Transportation executives in the consumer goods industry face serious challenges today. They include rising fuel costs, decreased capacity, driver turnover and technology integration, among others. How these executives react will impact the overall success of their companies in this increasingly competitive environment.
To get a picture of the positive steps taken to confront these challenges, Food Logistics put together a roundtable discussion. The participants included one wholesaler, one retailer, and three manufacturers:
- Mark Foster, vice president of supply chain, Supervalu Inc., Minneapolis;
- Bill Parry, vice president of logistics, Giant Eagle Inc., Pittsburgh;
- Pat Johnson, vice president of logistics, Land O Lakes Inc., Arden Hills, MN;
- Eric Meister, director of supply chain services, Barilla Ameri-ca Inc., Bannockburn, IL: and
- Rick Kent, transportation sourcing manager for North America, Procter & Gamble Co., Cincinnati;
What is the biggest challenge that you are facing today?
Kent: Our biggest challenge is developing the right new capacity that meets our growing business needs in a reliable and cost-effective way. This is part of our overall effort to reinvent the supply network from the store shelf back to be more responsive to consumers and our retail customers.
Our on-time delivery has decreased the past two years largely due to industry dynamics such as driver turnover and rail congestion. Primary carrier load acceptance, a key capacity measure, has declined too. We are increasing our capacity by expanding our core carrier base and growing successful incumbents. We are also re-optimizing our mode mix by growing dedicated fleets and increasing intermodal in the right corridors. Mode optimization is the cornerstone of our cost reduction strategy.
We are using optimization technology to evaluate carrier proposals that are engineered to maximize carrier asset utilization. These engineered solutions take the form of national dedicated fleets, regional dedicated fleets and/or packages of lanes that complement one another. This technology allows us to maximize utilization while minimizing the amount of business we ship in the one-way or un-engineered segment.
Meister: The greatest challenge we face today is balancing carrier capacity availability, cost and performance. With carrier capacity being tighter than ever, it has become critical to be a preferred shipper with your carrier base so that you have access to competitively priced capacity when you need it. This means driving inefficiencies and costs out of the process for both shippers and carriers and partnering with carriers that recognize that value.
Parry: With rising fuel costs, fuel is getting a lot of attention and is definitely a topic that we will continue to closely monitor. However, we are focused more intently on ensuring driver safety, and we are committed to having the safest private fleet in the nation. At the same time, we are continuing to become more efficient with our deliveries through activity-based pay and driver labor standards.
Our ability to achieve the efficiency levels we currently experience, as well as the goals we have in place for the future, is largely a function of our ability to implement appropriate and innovative technology that supports our strategic plan. Our technology consists of computerized routing, electronic fuel data recording, on-board computers, tractor and trailer tracing via radio frequency, cellular and satellite, electronic invoicing, electronic signature capture, radio frequency loading and unloading of goods, engineered labor standards and incentives reported daily, and an electronic dashboard.
Johnson: We are currently most concerned about capacity. An improving economy is increasing demand for transportation and hours of service (HOS) rules are making carries less efficient. Estimates I have seen indicate an impact of anywhere from 5 percent to 20 percent. So it is like there are that many fewer trucks on the road. We have been very focused on being more efficient and carrier friendly---measuring dock turn times, addressing "problem docks" with our carrier base. Quarter four is our peak volume time. Last year, we spent a lot of time and effort as a cross-functional/supply chain team to make sure we had the trucks we needed. I expect this year to be challenging too.
Foster: Today we face considerable challenges in fuel costs, driver turnover and shortage, network consolidation and rationalization, equipment manufacturing lead time and costs… all combined with mounting pressure from shippers and receivers for improved service and lower costs. Interestingly, the new HOS regulation has proven to be more of a minor issue compared to others and not catastrophic, as many industry naysayers were proclaiming before enactment.
Factors for driver availability substantially more influential than HOS include: private fleet reductions, expanded outsourcing, more owner operators vs. employed drivers, insurance requirements and consistency in driver training programs, as well as lifestyle value for the workforce.
We are using a "component" strategy for technology. That is, selecting what we consider to be the leading technology for operation-specific requirements and then linking those solutions via "bridging" systems we’ve developed internally. We have discovered that this approach has the most comprehensive impact on the business. This is an important point. In the past, many organizations have taken a path that drove solutions toward a homogenized, "one-size-fits-all" outcome or a purely technology-driven direction that met infrastructure requirements but compromised business requirements… or worse yet, sometimes both.
If we do compromise today, it is in the technology support, not the business side. Technology for our company is business-directed, whereas in the past, technology was "pushed" to the user community, with a shortfall in systems capabilities, or the wrong capabilities for the enterprise. The "business-leading" method has been extraordinarily powerful in bringing technology-supported process improvement into a large-scale and complex industry.
How have your transportation management systems been changing to enable your company to operate more efficiently and serve customers better?
Meister: We have moved to a transportation management system from LeanLogistics that is fully integrated with our ERP system. This Web-based system has allowed us to connect all partners in the delivery process (sales, customer service, warehouse, carrier, transportation management) using the Internet. Users have access to the same information at the same time, which means the number of phone calls and faxes has decreased. Automation of the execution of routine transactions reduces cost and allows us to focus on exceptions resulting in improved customer service.
Johnson: We utilize our TMS, Nistevo, for tendering loads via EDI or the Internet for real-time load visibility and for metric reporting, on-time delivery and dock turn times. Later this year, we expect to utilize it for dock scheduling and for optimization of routing of customer freight.
Kent: Dedicated fleets and engineered solutions provide higher levels of service, dedicated capacity and the most competitive pricing.
Parry: We are now providing information to our customers and addressing issues in a proactive and near-real-time manner. For example, we are able to change schedules to avoid congestion and delays at our supermarket delivery docks. We are also utilizing more cross docks of DSD goods onto our private fleet.
How are you incorporating visibility into your transportation planning?
Kent: Visibility is an important goal across our supply network. It will allow us to better meet the needs of our retail customers and the consumers we both serve. As we work with retail customers to have more lead time, we electronically tender loads five days in advance of shipment. If we need back-up capacity, we will post loads available to a select group of carriers via a private exchange.
Meister: The tools included in the LeanLogistics system have improved our visibility to the key milestones in the life of a shipment, resulting in better communication with our carriers and customers. Automated event notifications ensure that all interested parties are informed quickly if key milestones are not met. Centralized visibility to all shipments ensures that we make the optimal transportation decision. We have integrated our freight payment process with the traffic planning process, ensuring that our costs are more accurate and transparent.
Foster: We are probably less enamored than most with what is commonly accepted as visibility, or track and trace. This method fundamentally tells you where everything is or was, or measures what happened. Frankly, we believe this approach is outdated. We aren’t so much interested in viewing or having access to the norm. We are very much interested in non-conforming events, particularly with a forward-looking perspective.
We are seeking solutions that provide intelligent alerting and decision support. The ideal system recognizes trends or events, forecasts a possible failure in elements of the supply chain and then furnishes a set of corrective options based on the characteristics of the supply chain and the attributes of available resources. There are pieces of this in today’s technology, but there is much more that needs to be developed to realize the potential of this powerful concept.
How is your company using new technology and/or procedures to improve the management of inbound transportation activities? What benefits have you achieved?
Johnson: We have visibility to inbound loads and are aware of the benefit from a cost and capacity standpoint of being able to reload an inbound carrier. We are starting to measure our effectiveness so we can evaluate how successful we are in this area.
Parry: To help manage our inbound activities, we are using a Web-based system called GC3 from G-Log. We now have visibility of all product orders from the time they are generated to the time they are received into our distribution facilities. We have been able to proactively share the information all along the supply chain with partners both internal and external to Giant Eagle. We have the process and tools in place to help our vendors become more efficient by having a single reference point for delivery information regardless of who is controlling the transportation.
Foster: We view inbound more from a "continuous move" or network perspective as opposed to single event. From that perspective, we envision significant improvement of our network and our partners’ networks as we propagate the new technology. Immediate results, although not as significant as the network optimization, include enhanced reporting, visibility/alerting and a significantly more flexible architecture supporting future growth and currently unanticipated needs.
Meister: We use the same traffic planning tools for a significant portion of our inbound and outbound freight. This ensures that we are taking advantage of all backhaul and continuous move opportunities that exist. Extending the planning window to view all possible shipments also helps keep freight continuously moving through our network.
Are you integrating inbound and outbound together to leverage rates continually across the entire move?
Johnson: We are beginning to do this at our DCs. We are also looking at integrating raw material trucks inbound to our plants into our DC loads.
Parry: Yes, on a limited basis. Because we are able to do business and share information across the Web, it opens up some opportunities to leverage the outbound and inbound moves. We are excited about expanding this new program. However, we have not been leveraging these activities on a large scale or engaging in this activity for a substantial amount of time.
Foster: First, our view is that integration of movement goes much beyond integrating just inbound and outbound. That is too limiting a concept. Also, as we seek to leverage the network, we don’t look at the end-game as leveraging rates, although the end result may appear to be just that. If our networks, and the networks across enterprises with our partners, are synchronized, then all partners should see efficiency improvements and shared benefits. Those benefits may be minimal for one partner on one particular segment, but overall the advantages should re-balance among partners as the entire network is optimized and the plan is executed.
The industry has talked for years about "collaborative" or "cooperative" transportation, but apart from the "trust" issues that appear to be for the most part behind us now, the key obstacle today is network synchronization, both internally and externally. Newer technology enhances the ability of organizations to develop synchronized networks. The caveat here, however, is that the implementation and configuration of those technologies is still a formidable undertaking.