CSCMP 2014 Breaking the Barrier to a Lower Cost Inbound Logistics Program

Breaking the Barrier to a Lower Cost Inbound Logistics Program

Bill Michalski, ArrowStream

Steve Hobbs, US Foods


Agenda• Barrier? What Barrier?• What it Means for US Foods• How To “Break on Through”• How Did US Foods Succeed and What Did They

Learn?• Implications for the Future


Barrier? What Barrier?

Why Do We Manage Inbound Freight?

We manage inbound freight if we are better positioned than our

suppliers to move this freight efficiently• Volume Leverage

• Network Density

• Backhaul

• Logistics Expertise

• Carrier Relationships

Supplier’s Freight Allowance

– Your Cost

Logistics Savings (or freight margin, or cost reduction, or…)

How Do We Maximize Inbound Freight Savings?

• Carrier Sourcing / Negotiation

• Consolidation– Multi-stop routes

– Mode Shift from LTL to Truckload /

Intermodal

– Cross-dock / Pooling / Redistribution / 3PL

• Backhaul/Fleet Utilization

Reality Check: These are logistics tactics based solely upon network size and volume. None are Inbound Logistics tactics.

What Makes Inbound Logistics Different?

• The company that is managing the freight also manages purchasing

• Why is this important?

The size, timing, and frequency of purchase orders are the single biggest determinants of inbound freight cost

• 4 trucks, Avg. 99 % Filled• $6150 a month• 2900 miles a month

Case Study: Creating Better Consolidations

Current Replenishment Pattern

M T W R F M T W R F M T W R F M T W R F

New Replenishment Pattern

M T W R F M T W R F M T W R F M T W R F

• 6 total inventory turns • 8 total inventory turns

90 %

90 %

45 %

55 %

40 %

75 %

1,980 cs

1,980 cs

992 cs

1,210 cs

880 cs

1,650 cs

Origin 1

Origin 2

990 cs

990 cs

990 cs

990 cs

1,183 cs

1,183 cs

1,183 cs

1,183 cs

99 %

99 %

99 %

99 %

Chicago, IL

Indianapolis, IN

Atlanta, GA

• 6 trucks, Avg. 67 % Filled• $7700 a month• 3600 miles a month

Reduced Freight Cost by 20% Increased Turns by 33% Reduce Dock Congestion Increased trailer utilization Reduced emissions by 19%

The Buyers do this…so Transportation does this. We set a new plan…that reduced inventory AND freight cost.

Current State

New Order/Route

Plan

The Barrier

The barrier to a lower cost inbound logistics network is ineffective coordination between

purchasing and logistics teams


What It Means for US Foods

Inbound Logistics at US Foods

US Foods Network

• 345 million cases / 7.8 billion pounds of product transported

• Freight visibility over 50,000 lanes

• 12,000 weekly POs / ~3500 IB loads per week

• 5th largest US private fleet in the country– 5200 tractors, 6500 trailers, 320 straight trucks

• 60+ Divisions in 8 regions60+ Distribution Centers 5,000 Supplier Ship Points

How was this opportunity initially pursued at US Foods?

• Blueprinting Program– Began in 2007– Centralized logistics planning team– Finding solutions in Excel– Working with Purchasing at local level to determine and

convert lanes to managed– Blueprints built to establish buying patterns that would

drive equipment utilization

Some Challenges Faced

• Reached plateau in finding new managed freight opportunities – 52% managed– Unmanaged freight without profitable solutions– Previously identified solutions fall apart without constant review– Constantly changing network causes rework to maintain freight under management

• No single process and communication tool to develop and initiate solutions– Measurement of the process – throughput, yield %, errors, etc– Systematic measurement of incremental opportunity for the network– Multiple spreadsheets and process flow, multiple groups working independently

• Difficulty in maintaining a regular process improvement focus– Exception alerts for shipment not meeting target to fix prior to tender– Regular reporting against targets action immediate development of new solutions– Root cause reporting to rationalize behavior changes to maintain margin

OMS TMS

Initial Process

Ordering Guidance

• Business Rules• POs• Inventory• Sales• Supplier Master• Item Master

• Shipments• Carrier Rates

Orders

5. No tracking of freight margin vs. plan

6. No feedback loop to address issues

Buyer Transportation Planner

Logistics Planner

Sales

CommitmentsLoads

Tendered

3. No visibility if plans are being followed4. No ability to correct course

1. Solutions found manually – one lane at a time

2. Based on partial/aging data

OMS TMS


How to “Break on Through”

What Do We Need to Get This Right?

• …and change course as needed.

A continuous planning process…

• …spanning both teams,

• …supported by full and timely information visibility,

• …supported by rapid analysis tools,

• …embedded within the execution process,

• …so we can monitor behavior,

• …measure results,

Bridging the Silos: Recommended Process

• Business Rules & Constraints

• POs• Inventory• Sales• Supplier Master• Item Master

• Shipments• Carrier Rates

Buyer Transportation

Logistics Planner

Sales

CommitmentsForecasts

LoadsPlanned

OrdersOrders

Master Data(Integration)

Rates(Integration)

SaaS Technology “Bridge”

MeasureImpact MeasuredCorrective Action Tracked

Shipments

Improve

MonitorNon-ComplianceAdjust to preserve margin

Corrective Actions

Corrective Actions

Planning

OMS TMS

Ordering Guidance

Order

Routing Guidance

Load Tendered

PlanOptimal flow plan that balances inventory and transportation costs


How Did Us Foods Succeed and What did they Learn?

The US Foods Journey

• 2012 live pilot– size the opportunity– define the process– define roles

• 2013 phased rollout– new freight conversions– managed freight optimization

• 2014 network-wide

full monitoring and measuring

Results

• Full adoption of continuous planning process by cross-functional, cross-division team

• Increased freight under management beyond previous ceiling

• Exceeded goals for increased savings on existing freight

Keys to Success

• Communication

• Engagement

• Accountability

Advice to Others

• Phase it out, and start simple– “Restack the blocks”– Roll out by location

• It’s not just about managing more freight, it’s about managing the right freight– Analysis must keep up with the changing business– Find alternate solutions for lanes falling short

• Solutions that fail are almost as valuable as those that succeed– Expose real limitations vs. perceived limitations– Assign costs to behaviors/decisions

Advice to Others

• Tap into your Tribal Knowledge– A structured communications platform breeds a healthy

supply chain that learns from its mistakes

• Understand process backlogs– Build response time accountability– What gets measured, gets done


Implications for the Future?

Where We’ve Been

• Connected but separate

• Defined by our system footprint

• Competing incentives

• ERP creates consistency, but not enough coordination

The result:

• Inefficiency, higher cost

• Difficulty in executing supply chain planning

Purchasing / Inventory Mgmt

Purchasing / Order Mgmt Inventory Mgmt System

Transportation

TMS

Warehouse Mgmt

WMS

Sales

Demand Planning / Forecasting

System

ERP

Where We’re Going

SaaS-based Bridge Solutions• “Connectivity” is not enough

• “Visibility” is not enough

• “Collaboration” is not even enough

This type of process/personnel alignment requires:

• Cross-functional planning and execution– Continuous planning

– Today’s rapid communication support

– Live monitoring of execution vs. plan

– Performance measurement on the common objective

– Workflow to correct course

• Software-as-a-Service (SaaS) model– quickly deployed

– small IT investment

– without supplanting or changing existing systems

– evolving with the business

Planning

Execution

Silo 1 Silo 2

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CSCMP 2014 Breaking the Barrier to a Lower Cost Inbound Logistics Program