When a company is looking to reduce their freight spend, while maintaining or improving service levels, there are two main paths they can take. They can buy and implement a transportation management system (TMS). Or they can outsource transportation planning and execution to a 3PL that provides managed transportation services (MTS).
I talked to Wietse Cornelissen, who works in the Global Customer Service and Logistics department, at Heineken, on August 28th. Then the very next day, I talked to Jordan Kass, the President of Managed Services at C.H. Robinson’s TMC division. TMC provides managed transportation services. The reason these conversations are linked in my memory, is that both Wietse and Jordan talked about achieving better savings by more tightly integrating transportation and inventory optimization.
Wietse is an internal consultant in the Global Customer Service and Logistics department. This department develops logistics capabilities which can be rolled out to the various operating companies within the Heineken organization. An operating company is essentially a country operation, which can have one or more breweries, depots and warehouses. Wietse is the Program Manager for the Global Freight Management Capability Program which was initiated and formalized in 2014. The vision of the program is to develop and implement advanced freight management capabilities, focused on improvements of the process, organization, and systems.
Heineken began a pilot implementation of an advanced freight management capability, using Eyefreight as the preferred TMS, in 2012 at their operating company in Romania. The drivers for this project were a desire to reduce their freight spend, improve customer order fulfilment, reduce CO2 emissions, and generate reliable logistics data that could be used to drive a more robust continuous improvement program.
In many ways, this was a fairly typical TMS project. The implementation took 9 months, with the strategic decision to have the Go-live after the busy summer period. The solution helped them reduce the distance trucks travelled by 15 percent, increase truck utilization (up 5 percent), reduce maverick spend by insuring the preferred carriers on a lane got the first opportunity to respond to tenders, and helped insure they were not overpaying carriers for their work by monitoring and approving route deviations (freight audit). In consequence, their freight spend went down 7 percent in the first year. Further, having a TMS in place has greatly helped improve visibility in key performance indicators, such as Perfect Customer Order and carrier performance.
But what was not typical about this implementation was the integration of dynamic order allocation into the transportation planning process. The dynamic order allocation functionality “is closely integrated with automated shipment planning. Eyefreight gives us the ability to dynamically allocate customers to breweries or to create stock transfer orders based on customer sales order mix and available stock levels at the various locations. This allows us to make strategic decisions about optimizing costs whilst maximizing customer order fulfilment.”
Because of Heineken’s success with this project, they are in the process of rolling this solution out to other operating companies while using greatly improved transportation data to continuously enhance their freight management capabilities.
The TMC solution set is on a similar journey. TMC offers a global TMS platform called Navisphere. Over the past year, Navisphere has been enhanced so that their platform can also offer order and inventory management managed services.
A few other 3PLs offer similar services. This is often an inbound freight management solution that is particularly popular in the Auto industry. In automotive, it is common that Tier 1 suppliers will have a Kanban warehouse in close proximity to an OEM warehouse so that the Tier 1 supplier can make just in time deliveries to the factory. The warehouse is tasked with keeping a specified amount of days inventory coverage in storage. 3PLs, in addition to doing the route planning, order the inventory when the warehouse inventory runs low.
But according to Jordan, what TMC is doing is more complex. “In automotive, the plan for every part (PFEP) process is kind of a holy grail. This is something that is more discussed than achieved.” To introduce a PFEP system, a company needs to understand everything about every part: How each part is purchased, received, packaged, stored, and delivered to its point of use. “PFIP is not easy. The demand for parts is cyclical. Materials replenishment sits separate and upstream from transportation in many companies. It is siloed. Transportation seeks to maximize the cube. To do that you have to look at the available inventory, customer demand, and transportation.” To achieve the lowest landed cost, at inventory days of supply needs at the warehouse to be adjusted regularly and transportation strategies – milk runs versus multi-stop deliveries – also need to be adjusted.
In conclusion companies, can lower their freight spend by working with a TMS supplier or a managed services provider. There is evidence that both types of companies are improving the transportation solve by jointly optimizing across inventory and transportation.