Last year the ARC Advisory Group did a study on the ROI a shipper would get by having their transportation managed by a third party logistics firm. In a managed transportation services (MTS) arrangement, a shipper contracts with a third party to plan and execute the shipper’s moves. Survey results indicate that MTS relationships are generally successful from both freight savings and service level perspectives. We’ve done similar research on transportation systems (TMSs). The savings and service improvements from MTS and TMS are very similar.
But does it have to be TMS or MTS? Why couldn’t it be TMS and MTS?
I talked to Bennett West, the Senior Vice President Supply Chain at the Filtration Group about his company’s approach to improving transportation. The Filtration Group knew that transportation was not a core competence for them. This company chose to have Redwood Supply Chain Solutions as both their MTS provider and TMS integrator. Redwood’s willingness to engage in a flexible, co-managed business process outsourcing relationship was a key reason they won the deal.
The Filtration Group is a pure play filter company with roughly one billion dollars in revenues. The company has both air and liquid filtration solutions. They also offer industry specific filtration solutions for the automotive and medical industry.
Filtration Group is owned by Madison Industries, a private equity holding company. The Filtration Group has made a series of acquisitions to gain scale, scope, and global coverage. Based on these acquisitions, the Filtration Group now has 19 brands, 20 manufacturing plants in North America, 6 in Europe, with single plants in South Africa, Australia, China, and Malaysia.
Many of these brands and plants were continuing to operate as distinct business entities; these brands were not capturing the transportation savings that a centralized approach to transportation could bring. Further, the different brand were using different IT and ERP systems. While they used financial performance management software to roll up financials from the brand level to the corporate level, no similar solution existed for supply chain analytics. A managed transportation services arrangement would give the company the centralized view of the transportation function they were lacking, and provide a base from which continuous improvement projects could be initiated.
To solve this, the company engaged with Redwood Supply Chain Solutions 16 months ago. Inbound logistics is almost fully outsourced to Redwood SCS (there are a couple of brands not onboard yet, but they will be in six months); Redwood’s planners plan, tender, execute, and audit all inbound shipments to all US plants.
The Redwood SCS’ SaaS transportation management system comes from the best or breed software company MercuryGate. Redwood combines this TMS with a proprietary middleware layer to enable a faster, more seamless integration between a shipper’s existing systems and their MercuryGate TMS instance. Further, SCS’s middleware not only acts as a B2B layer, it also enriches Filtration Group’s data with third-party market data for enhanced planning.
On the outbound side, there is a shared operational process for managing outbound shipments from a factory to a Filtration Group distribution center. The TMS has been rolled out to these factories, where personnel have been trained on how to use the system. Redwood SCS managed a multimodal procurement process and created the routing guide that factory personnel use. But the factory dispatcher actually makes the final decision on which carrier to use, schedules and executes the load. Redwood then manages the shipments, handles automation exceptions, audits freight invoices, pays Filtration Group’s carriers, and provides analytical services.
This hybrid arrangement is partially driven for cultural reasons. On time deliveries are critical, and factories did not want to give up this responsibility. According to Bennett, “there is only so much change you can push through at one time.”
The managed services arrangement has led to savings in transportation; a conservative estimate is an 8% reduction in freight spend. But because the manufacturer lacked good data on the transportation function, Bennett can’t say exactly how much they have saved.
As a next step, the Filtration Group is exploring Redwood SCS’ warehousing solutions in order to get the same kind of centralized visibility into the distribution function that they have in transportation. The company also wants to see whether there are any synergies from integrated logistics – warehousing plus transportation – that are not present when these functions are run as silos.