1
$\begingroup$

The problem, in general terms:

At work, we're supposed to come up with an algorithm to split the expenses incurred during shipping when more than one order is being shipped on the same truck. Basically, we pay the trucking company a flat fee, and charge each customer a different amount for each order. We charge customers based on the footage they take up, and the distance they travel (in miles).

Say, for instance, we have four orders:

 Order #    Start     End              Miles     Footage    Revenue  ========   =======    =============   =====     =======    =======  1          Chicago -> Indianapolis      250       10       $200  2          Chicago -> Cleveland         400       20       $500  3          Chicago -> West Virginia     600       10       $400  4          Chicago -> New York          850       10       $600  Total Revenue:             $1700 Payment Due to Driver:     $1400 Consolidated Order Profit: $300 Order 1 Profit:            ? Order 2 Profit:            ? Order n... 

These are example ratings.

Well, my theory was this:

1. Take the rate per mile 2. Take the rate per foot 3. Average the two 

However, that seems braindead. Am I getting the true profit for each order this way?

For instance:

Anna, Brad, and Cathy are sharing a truck on three orders. Anna's load is going 100 miles, and takes up 10 feet. Brad's load is going 200 miles, and takes up 20 feet. Cathy's load is going 300 miles, and takes up 20 feet. 

Now...Do I take the total footage (50 ft.), and blindly smear that ratio of footage to determine the company's cost to ship that load for that order? Or...do I take each stop, understand that after 101 miles, Anna's 10 feet are no longer on the truck, and will raise the observed rate to ship the other two orders? This, in the long run, will protect salespeople like Cathy, who should be given a greater ratio (the last 100 miles, Cathy's load takes up 100% of the truck's load), and therefore, a higher commission.

Thanks everyone!

  • 0
    First, you need to determine your objectives. It is clear that you don't want to loose money, but it is not clear if you want to make money off the customer or you only want to cover your expenses. Also, if you pay flat fee, then there are chances where you may have few shipments where you won't cover your cost. So, may be you want to take that in consideration as well.2011-12-16
  • 0
    The objective is to determine the profit per order. Salespeople make commission off this, and if they can (and they will) increase the company's profits by truck sharing their orders, they'll make more money come payday. The question is...how much?2011-12-16
  • 0
    I guess that we can't calculate the profit reasonably without knowing how we calculate the shipping costs first (the flat rate you mentioned - In the example above called Payment Due to Driver). For example, is the flat rate is based only on distance, then footage does not really mater.2011-12-16
  • 0
    How do **we** know what to pay the driver? Honestly, that's a five year project `:D`...it's a lot of knowledge, experience, and feel. What's the commodity? Does it spoil? Is it in season? Is it in high demand? Are you shipping someplace where you can ship freight *back* from? Too many variables to list here...so, I left the basics open to build a model, and implement it in the system. I'll elaborate my question.2011-12-16

2 Answers 2