A Report On

“B-Kay Tech case study”

Submitted In partial fulfillment For the award of the Degree of Post Graduate
Diploma In Management

Submitted By

Prosenjit Roy & Vidushi Bharti

(Group-III)

Under The Guidance Of

Prof. Sanjib Biswas

Assistant Professor, Calcutta Business School

Department of Operations Management

Calcutta Business School

(Affiliated to All India Council of Technical Education)

Diamond Harbour Road,Bishnupur,Kolkata-743503

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 Table of Contents

SL. NO Topic Page No.

1. Case summary 3

2. Quantitative analysis 3

3. Qualitative analysis 3

4. Issues 4

5 Decision criteria 4

6 Assumptions 4

7 Data Analysis 4

8 Preferred Alternative 4

9 Why horizontal collaboration was important? 5

10 Driving logistics efficiencies 7

11 Revisiting old friendship 7

12 Horizontal logistics alliance 8

13 Trust & Adequate gain sharing 9

14 Recommendation & Approach 10

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 B-kay tech horizontal collaboration in logistics

Case Summary

B-Kay Tech is a multinational electronic consumer goods distributor based in Brussels. WARE-
TOUCH is a UK based everyday consumer goods company that distributed good through Europe and
Middle East from its DC in Flanders, Belgium.

Brandon Kay, supply chain director at B-kay tech is looking to form a horizontal logistics alliance
with WARE-TOUCH to better utilize B-Kay Tech’s shipment capacity. This would mean a change in
the logistics and inventory replenishment policy for both the companies. Brandon is looking to devise
a gain sharing mechanism that would convince WARE-TOUCH to participate in the collaboration.

Quantitative Analysis

Based on the analysis, there is cost reduction for both companies when there is cost sharing compared
to cases when there is no collaboration. Of 4 cost sharing scenarios, we can eliminate the scenarios in
which the total logistics cost of either of the companies increases as compared to the ‘no
collaboration’ scenario. Thus, we disqualify the scenarios of sharing 50% of only joint transport cost
of both the companies as this increases the cost for. B-Kay Tech. Although profitable for B-Kay Tech,
we also eliminate the scenario of cost sharing based on the proportion of the annual total volume
shipped by each company as this is a huge loss for Ware-Touch.

Given that the companies collaborate, and share. 50% of the total transport costs, the cost advantage
for B-Kay Tech is 12.05% whereas for Ware-Touch is only 1.28%. Considering that Brandon Kay
wants to convince Ware-touch to collaborate with him, this would not be a good recommendation, as
most of the gain due to collaboration is taken by B-Kay Tech, and not shared evenly.

So, our recommendation to Ware-touch would be to share total transport cost only based on the
proportion of the total standalone cost incurred by B-Kay Tech and Ware-Touch without
collaboration. In this, by collaboration, B-Kay Tech has cost savings of 5.68% and Ware-Touch has
savings of 8.46%.
This scenario also shows that the gains are distributed in a way that Ware-Touch benefits more as
compared to B-Kay tech. This would make it easy for Brandon to convince Ware-Touch to
collaborate horizontally with B-Kay Tech.

Qualitative Analysis

The numbers suggest the cost sharing mechanism that would lead both companies to collaborate is
when they share total transport cost only based on the proportion of the total standalone cost incurred
by them individually. Although this shows greater monetary benefit for Ware-Touch, it is more
valuable to B-Kay Tech as it highly reduces their capacity wastage. This collaboration would also
increase the shipment frequency for B-Kay Tech, which would enable them to improve their service
level. And since B-Kay Tech’s goods are compact and are only shipped in small numbers, Ware-
Touch can benefit from the extra capacity and use that to increase their number of shipments.
Although the collaboration slightly increased the inventory for Ware-Touch, the benefits realized in
terms of cost savings compensate for the increase in inventory costs.

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Issues

1. The main issue in B-kay tech logistics operation was many of trucks half full.
2. There were strict delivery of demand and high inventory holding cost for B-kay tech.
3. There were limited number of shipments.
4. Kay was not sure what additional flexibility would mean for his inventory requirement.
5. Timing of shipments was not allowed to change.

Decision criteria

Brendon kay was not satisfied with the transportation system because how could he find potential
partners within the designated time frame and convince them. He also thought about collaborative
shipping as there were huge cost for shipment of goods. They also want to spread geographically. He
also want to minimize the lead time.

For kay, co-loading one office trucks would enabled him to fill the empty space in the truck and to
share a major transport cost.

Assumptions

They wanted a long term relationship in collaboration. It is forecasted that if the collaboration
happened the transportation cost might decrease 20-25% annually.

Data Analysis

Average demand was low for B-kay tech than ware touch. Standard deviation depends on the no of
days they are sending the goods.

With the logistics team responsible for the greatest part of the company’s carbon footprint, this shift
would not only affect B-Kay tech’s bottom line, but would also help the company to reach the
stringent 2020 sustainability targets set out by management.

Collaboration was helpful for both the companies as B-Kay tech’s was able to increase shipment
frequency from 100 to 115 shipments per year,90 shipment would be initiated by himself for urgent
inventory replenishment when the inventory position dropped below the re-order point and 25 would
be joined with Ware Touch’s transport.

Subsequently Ware-Touch also able to reduce the number of self initiated transport from 60-50 per
year, a reduction over 15%.

Ware-Touch benefitted from joining B-Kay tech’s trucks 30 times per year which meant that its
shipment frequency would increase by more than 30%.

Preferred Alternative

Collaboration with ware touch was the only option for B-Kay tech as third party logistic was not
suitable structure for B-kay tech.
It was very important to keep the process run smoothly as customer satisfaction was very important
for both B-kay tech & Ware Touch.

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Why Horizontal collaboration was important?

Horizontal collaboration was important because both the companies could make profit from it in case
of logistics & distribution management system. In case of horizontal collaboration they can share the
truck spaces for sending the materials as a result 20-30% cost saved for both the companies in case of
transportation.

No collaboration scenario:

B-Kay Ware-Touch
Transportation costs € 5,000.0 € 4,500.0
Inventory holding costs € 500.0 € 375.0
Totallogisticscosts € 5,500.0 € 4,875.0
(Transport + Inventory holding)

Scenario 1: Share 50% of total transport cost of both the companies, given in collaboration scenario

B-Kay Ware-Touch
Transportation costs € 4,750.0 € 4,050.0
Transportation Costs after sharing 50% of transport costs € 4,400.0 € 4,400.0
Inventory Holding costs € 437.5 € 412.5
Total logistics costs € 4,837.5 € 4,812.5
(Transport + Inventory holding)
No Collaboration € 5,500.0 € 4,875.0
Cost Advantage 12.05% 1.28%

Scenario 2:Share 50% of ONLY total JOINT Transport cost of both the companies, given in
collaboration scenario

B-Kay Ware-Touch
Transportation costs € 4,750.0 € 4,050.0
No. of self-initiated transports € 90.0 € 50.0
No. of joined transports € 25.0 € 35.0
Inventory Holding costs € 437.5 € 412.5
Self-initiated transport as % of No. of transport 78.26% 58.82%
Joined transport as % of No. of transport 21.74% 41.18%
Cost of self-initiated transport € 3,717.4 € 2,382.4
Cost of joined transport € 1,032.6 € 1,667.6
Sharing 50% of joined transport cost € 1,350.1 € 1,350.1
Total logistics cost € 5,505.0 € 4,145.0
No Collaboration € 5,500.0 € 4,875.0
Cost Advantage -0.09% 14.97%

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Scenario 3:Share total transport cost of both the companies, given in collaboration scenario - based
on the proportion of the annual total volume shipped by each company in collaboration scenario

B-Kay Ware-Touch
Transportation costs € 4,750.0 € 4,050.0
No. of self-initiated transports € 90.0 € 50.0
No. of joined transports € 25.0 € 35.0
Inventory Holding costs € 437.5 € 412.5
Volume shipped in self-initiated 2,700 4,000
Volume shipped in joined 500 2,450
Total volume shipped 3,200 6,450
% of share in joined transport 33.16% 66.84%
Sharing cost of transport based on volume shipped € 2,918.1 € 5,881.9
Total logistics cost € 3,355.6 € 6,294.4
No Collaboration € 5,500.0 € 4,875.0
Cost Advantage 38.99% -29.12%

Scenario 4:Share total transport cost ONLY, given in collaboration scenario - based on the proportion
of the total standalone cost incurred by B-Kay Tech and Ware-Touch in the original scenario (with no
collaboration)

B-Kay Ware-Touch
Transportation costs € 4,750.0 € 4,050.0
Inventory Holding costs € 437.5 € 412.5
Total Cost Standalone € 5,187.5 € 4,462.5
No Collaboration € 5,500.0 € 4,875.0
Cost advantage 5.68% 8.46%

Alternative cost sharing mechanisms.

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Driving logistics efficiencies

B-Kay Tech had its own fleet of 25 trailer trucks for the local logistics that was supplemented with
outsourced third-party logistics (3PL) shipping for the international lanes. One of the major
inefficiencies Kay’s logistics team faced was that many of the trucks were driving only half-full.
Owing to strict delivery demands and high inventory holding costs, Kay’s planning team members
had only a few degrees of freedom to improve their truckload factors, especially if they did not want
their service levels to suffer. Through collaborative shipping with another company, Kay could fill the
empty space in his trucks, resulting in greater sustainability and cost improvements.

Given the high value density of B-Kay Tech’s products and the limited number of shipments, Kay felt
that horizontal collaboration could improve the current situation. With the initiative for collaboration
having originated with him, Kay was in charge of detecting bundling opportunities with other
companies. This type of bundling was proactive: opportunities were detected prior to shipment, and if
desired, plans were changed and shipments were delayed or moved forward in order to benefit from
joint transport. This system contrasted with traditional freight groupage, which was mainly reactive:
in groupage shipping, the logistics provider decided on bundling less than container loads in the
execution phase, rather than in the planning phase, and the consolidation was only geographical.

It became clear to Kay that to maximize the gains of collaborative shipping, he had to alter his
replenishment policy and be more flexible; he had to replenish inventories either sooner or later than
originally planned to benefit from joint transport. He was not yet sure what this additional flexibility
would mean for his inventory requirements.

REVISITING OLD FRIENDSHIPS

At the annual Supply Chain Award ceremony in March 2017, Kay had gotten back in contact with
David Rollins, a former colleague who had started working at WARE-TOUCH during the summer of
2013. WARE-TOUCH was a U.K.-based multinational company that produced and distributed
everyday consumer goods throughout Europe and the Middle East, and whose production sites and
distribution centres were spread across Europe and Turkey. On one of its lanes towards Southern
Europe, WARE-TOUCH travelled more or less the same route from its distribution centre in Flanders,
Belgium, to its distribution centre in the Lake Como area in Northern Italy. In addition, WARE-
TOUCH’s warehouses were located only a few kilometres from B-Kay Tech’s warehouses.

Given that WARE-TOUCH arranged most of its international logistics on the spot market, it was not
bound by a contract with a 3PL for that lane. Kay decided to get in touch with Rollins to see whether
WARE-TOUCH would be interested in collaborating and bundling transport in the future.

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THE BUSINESS CASE OF A HORIZONTAL LOGISTICS ALLIANCE

Despite their distribution centre’s being close to each other, Kay was aware that WARE-TOUCH was
in a different type of business than B-Kay Tech was, and that their daily logistics were not necessarily
the same.

For starters, B-Kay Tech worked with a fixed 3PL contract for its international lanes, whereas
WARETOUCH sourced its transport on the spot market. With respect to products, B-Kay Tech
offered low volume, high-value-density products, while WARE-TOUCH supplied low-value
commodities in high On average, it shipped a full truck of 100 boxes to its distribution centre in the
Lake Como area 60 times per year, where it carried about five weeks’ worth of inventory B-Kay Tech
shipped between once and twice per week (100 times per year, on average), but its trucks were only
35 per cent full. Due to high inventory costs and high shipment frequency, its order quantity was only
35 boxes per truck. As a result, B-Kay Tech’s distribution centre carried only four weeks’ worth of
inventory, on average.

For Kay, co-loading one of his trucks would enable him to fill the empty space in the truck and to
share a major transport cost, even if his truck had to make a slight detour to pick up the order at
WARE-TOUCH.

But he wondered what the advantages of this arrangement were for WARE-TOUCH. After all,
WARETOUCH already shipped full truckloads and at full efficiency.

To find out, Kay decided to simulate the costs in the case that B-Kay Tech and WARE-TOUCH both
shifted towards collaborative shipping. If Kay initiated the order (i.e., if B-Kay Tech reached its
reorder point), he would fill the truck with 30 boxes. With WARE-TOUCH joining the transport, it
would fill the remaining space for 70 boxes. If WARE-TOUCH replenished its inventory, it would
order 80 boxes, and Kay would fill the remaining truck space with 20 boxes. This way, Kay would be
able to increase B-Kay Tech’s shipment frequency from 100 to 115 shipments per year; 90 shipments
would be initiated by himself (for urgent inventory replenishments when the inventory position
dropped below the reorder point), and 25 would be joined with WARE-TOUCH’s transport. Under
this collaboration, WARE-TOUCH would be able to reduce the number of (self-initiated) transports
from 60 to 50 per year, a reduction of over 15 percent. In addition, WARE-TOUCH benefited from
joining B-Kay Tech’s trucks 30 times per year, which meant that its shipment frequency would
increase by more than 30 per cent.

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TRUST AND ADEQUATE GAINSHARING

Kay found that there would clearly be gains for both companies if they were to collaborate, but the
gains were not automatically distributed evenly. He considered several angles from which to approach
WARE-TOUCH with his proposal, and drafted a partnership idea that was both equitable and
sustainable. However, he quickly realized he would need a neutral third party to make the
arrangement work from a legal point of view.

Kay decided to call Erika Owens, a former classmate who specialized in commercial law and who had
started her own firm as a collaborative shipping trustee in 2014. After speaking with her, it became
clear to Kay how vital it would be to have a neutral trustee party to gather, analyze, and govern any
information sensitive to anti-trust laws. In addition, Owens could take care of constructing a legal
framework with multilateral contracts that would be anti-trust compliant. This framework would then
also define the rules of engagement and secure the mechanisms for entry, exit, and gainsharing in the
partnership, thereby ensuring continuity and stability in the collaboration.

To deal with this legal complexity without hurting the savings, Owens presented a business proposal
to Kay: she would take care of the legal set-up and would fill the trustee role for the first year, in
exchange for access to B-Kay Tech and WARE-TOUCH’s shipment data. This access would allow
her to bring in additional partners or wholly new collaboration options at a later stage, at which point
she would then be remunerated based on a percentage of the realized gains. In this way, Kay would be
able to bring a financially fair and legally sound proposal to the negotiation table without having to
hand over part of the gains realized at that point to the trustee.

With all of the building blocks identified, the next steps in making the project a reality were clear to
Kay: he would need to devise a gainsharing mechanism that would convince WARE-TOUCH to
begin the collaboration, and to prepare the negotiations that would undoubtedly follow.

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Recommendation

We recommend the collaboration based on sharing total transport cost only based on the proportion of
the total standalone cost incurred by B-Kay Tech and Ware-Touch without collaboration. This would
be beneficial in the following ways:

 Both, B-Kay Tech and Ware-Touch benefit from the straightforward and transparent
replenishment policy, that allows them flexibility to place their orders and whether to join the
others’ transport.
 8.46% cost savings for Ware-Touch and 5.68% cost savings for B-Kay Tech
 30% and 15% increase in number of shipments for Ware-Touch and B-Kay Tech respectively
 Increase in service level for both companies
 Lower carbon footprint for both companies aligning them to sustainability goals

Approach

In order to find a recommendation for Brandon, we have considered 4 cost sharing scenarios, taking
different combinations of sharing transportation costs. We have then analyzed these scenarios from
the perspectives of B-Kay Tech and WARE-TOUCH to come up with relevant recommendations and
supporting arguments that would convince WARE-TOUCH to collaborate with B-Kay Tech.

For comparison, we first look at the total logistics costs incurred by B-Kay Tech and WARE-TOUCH
without any collaboration.

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