Shippers take collaborative logistics to the next level by partnering on truck capacity.
By Eric Kulisch
Collaboration among suppliers and customers has long been an aspiration for logistics professionals that is easily talked about, but not always acted upon.
One of the latest trends in supply chain management involves competitors in various industry sectors working together to move products headed to the same retailers on the same conveyance.
It’s a practice known as collaborative distribution and is being tried by several sophisticated shippers as a way to reduce transportation costs, ensure transportation supply in a tight market and cut down their carbon footprint to demonstrate good environmental stewardship. And it goes beyond the decade-old concept of collaborative transportation perfected by logistics specialists like Dallas-based Transplace that manage truck lanes for multiple clients in a coordinated fashion to eliminate empty backhauls.
Instead of mixing networks, shippers mix their cargo on the same truck to avoid paying for whole trucks they can’t fill, or using more expensive less-than-truckload services.
Think of collaborative distribution like a bunch of people sharing a shuttle to the airport rather than taking separate taxis, third-party logistics provider Kane is Able says in a promotional video on its Website.
Despite its potential benefits, integrating different supply chains has been slow to take off, analysts say. Part of the reason is because companies are afraid to share information that could help a rival. But shippers engaging in multi-client consolidation are doing so to reduce cost in an area considered a non-value added part of their business.
In early October, two confectionary giants, Hershey Co. and The Ferrero Group USA (makers of Tic Tac mints, Ferro Rocher chocolates and Nutella hazelnut spread), announced the formation of a joint warehousing, transportation and distribution model to improve supply chain efficiency and competitiveness. Among their goals are reducing truck moves, fuel consumption and carbon emissions.
“This alliance does not encompass manufacturing, selling or marketing activities,” Hershey said in a statement, referring to core competencies that differentiate the companies.
The purest example of this truck-sharing concept is nicknamed the “Confection Connection.” It’s a partnership between Just Born, CandyRific, Godiva Chocolatier, Boyer Candy Co., Sorbee International and Brookside Foods that kicked into high gear in January 2010.
Just Born of Bethlehem, Pa., makes marshmallow Peeps, Mike and Ike, Hot Tamales and Peanut Chews brand candies. Boyer, Altoona, Pa., is known for its Mallo Cup. Sorbee makes a variety of hard candies. And Brookside is a small Canadian confectioner that specializes in chocolate-covered fruit-juice pieces and nuts. (Hershey announced on Dec. 8 its intent to purchase privately held Brookside.)
In interviews with American Shipper
, Joel Sutherland, the new director of the University of San Diego’s Supply Chain Management Institute, and Just Born’s Alan Sargent provided the back story on how the logistics relationship between several shippers evolved.
Sutherland helped create what eventually would become Transplace, a non-asset-based third party logistics provider, while working for motor carrier J.B. Hunt in the late 1990s. During a 30-year career he’s also held numerous logistics management positions for manufacturers and transportation providers such as Sealand Service, as well as provided strategic consulting services.
Shortly after joining Lehigh University in 2006 as director of its Center for Value Chain Research (CVCR), Sutherland said he was approached by Sargent, Just Born’s director of logistics, about the company’s desire to share warehousing space and trucking capacity with other shippers.
In 2007, Just Born engaged the Bethlehem-based CVCR as a consultant to develop a collaborative logistics process.
Ross Born, the co-CEO of the family run business, understood that small confectionary companies couldn’t compete effectively with giant multinational corporations like Mars or Nestle on transportation because they don’t have enough volume and frequency of shipments to effectively utilize truckload carriers in an era when retailers expect constant replenishment, Sutherland said.
Ross wanted to pitch the idea of a shared supply chain to other confectionary companies that were not direct competitors of Just Born.
The manufacturer’s incumbent logistics provider at the time was Kane is Able, which worked to help build the coalition.
By 2008, the CVCR had developed the software for Just Born and its partners to optimize their shipping operations.
The next year, Just Born bought a 600,000-square-foot distribution center previously used by electronics retailer Circuit City before it went out of business and converted it to a LEED platinum-certified facility, which opened in 2010.
Leadership in Energy and Environmental Design is a standard and rating system developed by the U.S. Green Building Council to minimize the environmental impact of buildings. It measures everything from energy and water efficiency, site selection, waste reduction, use of sustainable materials, and indoor air quality.
Just Born took over half the facility, located three miles from its manufacturing plant, and left the rest for its supply chain partners. Global logistics service provider OHL subsequently won a competitive bid, which included Kane, to run the entire facility for 10 years, as well as a three-year transportation management contract, Sargent said.
Part of OHL’s job is to find other confectionary companies to fill remaining space in the distribution center.
Just Born left the Kane facility and set up its own primarily for geographic reasons. Kane operates a big warehouse in Scranton, 75 miles north of Bethlehem and Just Born made a strategic decision to move its distribution center closer to its production source, Sargent said.
Kane also had 28 distribution points served by truckload that were used to transfer product to local cartage companies for store deliveries, but the Lehigh analysis showed Just Born only needed 22 drop locations, Sutherland said.
OHL, based in Brentwood, Tenn., has also developed a co-packaging service under which it sets up store-ready displays at the facility and delivers them to retail facilities.
Two years in, Sargent said the collaboration is going well, but could be better with more partners and more volume.
Boyer and Godiva are part-time participants that push loads to OHL when they need to share a truck. Sorbee and CandyRific “reside and ride.”
Sargent said he expects Hershey to move Brookside Foods into its logistics infrastructure.
Just Born worked with Fererro in a semi-collaborative manner through OHL, which managed a separate facility for the chocolate producer prior to the Hershey arrangement, he said.
“We’re seeing cost savings and cost avoidances in the low to high single digits. It depends on the week or the month,” Sargent said.
Meanwhile, Kane is Able tried to replicate the Just Born model for confectioners, but ultimately decided to integrate all of its food and consumer product goods customers that can’t ship in truckload quantities to retailers, Chris Kane, chief customer strategy officer, said.
The third-party logistics provider has developed a product — “Code Green” — aimed at pooling inventory and shipments on fewer trucks for middle-market consumer packaged goods manufacturers.
Kane is Able crunches all the shipment requirements in its system to create truckload shipments and divides the cost among the customers on the truck on a flat, per-pallet basis. The outsourced logistics provider says it converted more than 95 percent of Topp’s LTL shipments to truckload shipments, cutting its transport costs by 25 percent.
Topps is the maker of Bazooka bubble gum.
Kane said on his blog that “collaborative distribution holds the most cost-saving potential for middle-market companies that lack the volume to ship in more economical full truckloads.”
The new model requires manufacturers to keep inventory at a 3PL distribution center that receives orders, and matches and ships products from multiple companies that are going to the same retail facility. Retailers contribute to the effort by consolidating orders instead of having each buying group ordering separately.
The 3PL says multi-party consolidation can save suppliers up to 35 percent in reduced freight and storage rates.
Kane is Able’s 1 million-square-foot Scranton DC is tailored for the new service.
Among its customers is Sun-Maid Growers of California, which markets raisins and dried fruit. Kane consolidates its shipments for the mid-Atlantic and Northeast regions with products such as candy, pet food, condiments and other grocery suppliers. Shipments are entered into the 3PL’s transportation management system, which automatically builds full truckload shipments based on ship-to destinations and requested arrival dates, according to a case study on Kane’s Website.
Shippers only pay for the portion, by weight, of the truckload shipment that their products represent.
Kane claims that its consolidation program is better than that of its rivals because they lack the large concentration of CPG customers and have to hold small shipments until a full load can be built, potentially leading to stock-outs and other inefficiencies at the receiving end.
Kane said a major distributor took its recommendation and now consolidates orders for Sun-Maid products with several other Kane customers, creating a true collaborative supply chain.
Sun-Maid has experienced a 62 percent reduction in cost per hundredweight for outbound freight.
Truck manufacturer Volvo also engages in freight consolidation with dynamic “milk runs” from supplier to supplier to build truckloads that feed its U.S. production plants, Susan Alt, vice president of strategy and customer relations for Volvo Trucks North America, said at a freight sustainability summit hosted by the Environmental Protection Agency in mid-November.
Last September, Schneider National, the largest truckload carrier in North America by revenue, began marketing to shippers a shared-ride service on lanes with reoccurring shipments. The Integrated Delivery Service (IDS) is Schneider’s first full foray into the less-than-truckload sector, although the carrier has previously customized dedicated operations for some shippers in the past to haul partial shipments, Todd Jadin, vice president of IDS for Schneider Logistics, said in an interview.
Schneider said the service offering is especially suited to automotive aftermarket, heavy truck and equipment manufacturers, as well as specialty retailers that move LTL product on a regular basis.
The carrier is looking for companies with compatible networks that tend to run common routes and have similar products, distribution locations and dispatch schedules.
“It’s time-definite deliveries with essentially competitors putting similar product in a trailer. And we’re able to minimize road miles and drive efficiency into their distribution networks that they weren’t interested in doing previously” on a shared basis, Jadin said.
Schneider’s three primary advantages over regular LTL carriers are: predictability of service, with deliveries to a shipper’s location at a consistent time; lower cost from pooling deliveries; and less freight damage because dockworkers are handling the same product every day using the same loading configuration, he said.
Shippers can save 7 percent to 20 percent on freight costs based on their network’s location, the Green Bay, Wis., transportation provider said in a news release.
Schneider’s logistics arm tested IDS in Denver with 20 shippers of competing brands and now has about 50 to 60 customers at all eight of its cross-dock locations, according to Jadin. Several shippers use the service in multiple locations.
The other terminals are located in Portland, Ore.; Sacramento, Calif.; Los Angeles; Houston; Lenexa, Kan.; Jackson, Miss.; Winchester, Va.; and Memphis, Tenn.
Schneider essentially integrated the independent dedicated networks it operates from leased facilities and made the service available to the broader shipping public.
Markets targeted for expansion are Dallas/Fort Worth and Chicago.
Schneider uses its own trucks to run the IDS service, but will outsource to third parties as needed, Jadin added.
Southerland and other analysts say collaboration on outbound shipments has not reached its potential because of lingering distrust about protecting supply chain information from a competitor, and because setting up such a system takes a lot of hard work. Southerland said another challenge is that shippers have streamlined their organizations so much to ride out the recession that they focus on tactical matters and don’t have the expertise on staff to devote to strategic initiatives.
“Just Born said this is a matter of survival. Our product costs are going up all over, so we’ve got to cut costs somewhere,” he said.
The concept is being used more in Europe, he added.