Transportation Management Systems (TMS) were initially designed to handle the complexities of outbound shipments. And to this day, companies are still far more likely to implement a TMS to reduce outbound freight costs than to manage inbound or international moves.
I realized just how complex inbound transportation can be when I spoke with the North American Director of Logistics at a Tier 1 automotive company. This company has suppliers scattered all over Mexico, the US, and Canada, and it has several factories across North America (mostly in the Midwest, but some in the South and Southwest too). The company has cross docks at the US-Mexico border, as well as the Midwest and Detroit. Each cross dock serves multiple factories.
The company’s key goal is to optimize trailer capacity to reduce the number of miles trucks travel to and from its factories, with a particular emphasis on having fully cubed trucks moving from the cross docks to the factories. As a lean manufacturer, the company also aims to adhere to lean principles, starting from pickups at suppliers, scheduling at cross docks, and deliveries to factories.
This manufacturer has taken responsibility for planning the inbound moves from its suppliers; it manages the trucking schedules, routes, and carrier base. If there is sufficient quantity, a full truckload (TL) may move from a supplier factory straight to one of its factories. However, because the company is a lean manufacturer, this happens mainly for very bulky materials. More frequently, the company plans “milk runs” and less-than-truckload (LTL) moves from the supplier to a cross dock, combining freight destined to multiple factories to ensure maximum truck utilization and enable the highest possible pickup frequency. At the cross dock, the components from different suppliers are recombined into a TL shipment for a plant or multiple plants. Inbound and outbound times from the cross dock are aligned so that no freight ever waits more than 24 hours.
Deliveries from Mexico add another step to the network. Goods are delivered to a drayage company that ferries the goods across the border. The goods are then picked up again by a carrier on the other side of the border.
To add more complexity, sometimes a cross dock in the South will take goods from the Southern US, combine them into full TLs, and then send that full truck up to a cross dock in the Midwest. Finally, there is also real time communication between suppliers, carriers and factories to handle exceptions and help ensure that a material shortage at one factory does not shutdown downstream factories dependent on those materials.
So there is a lot of complexity associated with combining LTLs into TLs: border drayage, merging components from different trucks at cross docks into a new shipment, multi-stop deliveries from the cross dock, and shipments between cross docks. This is actually more complex than what the largest CPG companies are doing.
The company looked for an off-the-shelf TMS solution to accomplish this, but it was not happy with the options available, so it elected to have Agillence build a solution for them. Agillence is now looking to sell this solution to other companies.
I said “solution,” but this was really “solutions.” Agillence uses its consultants to look at the entire inbound network – all the routes and the carriers used on those routes – and rebalances it on a quarterly basis. This quarterly design is done using an inbound optimization solution Agillence developed for Toyota. The manufacturer also outsources the operational planning, done on a weekly basis, to Agillence.
The Director of Logistics told me the hardest part of the implementation was the “data piece.” The company had to get all of its packaging and parts loaded correctly into the master file. The dimensions for each part had to be correct. This process took three to four months. It took another two months for the TMS implementation. This is actually a very quick implementation considering the complexity of the problems the company is solving.
Where there is complexity, there is greater opportunity to save money. The Director of Logistics said this implementation has allowed his company to reduce its freight costs by ten percent. In ARC’s research, less than a quarter of all TMS implementations achieve freight savings of 10 percent or more. For a company as big as this Tier 1 supplier, this likely translates into tens of millions of dollars in annual freight savings.
Greg Riemer says
It’s great to see another large scale supplier understand the value in controlling inbound transportation. Without visibility to inbound freight and process, it is difficult to identify and influence the process gaps that cause variability in your supply chain. With suppliers in Mexico, the US, and Canada I will assume another area that was impacted was their customs process.
Hi Steve. Very informative.
Do you have some sample cases of Inbound Freight Management strategies adopted by Auto companies?