year +4 – Cost Break Down

Total Container Size Quantities Cost TRANSPORTATION COST

Vol. (m3 ) Origin
3
% Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost
332,311 Direct Shipments 89% 295,757 %
20' 34 21% 62,109 $ 400.00 85% 2150 $ 860,000
40' 67 79% 233,648 $ 600.00 85% 4103 $ 2,461,800

Direct Shipments 295,757

Total m3

Container Size Quantities Cost TRANSPORTATION COST OPERATION's COST

3
Origin % Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost FIXED VARIABLE
Cons. Centers 11% 36,554
Qingdao 40' 67 10% 3,655 $ 600.00 96% 57 $ 34,200 $75,000 $ 17,912
Shanghai/Ningbo 40' 67 42% 15,353 $ 600.00 96% 239 $ 143,400 $75,000 $ 75,229
Kaohsiung (Taiwan) 40' 67 10% 3,655 $ 600.00 96% 57 $ 34,200 $75,000 $ 17,912
Yantian (Hong Kong) 40' 67 38% 13,891 $ 600.00 96% 216 $ 129,600 $75,000 $ 68,064

Cons. Centers Total 36,554 m3

TRANSPORTATION COST
Direct Shipments $ 3,321,800
Cons. Centers $ 163,800

Total Transportation $ 3,485,600

OPERATION's COST
FIXED $ 300,000
VARIABLE $ 179,116

Total Operation's Cost $ 479,116

Total Cost $ 3,964,716

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Exhibit 1.5 Year +5 – Cost Break Down

Total Container Size Quantities Cost TRANSPORTATION COST

Vol. (m3 ) Origin
3
% Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost
382,158 Direct Shipments 89% 340,121 %
20' 34 21% 71,425 $ 400.00 85% 2472 $ 988,800
40' 67 79% 268,695 $ 600.00 85% 4719 $ 2,831,400

Direct Shipments 340,121

Total m3

Container Size Quantities Cost TRANSPORTATION COST OPERATION's COST

3
Origin % Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost FIXED VARIABLE
Cons. Centers 11% 42,037
Qingdao 40' 67 10% 4,204 $ 600.00 96% 66 $ 39,600 $75,000 $ 20,598
Shanghai/Ningbo 40' 67 42% 17,656 $ 600.00 96% 275 $ 165,000 $75,000 $ 86,513
Kaohsiung (Taiwan) 40' 67 10% 4,204 $ 600.00 96% 66 $ 39,600 $75,000 $ 20,598
Yantian (Hong Kong) 40' 67 38% 15,974 $ 600.00 96% 249 $ 149,400 $75,000 $ 78,274

Cons. Centers Total 42,037 m3

TRANSPORTATION COST
Direct Shipments $ 3,820,200
Cons. Centers $ 189,000

Total Transportation $ 4,009,200

OPERATION's COST
FIXED $ 300,000
VARIABLE $ 205,983

Total Operation's Cost $ 505,983

Total Cost $ 4,515,183

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 2. Assume that it costs $480 to ship a 20-foot container and $600 to ship a 40-foot container. What
is the total cost to get the containers to the United States? Do you include U.S. port costs in this
part of the analysis?
If cost of 20ft long container is increased from $400 to $480 the cost breakdown analysis is given in
Exhibit 2.0. Analysis indicates that in this case the transportation cost it will increase by $98,320.
This increase will push the Cost per Unit from $12.6095 to $13.1270 (+$0.5175).

In this case it is advised to the company to evaluate scenario of elimination of transportation in 20ft
containers, which represents less than 20% of the total volume.

A potential scenario is to process 20ft containers into consolidation centers next to 4 major port cities
and ship the material from there in 40ft containers. In this case the company will reduce the
transportation cost by -$332,600 and increase the Operation’s cost in consolidation Centers by
+$174,004, which will result in a total cost saving as much as +$158,596.

This change will bring a change in the cost /units from $12.6095 to $11.7748 (-$0.8347).

The cost of US ports is not included in this analysis.

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Exhibit 2.0 Cost Break Down When shipment cost of 20ft container is $480

Total Container Size Quantities Cost TRANSPORTATION COST

Vol. (m3 ) Origin
3
% Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost
190,000 Direct Shipments 89% 169,100 %
20' 34 21% 35,511 $ 480.00 85% 1229 $ 589,920
40' 67 79% 133,589 $ 600.00 85% 2346 $ 1,407,600

Direct Shipments 169,100

Total m3

Container Size Quantities Cost TRANSPORTATION COST OPERATION's COST

3
Origin % Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost FIXED VARIABLE
Cons. Centers 11% 20,900
Qingdao 40' 67 10% 2,090 $ 600.00 96% 33 $ 19,800 $75,000 $ 10,241
Shanghai/Ningbo 40' 67 42% 8,778 $ 600.00 96% 137 $ 82,200 $75,000 $ 43,012
Kaohsiung (Taiwan) 40' 67 10% 2,090 $ 600.00 96% 33 $ 19,800 $75,000 $ 10,241
Yantian (Hong Kong) 40' 67 38% 7,942 $ 600.00 96% 124 $ 74,400 $75,000 $ 38,916

Cons. Centers Total 20,900 m3

TRANSPORTATION COST
Direct Shipments $ 1,997,520
Cons. Centers $ 94,200

Total Transportation $ 2,091,720 $ 98,320 extra

OPERATION's COST
FIXED $ 300,000
VARIABLE $ 102,410

Total Operation's Cost $ 402,410

Total Cost $ 2,494,130

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Exhibit 2.0 Cost Break Down When shipment cost of 20ft container is $480 and business is moved into 40ft Containers only.

Total Container Size Quantities Cost TRANSPORTATION COST

Vol. (m3 ) Origin
3
% Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost
190,000 Direct Shipments 89% 133,589 %
20' 34 0% - $ 480.00 85% 0 $ -
40' 67 100% 133,589 $ 600.00 85% 2346 $ 1,407,600

Direct Shipments 133,589

Total m3

Container Size Quantities Cost TRANSPORTATION COST OPERATION's COST

3
Origin % Vol (m ) Length (ft) Vol (m3 ) % m3 $/Container Fill Rate Containers Total Cost FIXED VARIABLE
Cons. Centers 11% 56,411
Qingdao 40' 67 10% 5,641 $ 600.00 96% 88 $ 52,800 $75,000 $ 27,641
Shanghai/Ningbo 40' 67 42% 23,693 $ 600.00 96% 369 $ 221,400 $75,000 $ 116,094
Kaohsiung (Taiwan) 40' 67 10% 5,641 $ 600.00 96% 88 $ 52,800 $75,000 $ 27,641
Yantian (Hong Kong) 40' 67 38% 21,436 $ 600.00 96% 334 $ 200,400 $75,000 $ 105,037

Cons. Centers Total 56,411 m3

TRANSPORTATION COST
Direct Shipments $ 1,407,600
Cons. Centers $ 253,200

Total Transportation $ 1,660,800 $ (332,600) less

OPERATION's COST
FIXED $ 300,000
VARIABLE $ 276,414

Total Operation's Cost $ 576,414 $ 174,004 extra

Total Cost $ 2,237,214 $ (158,596) less

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References
1. Jacobs, Robert, F., Chase, Richard. (2017). Operations and Supply Chain Management:
The Core, 4th Edition. [VitalSource]. Retrieved from
https://online.vitalsource.com/#/books/1260396703/

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