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
gainsharing 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.

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.

No collaboration scenario:

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

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
(Transport + Inventory holding) € 4,837.5 € 4,812.5
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%

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