Designing Linear Freight Model at Engro Fertilizers

The freight cost for transporting urea from the plant to 300 dealers and 180 warehouses throughout Pakistan amounted to approximately Rs. 3 billion for Engro Fertilizers, representing a significant portion of the company's supply chain budget. By utilizing advanced Six Sigma tools and methodologies from our Black Belt resource, we developed a linear freight model that incorporates 12 variables influencing freight costs. A comprehensive regression analysis was conducted on each variable to ascertain its impact, standard deviation, and weight on the overall freight expenses. Based on this analysis, we assigned specific multiplier values to each variable, enabling the model to serve as a quantitative analysis tool for determining optimal freight costs per ton under various scenarios. This approach marks a significant departure from the historical reliance on subjective and rudimentary data for setting freight costs. The comprehensive quantitative analysis derived from the Freight Linear Model will yield improved outcomes for their overall freight cost strategy. This analysis resulted in savings amounting to Rs. 118 million in the year following the model's implementation compared to planned costs. Moreover, this system can be replicated in the logistics departments of any company facing substantial freight costs, particularly in scenarios with multiple variables impacting expenses. The complexity of the system and the richness of available data enhance the efficacy of the model, leading to improved outcomes and analyses.