It’s still possible to save costs within the supply chain if you know how to go about it explains Tim Fawkes of transport management company 3t (www.3t-europe.com) using the example of the company’s work with international manufacturer LINPAC Packaging.
Steadily rising fuel costs and their impact on the supply chain remain a serious concern for many companies operating across a range of industries, from hauliers through to manufacturers. In this tough economic climate it goes without saying that no one can afford to waste money; yet most companies concentrate their cost saving measures on the production line when they should also be looking further down the supply chain – at their logistics procedures.
All the companies that I work with are looking for ways to save money – that’s why they come to us – and most of these have already identified logistics as an area where potential savings can be made. However, very few of these companies know where to start. In fact, a recent survey we carried out amongst transport managers revealed that over half the respondents felt that negotiating better rates with suppliers was a viable solution to their problems. Whilst this sounds logical in theory, the reality is somewhat different. The Freight Transport Association estimates that operating costs for rigid, articulated and drawbar vehicles rose by 6.2% in the 12 month period from October 2010, whilst the costs passed on have only risen by 2.8%. With hauliers already absorbing much of the recent price increases, it is unlikely that they will be able to cut margins further – and remain in business. So what can transport managers do about these rising costs if renegotiation is not an option?
Proactive not reactive
Ultimately, organisations need to be much more proactive in managing and reducing their transport costs. And whilst the economy looks set to remain unsteady for some time to come, one major advantage that we have access to now is the fantastic array of technology available to help monitor and manage transport processes efficiently.
Unfortunately, there is a common perception that cutting costs inevitably leads to reduced levels of service and will impact negatively upon the customer, which few companies want to risk. However, the good news is that if the right measures are put in place, this doesn’t have to be the case – in fact the opposite is usually true. As a transport management expert with over 20 years’ experience working with a variety of industries, I can personally testify to the fact that cost saving measures usually result in more efficient systems, offering improved levels of customer service. Our work over the past five years with international packaging manufacturers LINPAC Packaging proves that costs can be cut at the same time as improving efficacy and client experience.
The LINPAC example
Originally set up as Lincolnshire Packaging in 1959, LINPAC Packaging has evolved into a major player in the global packaging industry. The company forms 70% of the whole LINPAC Group and operates across a wide network of 16 manufacturing sites and 23 sales operations, servicing 37 countries worldwide. With a range of over 10,000 different products and customers across the world, the company certainly has a complex set of transport needs.
LINPAC has always placed a strong emphasis on high quality customer service. Recognising that changes needed to be made in order to grow their market share and increase profitability, the company was determined that these changes should benefit customers as well as their balance sheet. LINPAC felt that they needed expert independent help to manage the long term process properly, and so first called in transport management specialists 3t Logistics (www.3t-europe.com) in 2007. The company was given the brief of assessing LINPAC’s current logistics systems with a view to identifying where changes could be made, and then managing and monitoring these changes.
Counting the costs of regionalised inventory
At the outset of the project, the LINPAC operation included two main distribution centres, a dedicated vehicle fleet and five satellite depots in the UK, all with their own staff, stock and vehicles. Whilst this enabled the company to provide a high level of service for its customers, it came at a price, making the supply chain more expensive than it needed to be. The system also offered considerable scope for increasing efficiency and variability.
The key objectives of the LINPAC project were:
1. To reduce transport costs through improved vehicle utilisation and reduced empty running.
2. To reduce inventory through centralisation of all stock in one location.
3. To reduce administration through the automation of communication and processes and reducing non-standard transport requests.
4. To increase visibility and levels of communication within transport processes
alongside the introduction of continuous improvement mechanisms.
Identifying areas for improvement
The first stage of the project involved learning about the current transport processes combined with the company’s needs and requirements. After the initial period of assessment which used specialised software designed in house by 3t for the purpose, several key areas for improvement were identified.
One of the first tasks was the centralisation of stock which involved withdrawing from LINPAC’s satellite sites. The company’s in house fleet was also outsourced to carefully selected, high quality shared user carriers. This significantly reduced operating costs, whilst the establishment of a new nationwide delivery network with their carrier partners allowed goods in the UK to be delivered on a next-day basis, ensuring maximum efficiency and the maintenance of speedy customer service.
The 3t system now holds the LINPAC parts database and all orders are filtered through this tool to gain precise order sizes and allow the most accurate load utilisation possible. The booking system enables operatives to enter order numbers onto a booking slot on the web portal which then auto plans shipments through the system and builds loads for LINPAC, feeding through to the despatch screen. This means that all orders to be loaded are `under one roof`. The despatch screen shows which loads are due out by carrier, plan number, time and bay. There is also a facility to log arrival, loading and departure and colour code the screen which allows live progress checks.
The range of cost saving procedures implemented so far include:
• Optimal transport diaries
• Advice on minimum order quantities
• Visual interfaces of upcoming loads and their present status, enabling better despatch planning
• A parts database to enhance vehicle utilisation
• Order tracking by status up to delivery
• Online POD provision.
• Full cost to serve transport management reports
Monitoring progress and meeting targets
LINPAC also now use key performance indicators (KPIs) that are measured against and reported on daily, helping to ensure that delivery service levels in excess of 99.5% are maintained. This transport excellence programme has become part of LINPAC’s European best practice approach to transport management and has been rolled out to other LINPAC operations, including those in France and Spain. The weekly KPI report includes targets for each of the following:
1. Deliveries on time – Percentage of total deliveries where arrival is less than 30 minutes late.
2. Cost per m³ – Gross cost per despatched unit.
3. POD upload rate – Percentage of PODs outstanding beyond the service level as defined within the MOP for each site. The report provides a snapshot, as well as identifying the level of compliance against the measure documented in the MOP.
4. Collection on time – Percentage of total collections where arrival is less than 30 minutes late.
5. Delivery confirmation compliance – Percentage of delivery confirmations received within 30 minutes of the delivery window closing time.
6. Vehicle utilisation – Total vehicle utilisation expressed as a percentage.
7. Issues as a percentage of shipments – Count of issues as a percentage of total shipments.
Meeting environmental targets
The government has clear targets for companies designed to help meet the 2025 target of reducing the UK’s carbon emissions by 50%, with sanctions for those who fail to take action. Whilst these targets may seem a long way in the future, businesses need to start putting measures for monitoring and tackling the issue in place now. As a group, LINPAC is committed to reducing CO2 emissions throughout the production line and supply chain, aiming to create a closed loop packaging process. With the ultimate goal of positioning themselves as the most environmentally aware packaging organisation in the UK and Europe, LINPAC has taken on board specific strategies to reduce their carbon footprint. The company is now able to calculate emissions via government formulas and uses this data to implement measures to significantly reduce transportation carbon dioxide emissions – by up to a third in some cases – ensuring that LINPAC is well placed to meet any future targets.
Chris Horton, VP Operations at LINPAC Packaging feels that the changes have had a significant positive impact on both the company and its customers. "By taking a continuous improvement approach, we are able to ensure that we are continually challenging the decisions that affect our logistics costs," he comments. "Our transport management partner has constantly provided savings initiatives to help drive out waste in the supply chain, enhancing service provision through the ongoing development of a dedicated transport management system, all whilst ensuring that customer service levels were not only maintained but improved upon."
LINPAC Packaging is now looking to the future, and despite the savings already made, is optimistic that even more can be done to enhance efficiency within their supply chain. Areas that have been identified for future attention include the management of ex works supplier deliveries, the implementation of a parcel carrier solution and delivery point consolidation for a major supermarket client. 3t will also be implementing their planning system optimiser which creates the most cost effective transport plan for the data provided, taking into account all modes and service levels available for each operation.
So, whilst an organisation might think that they have done all they can to streamline their transport processes and reduce waste, the chances are that there may be much more that could be done. The good news is that the principles that LINPAC has applied and will continue to work on in the future can be successfully adopted by most companies. Thanks to the sophisticated technology that we now have access to, the supply chain can be managed more efficiently than ever before.