Members of the Truckload Carriers Association take the simple, direct approach to finding out what shippers really want. They ask.
At one of the keynote sessions during the TCA annual meeting in Las Vegas, Nevada, March 6 to 9, 2005, the association gathered representatives from five major shippers for a roundtable discussion on how to develop winning distribution strategies. Thom Albrecht, a noted securities analyst and managing director of Stephens Inc, moderated the panel.
Throughout the 1990s, Target Corporation worked to reduce the number of core carriers under contract to the company, at times even experimenting with sole sourcing to some facilities, according to John Bauer, manager of the Business Partner Management Group for Target Corporation. However, as transportation capacity has tightened, Target is working to expand that core carrier base. In the last two years, the company has added at least a dozen strategic partners to its transportation capability. The purpose is not so much a matter of expanding the core carrier group as it is a matter of optimizing transportation opportunities and finding the right carriers for the right lanes, he said.
Making sure that carriers selected for the core carrier group can provide the service necessary to protect the Target brand name by making sure stores can maintain sufficient inventory is critical to carrier selection, Bauer said. To this end, the company pays particular attention to potential carriers' safety records and to their financial condition. “We want to make sure we are aligning ourselves with partners who have the same concern for their brand and our position in the market as we have,” he said.
Protect both parties
Clorox has begun defining the concept of core carriers more carefully, said Mary Robinson, director of transportation for The Clorox Company. The idea is to put requirements and responsibilities into the contract language as a way to protect both parties to any transportation transaction. Clorox has maintained a stable number of carriers in its core group; however, the company has a rigorous process for defining what its needs are and which carriers meet those needs, she said.
Kraft uses its core carrier group as a tool to take inefficiencies out of the distribution system, Tom Domanski, director of transportation operations at Kraft Foods Inc, said. The company looks at new carriers carefully and adds to the core carrier group when a carrier makes a proposal that can add value to the Kraft supply chain, he said.
Some shippers have begun to look at dedicated carriage as a solution to potential capacity shortages. Clorox began looking at dedicated operations in 2004 and will probably add dedicated carriers in 2005, Robinson said. The key is to analyze distribution patterns carefully to determine where the best opportunities for dedicated operations exist. Once a dedicated fleet is put in place, it must remain operational for a lengthy period. At the same time, dedicated fleets must be tightly managed, not just allowed to run by themselves, or they will run the system into the ground, she said.
Increased dedicated operations
Dedicated transportation plays a big part in the consumer products operations at Georgia-Pacific. The company increased its dedicated operations by 60% in 2004, Kevin Curry, vice-president of operations, Georgia-Pacific Corporation, said. That is possible, because the company has the software to make management of dedicated operations much smoother than it once was. In other Georgia-Pacific operations, dedicated transportation is hardly used at all for building products, but is a big factor in moving packaging products, because those moves are almost all short hauls, he said.
Dedicated fleets require a certain amount of shipper infrastructure for good management, Domanski said. That means people and software. One of the critical factors in dedicated fleet management is to fill empty miles in the system. Dedicated fleets cannot be considered if all they do is add weight in terms of cost and complexity to the distribution network, he said.
As a way to secure adequate capacity, Georgia-Pacific favors dedicated carriers and its core carrier group, Curry said. The company does not operate private fleets, nor does it like sourcing transportation through brokers. Intermodal service remains an option that Georgia-Pacific would like to develop. “In some instances, intermodal service looks like the most desirable option, but turns out to be the least optimal in terms of delivery to customers,” he said.
Core carriers provide coverage
Core carriers are the preferred service providers for ILS, said John Spradling, traffic and operations manager for Integrated Logistics Solutions. Core carriers give the company confidence that its lanes are covered. The company has held extensive meetings with its core carriers to establish pick up times and freight volume. Dedicated fleets are not part of the strategy at ILS, he said, but the company does feel that intermodal service offers the potential to ensure adequate capacity if the driver shortage becomes more critical, he said.
Spradling said that ILS believes the driver shortage may be a long-term problem stretching over the next five years. While intermodal service looks attractive, it may not be an ideal solution, because service providers may not have enough chassis available to meet demand, he said.
Because Target is a retail business that experiences significant seasonal variations in volume, it needs to expand in every transportation mode available, Bauer said. The company will work to make more use of its core carrier group and dedicated carriers. “Target currently has more than 1,000 dedicated trucks and 5,000 of our own trailers,” he said. “Intermodal service grew by 15% in 2004 with the company moving more than 150,000 intermodal shipments.”
More brokers for Clorox
Core carriers are the first choice as transportation providers at Clorox, Robinson said. Clorox is willing to use brokers to move freight and has recently expanded from using a single broker to a group of four brokers. Brokers have to earn business from Clorox, she said, because service is the critical factor in broker selection followed by the price.
One of the advantages of using brokers is the ability to load trailers for drop-and-hook operations, Robinson said. The goal throughout Clorox is to minimize the percentage of live loading in the distribution system, she said.
Kraft started a program more than 18 months ago to familiarize receivers with changes that would be necessary for carriers to comply with the new hours of service regulations, Domanski said. The company put together an educational program for the entire supply chain, including suppliers to Kraft, the Kraft sales organization, Kraft distribution centers, and Kraft customers. The goal was to avoid losing transportation capacity as a result of the new rules. “We wanted to help take inefficiencies out of our carriers' networks and our own network,” he said. “The result has been a program of efficient dock management recently announced to our customers. The centerpiece of this plan is to provide incentives to receivers to unload trailers within two hours provided that the carrier shows up on time. At the same time, we have an internal score card to make sure that our internal distribution centers are efficient and get carriers away from our docks on time. Having trailers loaded and ready for carriers to pick up and leave is a great help toward ensuring on-time delivery.
“Kraft has a private fleet that makes pick-ups and deliveries to our plants just like outside carriers. The drivers in that fleet provide a valuable window for looking at the effectiveness of our operations.”
Penalize poor performers
“We don't have any incentive plans,” Spradling said. “We do, however, have a penalty for our branches when they incur detention charges. Nothing gives a branch manager an incentive like the potential for getting hit in his pocket. In their attempts to be efficient, carriers can actually cause problems. Arriving early for an appointment is no guarantee of quick unloading. In fact, arriving before the scheduled appointment can cause congestion at the receiving dock. While we are working to reduce the amount of detention we could be liable for, we also are trying to put a stop to early unloading. In our current system, a carrier arriving for early unloading needs prior approval.”
Target has taken a two-pronged approach to carrier and receiving dock efficiency. The company has implemented certain punitive measures to help with behavior modification on the dock and to reward carriers for providing the service they promise, Bauer said.
One way to combat the driver shortage is for shippers to plan more efficiently to move more product in fewer loads.
Clorox is looking for ways to grow without requiring significant additional transportation capacity, Robinson said. For instance, a company that depends on sales for its livelihood cannot control the need for outbound transportation. “We can, however, control our use of interplant shipments,” she said. “The result is more shipments directly from the plant to the customer, cutting out the need for intermediate moves from manufacturing to forward warehouses. The goal is to conserve trucking capacity so that it can be used for delivery to customers.”
In absolute terms, ILS sees the need for more loads and as a result will need more hours from drivers, a situation that can only require more drivers, Spradling said. If the core carriers cannot handle the business, the company will probably look to brokers to expand its available capacity. At the same time, ILS has closed 22 branches since 2003 and is actively seeking to move more loads directly from plants to customers.
Georgia-Pacific wants to increase the number of shipments it can make directly to customers, Curry said. The goal is to reduce transportation miles per case throughout the supply chain, he said.
Intermodal transportation provides a good opportunity for Clorox to increase its available capacity and to control costs, Robinson said. The real key to making intermodal service work is finding providers that can provide consistency. This is especially important for Clorox, she said, because most of the time the cost of transportation exceeds the cost of the product.
Fully half of Target's truckloads spend some times on the rails, Bauer said. However, the railroads are beginning to experience some of the same capacity crunch that highway carriers are seeing. The rails can probably handle an increase of 5% to 10% more volume with the capacity they have in place. As rail capacity is absorbed, the pricing differential between rail service and highway service is beginning to converge, he said.
The railroads are having to begin to rebuild their infrastructure, Domanski said. Much of their equipment needs to be replaced. They have an aging workforce that needs to be retrained and, in many cases, replaced as workers retire. All of these factors can have an impact on service. The result is that Kraft will not increase its use of intermodal transportation at the cost of reduced service, he said.