INTERNATIONAL MANUFACTURING LOGISTICS
CURRENT STATE AND ISSUES
The North American distribution entity of a Japanese manufacturer of CRT and LCD computer monitors was experiencing increasing freight costs, both inbound and outbound, as a percentage of revenue. Through a full evaluation of the distribution and transportation system and networks, the following areas were identified as cost drivers with opportunity for improvement:
The company operated two North American distribution points, including Los Angeles and Toronto, which was replenished through a stock transfer. The US market was serviced out of LA, and all of Canada was serviced out of Toronto.
The order release to the US market was geographically segmented into days resulting in less frequent, larger shipments, driving a shift of volume from LTL to TL. Long haul TL shipments were transitioned to intermodal for additional cost reduction. The geographic order release allowed for regional pool distribution, and two distribution points were created and serviced through low cost intermodal stock transfers. These pool points were treated as origins for LTL final delivery, reducing the LTL length of haul and cost. Additionally, the Western Canada market was service from the Los Angeles facility, reducing transport cost and improving service times.
DRIVER RETENTION AND COSTS
CURRENT STATE AND ISSUES
A large Midwest distributor of residential and commercial construction materials had gradually increased its internal fleet to supplement the outside carriers it used for customer deliveries. Over the course of four years, driven by increased construction activity and quick growth after the recession, they had grown from three leased straight trucks and two tractor trailers, to a total of 30 full-time drivers at eight locations. Structured financial analysis, and the need for delivery flexibility, supported this operational structure. However, the company was now experiencing service failures because of driver attendance and turnover, and an effective driver management program became critical to customer service.
Driver retention and FMCSA compliance were the immediate priorities. After an initial DQ file and process audit, the company corrected all documentation and training deficiencies, new processes were designed and implemented, and management responsibility was consolidated into one existing staff member. Additionally, recruiting and retention, which had happened very haphazardly, was evaluated.
Newer equipment, dedicated routes, and attractive hours made recruiting less challenging than retaining the drivers after hire. Customer delivery locations included both job sites and contractor storage facilities with no docks, and often required drivers to unload heavy, awkward freight using lift gates and pallet jacks, with little assistance from customers These strenuous physical work requirements dominated driver complaints. However, the work would not change, so an effective retention program revolving around existing work requirements was developed.
The first step was to interview all drivers to understand pros and cons of their work day. Some drivers were uncomfortable with uninhibited disclosure, but many were very vocal. While drivers loudly complained about delivery requirements, the primary issue was management communication. The delivery operation had grown almost accidentally, and drivers felt the lack of management focus.
A comprehensive retention program was developed, addressing the hiring process, job descriptions and communication of requirements, onboarding, ongoing safety training, daily communications about routes, customers, OS&D, equipment issues, and daily driver input. Successful execution of this program required not only driver training, but management training as well.
Full implementation and integration of the program took four months. Unplanned driver absences decreased from 3.3% monthly to below 2%, which resulted in a 40% savings in OT costs to cover missing drivers. Additionally, the previously increasing turnover rate dropped by 9% within six months, reducing the estimated cost of hiring, onboarding, and training a single driver, which was estimated at $5000/driver over the first 90 days of employment.
OPERATIONAL PERFORMANCE MEASUREMENT
CURRENT STATE AND ISSUES
A Midwestern based LTL trucking company with a main terminal and two satellite locations was continually operating at an annual break-even level. The owner stated that the operation frequently ran at full daily shipping capacity, with a long list of loyal customers. Costs were rising in certain categories such as insurance and maintenance, and the company had successfully raised rates with only a small number of customers. The owner wanted to understand where to make changes to improve his bottom line. They had implemented a new TMS 18 months earlier, and the general consensus was that the system improved management's ability to run the operation, including customer billing, dispatch, routing, and load management. The system also gathered and stored huge volumes of daily operational data.
The first step MBP took was to measure and track the client's operational performance:
MBP implemented a process for management to track key performance metrics weekly in order to quickly see improvements or decreased performance. With every shift in metric, management was held accountable for determining the underlying factor driving the change, both positive and negative, as well as the actions taken to halt the slide or capture the factors driving improvement.
This client was able to generate roughly 85% of the data required from their TMS. However, maintenance costs and truck miles were not captured in the system and needed to be manually consolidated, a very time-consuming effort. After nine weeks of manual effort, the company decided to enhance the TMS system with the capability of gathering this information.
The additional TMS development costs totaled $2600. However, the metrics drove an outsourcing analysis for truck maintenance, and relationships with new vendors will produce a 9% annual maintenance savings. Additionally, underutilization of truck capacity to a defined geography led to a transfer of this volume to a partner carrier, freeing up one straight truck/day to be reassigned to the company's highest margin customer. The net revenue increase is 24%, with a 4% cost increase in driver time and equipment use.
INTERNATIONAL LOGISTICS STRUCTURING
CURRENT STATE AND ISSUES
An electrical component manufacturer was shifting manufacture of one product line to its Mexico facility from its Midwestern operation. Transportation costs were expected to increase to over 10% from the current 2.5% of revenue, with the manufacturing cost savings outweighing the increase. Two primary issues remained a challenge:
An international transport network was developed to support consolidation of LTL shipments into truckloads to minimize import costs at the border. Shipments were sent to a US deconsolidation point, then broken down to LTL shipments for final delivery. Additional work included:
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