Business case for TMS
TetraPak uses C.H. Robinson’s system to increase payload efficiency, gain visibility.
Global shippers keen on upgrading their transportation management processes often face an unwelcome dilemma — their appetite to improve or establish a global platform is not matched.
A key bridge to cross the gap between need and investment is clearly defining the return on investment a company expects to get out of using a new solution, according to speakers on a C.H. Robinson webinar in September.
The webinar described how TetraPak, a Sweden-based manufacturer of food packaging products, decided six years ago it needed to invest in a transportation management system (TMS) to support its growing global supply chain.
While TetraPak ultimately chose C.H. Robinson’s TMC managed services TMS platform, it had a clear idea of what it wanted to get out the system it chose.
“We had no visibility in our supply chain, no ability to connect electronically to carriers,” said Kristian Malm, logistics manager for TetraPak. “Logistics costs were on the high side and increasing.
“Prior to having managed TMS (which C.H. Robinson dubs its Logistics Control Tower), in general we had good control when it was under our internal management, but when we started to interact with other stakeholders in the supply chain, such as carriers and forwarders, we gradually lost control. We lost visibility after product left our facilities. This made it hard to improve our logistics costs and services for our customers,” Malm said.
In envisioning what TetraPak wanted to get out of having in a TMS, the company identified a number of areas, but focused specifically on two: increased payload efficiency and global visibility.
“As we built the business case and return on investment, we were very pragmatic about our targets,” he said.
And that’s a crucial starting point for companies unsure of whether they can tackle the related integration, said Rick Kapsner, executive director of business development for C.H. Robinson.
“TetraPak identified the opportunity drivers, and the recipe is generally the same for everybody,” he said. “What do we want to accomplish? What are we doing today? How does what we want to accomplish compare to what we are doing today, and what value is there in that change? What order should we go about doing it? Somebody needs to lead this, and somebody needs to own the development of the business case. That’s exactly what happened with TetraPak. In TetraPak, you had a mature organization in terms of building the business case, but many times a company hasn’t reached that stage.”
Kapsner said C.H. Robinson can aid prospective customers early on in the business case development process in constructing a return on investment proof.
“They statistically want to prove that our solution can help them achieve cost savings,” he said.
American Shipper research from the most recent International Transportation Management Benchmark Study in late 2012 showed that about a quarter of respondents were not using a system at all to manage their global shipments. Around 20 percent of those respondents said they have budgeted to buy a solution in the next two years, and another 20 percent have it in their five-year plans.
In other words, it’s likely many shippers find themselves in this phase.
Tetrapak’s decision to go with C.H. Robinson’s managed TMS offering, versus a pure cloud-based or licensed TMS, was influenced by its experience managing its SAP enterprise resourcing planning (ERP) system.
The company implemented the ERP in the late 1990s, and while Malm admitted it transformed Tetrapak into a process-oriented organization, logistics was not a focus area during the implementation.
“We struggle in keeping up with all the new features of our SAP system,” Malm said. “We own it, but it’s hard to keep up with all the new features coming in. This is what we thought with the TMS going in.”
TMC is a division of C.H. Robinson, leveraging the company’s TMS (called Navisphere) with internal expertise. TMC operates from four global “control towers” in Chicago, Amsterdam, Mumbai, and Shanghai. The concept is not new — C.H. Robinson said it’s been offering the service for more than a decade, while other third party logistics providers and even TMS vendors offer their own version.
“The implementation is focused on technology configuration, it’s not about writing code customized to individual customers,” Kapsner said. “During the implementation, we talk about what features are in scope and how will they be used for you. It’s a low-cost investment upfront with a pay-as-you-go model. Combining the technology with the expertise is where we customize the solution.”
Kapsner said the key milestones are planning, execution, measurement, and improvement.
“What are the financial savings opportunities?” he said. “What TMS features are in scope, what operational work needs to be done, and who needs to do it? How to translate the opportunity we identify into the future plan, and how do we enact that change? Clients want to be able to save immediately while also being able to evolve the solution at the same rate as their own company changes at.”
TMC currently has 45 customers whose annual freight spend ranges from many millions to hundreds of millions of dollars. TMC collectively is approaching $2.5 billion in freight spend under management, and 4 million shipments annually. All major transportation modes are supported.
For TetraPak, TMC covers 130,000 shipments, $185 million in freight spend, 5,000 unique lanes, 230 carriers, and 20 currencies. The platform initially went live in 2009, but Malm said the deployment is not yet complete. TetraPak is expanding it to 24 more locations.
As for the benefits — the one identified in the company’s business plan — payload efficiency has increased 10 percent, “which is a considerable amount of money in our business, where there is a lot of pressure on cashflow,” he said.
The gains in visibility are harder to quantify, but present.
“Now we have a process where we can communicate with all stakeholders electronically by connecting to only one partner, with visibility from start to end for all modes on one global platform,” he said. “We have clear roles and responsibilities that were not there before. We have strong compliance to our carrier agreements that we didn’t have before. And we can follow a deviation and analyze any impact on cost or performance. We have one truly global process with clear procedures, one that allows everyone to use the process the same way every day, whether you are an experienced user or a new user. And we have true landed cost analysis on all products on a global scale.
“We have gone from pure shipping to supply chain delivery, with increased performance, allowing our customers to serve their customers in a much better way,” he added.
Malm said the equivalent of two full-time employees was engaged in the process implementation (far less, Kapsner noted, than were required for the admittedly broader SAP ERP implementation).
Malm was asked what TetraPak may have done differently if it was to go through the process again today.
“Of course you can always do things better the second time,” he said. “It’s like a tennis player, with a second serve they always do better. When rolling out, we had every country and every factory supporting a global business case. But in some of those locations, it didn’t make sense. But we had to revisit the business case every time we went to a new region. Today, we’d take this as a central business case, paid from a central point of view rather than paid from the local entities around the world. More from an investment perspective than a transactional perspective.”
Companies are facing fierce competition, new markets, and mounting expectations from their customers — in effect, a mandate to invest to keep up with their competitors.
“Transforming the supply chain from a cost center to a competitive advantage sounds great but how can it really be done is the real question,” Kapsner said.