Inside Logistics

Logistics Review 2012: Logistics snapshots [May-June 2012 print edition]

A glimpse into how three businesses manage their national and international logistics operations


July 3, 2012
by Carolyn Gruske

FROM THE MM&D MAY/JUNE 2012 PRINT EDITION:

Senior executives from Nestlé Waters, Staples and General Motors share their thoughts and concerns about the world of logistics and discuss how they keep products and goods flowing at their companies.

Nestlé Waters Canada

The old adage is “still waters run deep” but in Guelph, Ontario, bottled water flies out the door at a surprisingly fast pace.

Mike Therrien

Mike Therrien is national transportation manager for Nestlé Waters Canada and regional transportation manager for Nestlé Waters North America. Until he came to work for the company, he had now idea just how quickly bottled water could flow.

“I wasn’t used to the speed of how much we can produce both in manufacturing and how much we can ship on a daily basis. It was mind-boggling. I’ve never seen that before. I’ve only been here a year, and that’s what has surprised me the most about water. I know that when our customers put it on promotion, I see the volume that goes out of here. It’s millions of cases in three or four days. And it all gets sold.”

Therrien says his record is 150 loads shipped out in a day, and that the typical case of water is consumed within six weeks of manufacture.

Nestlé Waters Canada produces bottled spring water under two of its own brands, Pure Life and Montclair, plus private label brands for a number of other companies. It also imports premium brands of European waters, specifically Perrier, S. Pellegrino, and Acqua Panna.

The company operates two plants and two warehouses in Canada. The 55-door plant at the Guelph headquarters produces products distributed to eastern Canada, and the plant in Hope, British Columbia makes products sent to BC, the Prairies, Asia, and into Washington and Oregon states. A warehouse in Chilliwack, BC acts as the western distribution centre and a warehouse in Laval receives water imported from Europe and distributes it to eastern Canada. There is also a small warehouse in Kent, Washington. In addition, the company offers direct customer shipments.

“Water is a high volume, low profit business, so we are always looking at our bottom line and our cost. So what we’ve done is we’re always looking at costing models, optimization models.”

As part of the larger Nestlé family, Therrien doesn’t have too much to worry about shipping imported water from Europe to Canada.

“I don’t control that. We have a Nestlé global team that does that. It groups all of the purchasing of our finished goods and raw materials, all across the globe for Nestlé Foods, Ralston Purina and Nestlé Waters. They negotiate all steamship shipments, which usually go from port to port. Most large food companies do that anyway.

“I guess you might say I’m part of the team as I do supply them with service issues or concerns, but it’s a larger group that does global contracts.”

Offloading

It’s once the French and Italian waters reach the ports in Montreal and Vancouver that Therrien’s job becomes more challenging.

“When you’re looking at ships, for us it’s always how many containers arrive at one time. And how fast can we get them off the wharf without having to incur detention and demurrage charges. There are always a lot of difficulties with our carriers going in to pick up loads. It’s not a fairly easy thing to do. I’ve seen, at the Port of Montreal, where drivers are waiting in line for hours to get in and pick up freight. Vancouver is not as bad but similar­—where it’s very difficult to get in and out. Because it is a ship, it’s not uncommon to have 30 or 40 containers come in at one time. In winter, we’ve got to make sure it doesn’t freeze so we’ve got to get in and out in the matter of a couple of days.”

Storing those 30 or 40 containers when they are eventually off-loaded can prove to be a bit of an issue and there are times when Therrien has to turn to a third party to warehouse them.

Even getting shipments ready to export to Asia by ocean isn’t always easy.

“For us the difficulty is just going to the port getting an empty container, getting it to Chilliwack or Hope and then getting it back to the wharf.”

Trucking

While ocean shipping is an important part of his operations, it’s not the main means of transport. That’s trucks, and Therrien has spent a considerable amount of time figuring out exactly which trucks to use.

“We’re always looking at costing models, optimization models, and today the piece of equipment I use 100 percent is tri-axels or tridem equipment. That allows me to put a lot more product and a lot more weight on my trailers. Today, I’m delivering 30 pallets in a truckload. The truckloads vary, based on the gross weight and the vehicle weight limits by province.

“You do pay a premium for tri-axel equipment, however the price they charge and the amount of weight you can put on, offsets the cost for the trailers. In a tandem, I could load 45,000lb to 46,000lb. In a tri-axel in Ontario, I can load 73,000lb. When you work it out on a cost-per-pound, cost-per-pallet or cost-per-hundred-weight, tri-axels are a lot cheaper. I could go up to one unit higher, which is a quad, however I wouldn’t be able to add that much more weight, and I’d pay too much for the trailer.”

He is in constant communication with trucking companies, 3PLs, brokers and asset-based carriers.
“I spend a lot of time prospecting. I’m always meeting carriers, talking to carriers. In some cases, I deal with large, multi-national carriers—the top 100 in Canada—but I also spend a lot of time with smaller guys who may only have five trucks and ten trailers, because I want them to grow with us. I keep them happy and each year they add a little more and reinvest. So I’m growing with them.”

Communicating with them is key, especially given the way Nestlé Waters Canada operates.

“All of our freight is live off-loading. We do everything with appointments. Here, because of our volume, we allow truckers to drop trailers in our yard—or if they want they can do live loading—but we prefer dropping because it provides flexibility to our manufacturing to ramp up or down. We have a full-time shunter, who just moves trailers back and forth—the empties to the dock and puts the loaded ones back to the yard.”

Therrien uses PCMiler routing, mileage and mapping software to calculate the delivery time and mileage and create a must-depart-by date. The carriers use that day when agreeing to tenders. Then appointments are booked and docks are assigned. At that point, the water can be shipped to a customer’s DC or directly to its retail operations.

Direct store delivery

“In the summertime, because we have so much volume, our customers have a hard time receiving all that product, breaking it down and adding it to everybody else’s products and doing a store delivery, so we work with them to do direct store delivery. With customers like Costco, the store is the warehouse. So we go directly to every single Costco all across Canada. From that model, we built something very similar. We say, ‘we can go to your store, as long as you can accept 15 pallets—half a load.’ When they’re on promotion or on ad and the products are flying off the shelf, that’s a good way to distribute our product. It saves a lot in extra mileage. It’s not uncommon in the summer for me to walk into a Food Basics store to see product we produced that day on the shelf.”

Ensuring loads are delivered on time is getting harder in heavily congested urban areas. Traffic is causing Therrien to alter some schedules.

“Many shippers like myself have gone to 24/7. A lot of my major customers are starting to receive between midnight and 8:00 to get around congestion. Any time you can go in a non-peak time, you’re saving time.”

Besides traffic, gas prices are also an area of concern. According to Therrien, the price of fuel adds almost 40 percent to his total cost.

One way to help reduce costs is to allow for customer pick-ups.

“Walmart does their own. Sobeys does their own. Loblaws does their own, and still I have that kind of volume going to everybody else. And still we seem to be growing. It’s just phenomenal volume, and I’m always worried we might be at capacity someday.”

Staples

Even though everything falls under the brand known as Staples, the differences between the retail side of the office supply business and the business-to-business side are large.

Staples Advantage, or Staples Advantage Canada, is the e-commerce arm of the company that offers online shopping, catalogues and an assortment of delivery options. It offers a broader range of products than the local Staples store.

Don Ralph

“The delivery business is much more complex than the retail business,” says Don Ralph, senior vice-president supply chain and logistics for Framingham, Massachusetts-based Staples Inc.

“We offer right now about 350,000 SKUs in North America and that continues to grow every year. Now it’s very different by channel. If you’re in the retail channel, for Canada I suspect it’s probably between 8,000 and 9,000 SKUs per store, and it’s similar to that in the US.”

Staples operates 79 fulfillment centres in North America, supplying merchandise to 300 service delivery operations (SDOs), essentially small delivery hubs.

Orders placed online are picked and packed that same day for next day delivery. In Canada, this works out to 7,826 stops per day, made by 160 Staples-owned trucks, and these figures don’t take into account shipments handled by couriers.

Ralph doesn’t just have to worry about getting an order to a corporate customer’s receiving dock. Often, Staples has to make personal deliveries.

“For the IBMs and GEs of this world, they can order up until 5:00 PM and we’ll deliver it the next day. And we’ll deliver it not just to their location, but if they desire what we call insider delivery, we’ll go desk to desk.”

Retail deliveries

By comparison, getting goods to the retail stores is a snap. In the US, the stores are organized under a centralized distribution model, and they get a delivery once a day. That number is higher here, as the Canadian system evolved as a hybrid direct store delivery model, with shipments arriving from both suppliers and from Staples itself. This, however, is under review and it’s possible that changes will be made to the Canadian operations.

Getting goods out to customers is only half the battle. First Staples has to receive the merchandise.

“We’re a moderate-sized importer, so ocean shipping from Asia is not the biggest piece of the supply chain by any means. About 20 percent of our product will come from the Far East into North America. We’re operating in 26 countries. We’ve got 40 or 50 trade lanes, so we’re not only moving freight from the Far East to North America, but also into Europe, Australia, and South America.”

Ralph says he can see a difference in the type of speed and service ocean carriers are delivering today compared to their past services.

“Ships are slow steaming. You have to factor in the inventory carrying costs of the extra time versus what they’re saving from a cost and environmental point of view. It’s a trade-off. They’re trying to make money and Lean their operation. But you have to factor in lead time when you look at replenishment.”

Still, shipping times aren’t his major concern when it comes to ocean.

“It’s the stability among the carriers. It’s very much treated like a commodity and long term, that’s not sustainable for either side. Somehow the world is going to figure out how to look at imports and ocean freight delivery in a whole different light.”

Intermodal

By comparison, he’s seeing a lot more stability with North American intermodal carriers.

“Intermodal is a fairly large piece of our inbound practice, particularly domestically in the US and Canada. I think the intermodal folks have done a good job. They continue to improve their service levels and their prices are competitive. If you go back even five years in the past, we didn’t do nearly the percentage of volume we have since we moved to intermodal. To their credit, they’ve become a viable alternative. They’ve invested a lot in infrastructure and systems and it’s starting to pay off.”

Even more than in the intermodal companies, Ralph says he sees growth and investment from the courier companies, mainly as a result on increasing online shopping activities.

“We do about a third of our deliveries on our own trucks, about a third go via parcel carrier, and a third go out via several dedicated courier partners. Because of the growth of e-commerce there has been a lot more investment in the growth of these third-party couriers and they are much more financially stable than they were five years ago. Investors see this as an area for growth.”

When asked what changes or improvements he’d like to see in the industry, staffing and technology come quickly to mind.

“One that’s very high on the list for every supply chain officer I talk to is the use of advanced analytics. So it’s about getting the right talent and the right tools. You think about all the data and the number of locations we have and the number of SKUs we sell, and you step back for a minute and realize we’re trying to optimize infrastructure and inventory and labour costs and transportation costs. Using sophisticated tools to do that modelling is very high on everybody’s list. In the last 18 months, we’ve hired five PhDs in our supply chain strategy group. Ten years ago you wouldn’t have done that.

“If you asked me about supply chain, I would tell you absolutely it would be talent—developing and acquiring the talent we are going to need to lead a global supply chain over the next ten years.”

General Motors

If there’s a mode of transportation available, Christine Krathwohl employs it. As executive director, global logistics for General Motors Co, Krathwohl is responsible for getting all parts and materials into GM’s assembly plants around the world and for moving finished vehicles to dealerships.

Christine Krathwohl

“I think I use almost every single mode of transportation there is. On ocean I use container shipping and I use RORO, which does finished vehicles. Also on ocean, there is RORO short sea. I definitely use air freight and air charter. Charter is when I take a whole plane. Air freight is when I put it on FedEx or I put it on either a cargo or passenger plane. Then there is everything from LTL to full truckload to milk runs. We have our own consolidation centres throughout the world.

“Depending on where I’m at in the world I do rail shipping of boxcars for materials. I do rail shipping for finished vehicle distribution. I do haul-away, which is the distribution of the vehicles on truck once they leave rail or straight from the plant. I think I use almost every mode of transportation out there.”

Vast network

The vastness of GM’s logistics network is easily explained by looking at the company’s numbers.

“Our volume is up quite a bit in 2012—but in 2011, globally we managed 6,500 truckload shipments a day. We managed 25,000 vehicles a day shipping. And we export about 2,300 vehicles on ocean a day. As of the end of 2011, I had 787 logistics service providers globally who managed my business for me.”

She adds that when she puts ocean contracts out for bid next year, there will be 5,000 unique origin destination pairs in the bid. She also notes GM sells Chevrolets in 122 countries globally.

Krathwohl says she only has a small internal logistics team at GM, and that includes an inbound materials logistics director for North America, a finished vehicles director for North America, and single directors responsible for Europe, South America and IO (international operations).

GM requires 100 percent real-time visibility into its supply chain, and relies on its service providers IT systems for that view.

“The big difference between being an automotive company and being a retailer, is if I don’t get one nut or bolt or screw to an assembly plant, I shut down all revenue at that plant immediately. If a retailer, a Walmart or a Target, does not get one SKU or one kind of toothpaste to their store, they are still generating 99.9 percent of their revenue throughout the day. They might have some unhappy customers but their whole revenue generation is still going. For us, if we can’t build without that part, I shut down all revenue immediately.”

Even with the need to have reliability in the system, Krathwohl doesn’t just spend money on logistics services without giving them careful consideration. She needs to create a cost-effective system. Deciding to move some goods by air, for example, is a prime example of getting the best value for the money.

“Traditionally we used air more for premium, so if we need something and we need it faster than the normal mode we go with air, but there are a number of shipments we make every day where air is the best total cost for us. If you’re shipping something that is extremely small,  depending on the location, air can be the best decision for you when you look at total cost, when you look at inventory. If you look at the behaviour of the commodity, how often does it change? We look and to a total cost analysis on how we route all material coming into our plants.”

Capacity

According to Krathwohl, air seems to be offering the fewest concerns for automotive logistics providers. She says she hasn’t seen any capacity issues with air. Trucking also seems fine, as she has enough haul-away capacity in North America.

Rail, however, is problematic, especially as automotive sales forecasts continue to rise and there is increased pressure to deliver finished vehicles.

“We are already starting to see some capacity issues for in the rail network in North America—not enough equipment availability,” she says.

“There are specific cars used for that. We call them multi-levels, because they are either bi-level rail cars or tri-level. It’s a shared pool in North America across all the rail networks and across all the shippers. In the last five years, railroads have not been reinvesting in new equipment. But they’ve retired over 5,000 of these cars due to their ages.

“Because of the downturn of the economy in the last four years, there hasn’t been any investment in the railroads to put any additional cars in the market. With the market recovering faster than people expected, they’re finding there is a shortage of overall rail car availability to ship finished vehicles. This year they’re starting to build a few cars and add a few cars, which is good news, but we don’t think it’s fast enough or there’s enough being built. The result is that it takes longer for us to distribute vehicles to our dealers and this is an issue across the industry, it’s not just a GM issue.”

Also of concern is the state of ocean shipping.

“The container ocean business—that segment has really struggled financially. They haven’t recovered yet. Because the global economy hasn’t completely recovered yet, volume is down for them. They’re looking at what ships to take off the ocean, which will then create a bit of a capacity issue in the future, and which will drive increasing rates. There wasn’t a single ocean container guy that made money last year.

“That’s alarming to us as shippers because they also need to be healthy. A significant portion of my business is up for bid with the ocean carriers. We do a lot of analysis to understand the trends and what’s impacting them. We’re looking to understand what the low sulphur impact is going to be when the US makes it a requirement that within so many miles of our coast they have to burn low sulphur. We’re trying to understand what that cost will be to us.”

Co-operation

One way of trying to figure out what changes like the low sulphur regulations will mean is by working directly with GM’s transportation partners.

“I’ve started a new logistics forum here in North America, where I have twelve of my key suppliers across all modes who will start participating with me quarterly to talk about things like reducing our carbon footprint—not the day-to-day operations of the business, but things like how do we measure our network and what are best practices we can share across modes and things like sustainability.”

That sense of co-operation isn’t limited to working with suppliers. GM is branching out and partnering with competitors as a way of improving logistics operations and efficiencies.

“We’re starting to collaborate more with other OEMs because logistics doesn’t have anything to do with designing, building or selling the world’s best vehicles. Logistics is how you get the parts there to do that.

“We have a couple of initiatives that we’ve implemented with another OEM where we share the same collection and distribution network. So the supplier will pick up GM parts and parts from another OEM, they’ll take them to a distribution point, then they’ll make pure GM loads and pure loads for the other OEM. That way we are optimizing and making sure the truck is as full as it can be instead of both of us having trucks that are 50 percent full on the road. We have regular meetings with this OEM to look at other opportunities we have to drive efficiencies in the network.”

Ensuring trucks are full is one way of keeping logistics service providers happy, and that’s a key goal for Krathwohl.

“It’s so critical for us to preserve some capacity and run more efficiently. I would say this the most important thing I can do for the supplier relationship, because that truck can haul anything. It can haul for Walmart. It can haul for a lumber company. It doesn’t have to haul my engines.

“My goal is to be the customer of choice. If they want to haul automotive, I want them to say ‘GM is the best person to do business with.'”