If you are tired of too many trucks on the highway, consider the fact that you actually may be the reason for it. The trucking companies are certainly reaping the benefits of our insatiable need for more product variation, but retail and manufacturing executives need to take a few things into consideration before contributing to the roadway congestion and actually increasing their selling expenses.
The concept of lean manufacturing may be a contributing cause for the increase in trucks on the road, and as the economy is pulling out the recession, the number of trucks on the road is increasing and is expected to continue to do so.
Remember the basic tenants of lean?
- Give the customer what they want, when they want it, in the right quantity, and at the right price.
- Increase inventory turns.
- Do more with less.
- Eliminate muda (waste).
- Increase your freight costs.
Yes, you read right. Increase your freight costs.
Companies are implementing lean manufacturing, but unfortunately, they are not gaining maximum benefits. Too often, lean manufacturing means just that: focus on manufacturing, with hidden costs overlooked or thought of as just a necessary evil of doing business, without ever being questioned. Lean can often cause chaos on the shop floor and in the distribution center as companies figure out how to apply lean to all areas of their business. In reality, a company is the most effective when they take a balanced approach to implementing lean across the entire enterprise, not just in manufacturing.
As companies start or continue their lean journey of making and distributing products to their customers based on true customer demand vs. traditional crystal ball forecasting methods, they are finding many roadblocks may cause them to lose their footing and slow their progress. Sometimes, they find it's a Mack truck with a 51 foot trailer with a load of inventory in the way. The impact of lean practices on freight costs throughout the supply chain can be significant - up to a 25 percent increase. This, combined with the increase in diesel fuel costs, will continue to cause manufacturers and distributors to find new ways of reducing freight expenses.
With the implementation of lean, customers want more frequent deliveries in smaller quantities.
Freight companies, on the other hand, want to deliver in large batches to maximize the trailer load per gallon cost of diesel fuel. This inherent quandary drives freight costs up, and many people leading the lean effort aren't sure what to do about it. That is the focus of this article.
As a quick refresher, remember the seven deadly wastes of lean, as Taichii Ohno walked the floor of Toyota in the early 1950's: overproduction, inventory, motion, waiting, processing, defects and transportation. Remember, the goal isn't to make your freight company rich. The goal is to make you (if you own the business) or your shareholders cash.
Now, what would the Master Sensei of Lean Thinking and founder of the Lean Institute (James Womack, author of Lean Thinking) say to do about reducing freight costs? I believe Womak would recommend a strategy to move you closer to your customer base. Focus on value and flow and costs will come down. Distance adds time and cost to the equation and does not promote satisfied customers. Now, for you lean mentors and distribution or logistics managers who want less drastic methods of reducing freight costs, I offer the following tactical ideas, some of which are process-related ideas, technology based improvements or a blend of both:
Direct to store shipments: Large retailers and grocers are asking suppliers to ship product directly to stores, rather than shipping product to the distribution center and storing it there. This cuts out the non-value added steps that add time and cost to the product. And, it means less trucks on the road, and lower freight costs.
Cross docking: Cross-docking is a process used to speed up movement of product through the DC. Instead of receiving it, putaway, storing it, pulling it from storage, labeling it, and then shipping it, cross-docking, as the name implies, pulls a pallet or container from one truck and either re-palletizes it or moves it directly to another truck on the dock. This speeds up the time and cuts out many non-value added steps. A key requirement for effective cross-docking is compliance: Having advanced notice of what's coming into the distribution center through advanced shipping notices (ASNs), and having cartons/pallets already labeled by the supplier are effective ways to make cross-docking possible.
Mixed pallets building: For multiple products that are shipped to the same customer, building pallets that contain more than one SKU (stock keeping unit), vs. building an entire pallet of the same product, is another tactic that supports lean principles and typically keeps freight costs minimized. One negative of mixed pallet building is the additional labor required for palletizing multiple cartons/skus and the additional labor required to unload the multiple skus during the receiving process. These additional costs need to be weighed against the benefits (i.e. improved customer service, lower inventory levels) from shipping more frequently and in lower quantities.
Milk truck runs: Used last century to deliver milk and other goods to your Grandma's front door step, milk runs are a great way to service customers. Coordinating shipments on the same truck to a group of customers is a good practice if you own your fleet. Depending on your business model and the geography of your customers, milk runs can be daily to weekly. The tools required to determine the optimal milk run path are a map and list of customers and orders by ship date. Software exists for optimizing milk runs in complex situations, but for smaller operations Excel and MapQuest will do the job.
Moving away from truckload quantities with one SKU to mixed, less-than-truck load quantities with multiple products/SKUs is a common trend with companies implementing demand-based replenishment strategies. This practice enables companies to cost-effectively ship more often with lower quantities to the same or multiple locations.
Warehouse Management System (WMS) Software used to manage the complexity of supply chain execution is an increasing trend with medium to large manufacturers and distributors. WMS providers, like High Jump or Manhattan for instance, implement supply chain execution software that interfaces between the ERP system and the distribution center to maximize efficiencies in the distribution center. These systems also utilize Transportation Management System (TMS) software to optimize the cubic footage and freight costs of shipments. Real-time visibility to shipments also helps companies better manage shipments and deliveries. Operations like load sequencing, trailer cubing and cartonization, are also performed by the WMS and TMS software, as discussed below. The growth in Transportation Management System software (7% in 2002) indicates a trend that will continue as companies strive to manage and reduce their freight expenditures.
Trailer cubing is a method used to maximize the space within a given trailer. For example, without cubing we may be able to get four stops onto a trailer delivering product to four locations in Ohio: Youngstown, Cleveland, Toledo and Dayton. By using software to cube the trailer (e.g.: Cube IQ) we may be able to get an additional load onto the trailer for a stop in Columbus, Ohio, which will significantly reduce the freight expense of sending a new trailer to Columbus. The WMS/TMS systems will also sequence the order in which delivery stops are made, and will provide a load sequencing process to be used for loading the trailer with product.
Carton cubing (also know as cartonization) is a process used for maximizing carton sizing with customer orders. By using item dimensions and other characteristics and constraints of the products being placed into the shipping carton, freight and labor savings can be significant because the cube (space) of the carton can be minimized. Less wasted space means less air and less corrugate required for the carton itself. Less air in the carton means a greater number of orders per trailer, and that equates to less trucks on the road, and lower freight costs.
Using electronic data interchange (EDI) for purchase orders from customers and sending Automatic Ship Notices (ASNs) to customers increases visibility to orders and provides for more effective planning in the plant and distribution operations. This practice helps to reduce backorders and split shipments in situations where product is out of stock. For example, if a customer sees product coming in on today's shipment, they may avoid placing a back-order and wait for the product to arrive this afternoon.
Bundling of packages/shipments: One company with whom we're currently engaged uses Fed-Ex ground for sending smaller packages of writing instruments to the big box suppliers like Wal-Mart, Target and Staples. This company has recently implemented a bundling operation that will save them nearly $400,000 a year. Grouping orders and packages together by strapping the orders together with the same ship-to address allows them to reduce freight costs because they are still charged on a per package cost basis.
An analysis of customer locations compared to a company's current distribution network will allow a company to find weaknesses in their distribution network. Companies can then strategically locate distribution points based on their client's locations and on capacity requirements, thereby reducing freight costs and enhancing customer service. For example, many companies with a national presence chose Cincinnati, Indianapolis or Chicago due the central location compared to their end customer's locations.
Now, how does one continue to reduce freight costs over time? As Edward Deming (father of Total Quality Management) said, "you can't change what you don't measure". In light of distribution and freight costs this means setting up key performance measures that track performance in each of these areas, and having a continuous improvement system (kaizen, six sigma or other system) in place to improve the processes, all in pursuit of perfection. One key measure is freight expense as a percent of net sales.
Because of the rapid changes manufacturers and distributors are going through, and because many companies are dependent on the success of their supply chain (i.e. Wal-Mart vs. K-Mart, Home Depot vs. Lowes, Staples vs. OfficeMax), people within these organizations sometimes feel overwhelmed by the chaos often seen in their logistics and distribution environment. Manufacturers and retailers alike, when frustrated with higher costs and longer than expected lead time, must bring clarity and practical, implementable ideas to the table. It is imperative to work with a reliable organization that can assist in doing this, mitigate much of the risk and provide a more successful and confident supply chain experience.
The basic tenant of implementing pull production encourages more frequent deliveries with less product per delivery. This practice has many benefits, such as reduced inventories throughout the value chain and a lower number of expedited shipments. It can cause freight costs, however, to head in the wrong direction. The use of practical methods and technology (when it makes good sense), can help companies move forward on their lean journey and face transportation obstacles in the road ahead. And that means fewer trucks on the road over any given period of time. And maybe that will help clear the air for me and you as we head to work in the morning.
ABOUT THE AUTHOR
Trent Wall is the director of business development for Forte Industries. Forte Industries is a nationally recognized B2B supply chain distribution operations improvement firm, which brings order and clarity within the supply chain logistics industry segment, enabling clients to deliver maximum shareholder value through impeccable customer service. Through objective, proven services and software, Forte Industries delivers strategic customer advantages to businesses that provide products to major retailers, direct to consumer, manufacturers, eCommerce and others. Clients include: Lenox China, Leviton, Beiersdorf, Candle-Lite, totes>>Isotoner, IBM, Augusta Sportswear and many others. More information can be accessed at www.forte-industries.com, calling 513-398-2800 or by emailing Trent at email@example.com.