Large companies have the benefit of volume and can often ship full truckload. For small and medium-sized companies to compete on price and service, consolidation programs can be a key mechanism for leveling the playing field.
I talked to Chip Nolin, the Director of Logistics at Seventh Generation, about a new transportation consolidation network they are using. This new network solution is helping them save money while improving service levels to their most important retail customers.
Seventh Generation, a mid-sized company based in Burlington Vermont, develops and sells environmentally friendly cleaning and personal care products. Given their environmental focus it is not surprisingly that they publish a sustainability report and take the task of reducing greenhouse gas emissions seriously.
Transportation costs are a significant contributor to the company’s total costs. “Inbound transportation is easier,” Mr Nolin said. “We can use truckload and even intermodal where possible to keep costs down.”
But the outbound side presents challenges. The company wants to continue to grow, so service – in terms of both on-time deliveries and shorter lead times – is critical. Better performance in on-time deliveries will also help Seventh Generation avoid chargebacks. However, as a mid-sized company they usually don’t have enough customer volume to ship full truckload (TL). “Seven pallets to a location are fairly common,” according to Mr. Nolin. Consequently, the company ends up shipping most of their products less-than-truckload (LTL), which is more expensive than truckload (TL) shipments, less reliable, and worse for the environment.
LTL carriers use a form of consolidation, in fact in Europe LTL is called “groupage.” LTL carriers use “hub and spoke” operations where small local terminals are the spokes (‘end of line’) and larger more central terminals are the hubs. Spoke terminals collect small amounts of local freight from various shippers and then consolidate those shipments into long-haul TL moves to hubs in other regions of the country. The receiving hub then sorts and cross docks LTL quantity shipments for local delivery. But LTLs make more money the more consolidation they can achieve. In many cases, LTLs are willing to delay scheduled shipments so that they can gather goods off a newly scheduled inbound load.
Traditional Hub and Spoke LTL Network
Seventh Generation’s supply chain involves internal product development, outsourcing of production to a contract manufacturer, and outsourcing of logistics to a Third Party Logistics (3PL) firm. Their 3PL is OHL. Seventh Generation has been doing business with OHL as their sole source 3PL since 2009. “This is a real partnership,” according to Mr. Nolin, “based on a long term relationship.”
OHL has helped improve their distribution network. Seventh Generation distribution takes place out of OHL distribution centers (DCs) located in close proximity to a dense cluster of Seventh Generation’s customer ship-to locations. This in itself helps Seventh Generation drive down total miles.
Seventh Generation is housed in OHL’s multi-customer warehouses. For example, in Cranbury, New Jersey they share warehouse space with another OHL consumer goods customer, located within an OHL “campus” that includes additional DCs with other consumer goods customers. This is campus model is what helps OHL drive consolidation programs for their small and medium-sized customers.
OHL has been helping Seventh Generation with a retail consolidation program. The way this program works is that OHL can combine less-than-truckload shipments from a variety of small and midsized consumer goods suppliers located on the OHL campus and then ship them full truckload to a retailer’s distribution center. This saves money for OHL’s customers, improves transit times, and helps to prevent the retailer’s yard from becoming too cluttered.
But Mr. Nolin was excited about a relatively rare type of consolidation network OHL has gotten them involved in. In this model, many small and medium-sized suppliers’ ship goods via LTL to a cross dock run by a rather unique LTL carrier. Like OHL, this carrier also specializes in serving consumer goods companies, but they are not willing to deliver to just anybody, like a typical LTL. This carrier is focused on making deliveries to high volume retailers. In situations where neither OHL nor this LTL carrier has enough volume to ship full truckload, they combine their volume to create better savings and service opportunities for both sets of customers.
This model can involve more complex routing. It is not just one consolidated TL shipment going to one retailer’s DC. Rather these can be multi-stop loads, where the carrier stops at a large pharmaceutical retailer’s DC and drops part of the load, then stops at another distributor’s DC and drops more of the load, and so forth until the truck is empty.
Mr. Nolin describes this as a “hybrid” network that is part traditional hub and spoke, like LTL networks, and yet also has components associated with the traditional retail consolidation model.
Using this new program, Seventh Generation is currently shipping to 37 retail DCs across 6 retailers. About half their SKUs participate in the program; and the SKUs include products that both cube out and weigh out. Mr. Nolin reports very good results, “average savings of 7.5%. And the savings are even bigger with smaller than average shipment sizes” (1 pallet vs. 7 pallets). Mr. Nolin also reports reductions a 20-50% reduction in lead time which has resulted in reductions in charge backs based on service improvements. This is a win-win-win: a win for Seventh Generation, a win for OHL (who has a happy customer), and a win for Seventh Generation’s retail customers.