From Global Logistics and Supply Chain Strategies . . . November 1998
Shippers Commonwealth team (including Bob Shagawat and Phil Cooper) formulated and launched first collaborative logistics program for multi-shipper load linking and load sharing. Excerpt from original article follows.
Multi-Shipper Freight "Clustering" Gives New Twist ...
By Robert J. Bowman
Miller Brewing and Reynolds Metals . . . have updated and revitalized an old concept: combining freight to gain efficiencies in transportation.
Call it a new twist on an old idea. Miller Brewer Co. and Reynolds Metals Co. have transformed the concept of truck brokerage into a close partnership that can dramatically reduce empty miles.
Traditional brokers match loads from multiple sources to minimize "deadheading", the term for trucks traveling empty between a point of unloading and the next available load. But Miller and Reynolds took a different approach: they started their own customized program. The idea was born at Reynolds. With revenue of $6.9b in 1997, the world's third-largest producer of aluminum wouldn't seem to need help in boosting the efficiency of its centralized network. In fact, the company already had a core-carrier program, along with centralized control of both inbound and outbound loads.
Thanks to a diversified product base, Reynolds was successfully eliminating empty backhauls in numerous lanes, and, consequently, spending less on transportation. Bauxite, ingots, wheel rims and the ubiquitous Reynolds Wrap were all part of the mix. Reynolds might move cans from Texas to North Carolina, scrap to Virginia, and various consumer products to Ohio, Chicago and back to Texas, all on a single truck.
An in-house simulation model determined that 30 percent of the company's traffic lanes could be booked as continuous moves, said D. Keith Turner, director of purchasing and transportation. But Reynolds' concept of "clustering" had its limits. There still were too many empty lane segments for a company that was spending $288m a year on transportation, 61 percent of it on trucking. So to widen the available pool of freight, Reynolds turned to outside shippers.
One willing partner was Miller, a major customer of Reynolds that was having a tough time generating backhauls among its 1,200 destination points, said Michael May, transportation manager of the western region. With some 91 percent of its freight moving by truck, Miller saw substantial opportunities for improving its distribution network.
The idea began with Westinghouse Sure Shipping, part of Westinghouse's Innovative Computing division, which put together a multi-shipper consortium led by Robert Shagawat, Managing Director of Westinghouse Sure Shipping. The companies (including Westinghouse, Miller, and Reynolds) teamed up with Owens Corning, Mead Corp., three motor carriers, Westinghouse/Innovative Computing Corp. (which developed Reynolds' centralized shipment management program), and the Center for Logistics Research at Penn State to launch a feasibility study of multi-shipper clustering of truckload freight. The study identified a clear potential for additional savings. Owens Corning and Mead dropped out due to internal concerns, but Reynolds and Miller proceeded with a nine-month pilot project involving the exchange of load information by fax.
The budding partners had assumed from the start that they could reduce costs by working more closely with truckers. But they quickly realized that they also needed an intermediary to handle the myriad of administrative duties and deal directly with the carriers.
"It's better if an outside party does it," said Turner. "We didn't have the time and resources." A third party, they reasoned, could bring additional shippers into the program, further increasing the availability of revenue-producing loads.
After some shopping around, Reynolds and Miller originally settled on J.B. Hunt Logistics, an autonomous operating unit of the nation's largest publicly held truckload carrier. Hunt had been invited by Westinghouse into the original study consortium, along with Burlington and Arnold Logistics. Hunt could oversee an automated load-matching system while ensuring the confidentiality of each shipper's rates. Moreover, with its volumes from multiple customers, it could assert greater clout in negotiations with carriers.
The program ... worked like this: Shippers participating in a given "cluster" either negotiate freight rates individually with carriers, or do so through Hunt Logistics. Their loads are then tendered to carriers via the internet. At the end of each month, carriers in the program issue consolidated statements for each shipper, showing rebates based on the number of loads that were linked across lane segments, minus any charges for detention, empty miles or other penalties. Depending on the underlying customer's preference, the carriers then issue rebate checks either to the consortium manager or to the actual shippers.
At its most basic, the automated matching program saves shippers money by recommending the best mix of carriers for any load. Additional opportunities arise from the system's ability to combine inbound and outbound legs into two-way moves for carriers.
The program is superior to traditional load-matching services because it captures efficiencies at both the planning and operational levels of a distribution network. Without the direct involvement of shippers, carriers are left with a random collection of bookings that may or may not be combined for transportation savings.
The degree to which a company benefits from clustering depends on its level of commitment to the program. Reynolds saves between 5 percent and 7 percent over single-lane moves when it tenders freight to the cluster, said Turner. Ironically, however, the company that started the ball rolling has yet to realize the program's full potential.
Following a corporate restructuring in which it spun off several business units, Reynolds has opted to limit its participation in the program. Conflicting with its desire for continuous moves is Reynolds' ambition to be a third-party logistics provider of its own. Because it continues to manage freight for the spun-off companies, it prefers to keep direct control over most of its transportation, Turner said.
Miller, on the other hand, has realized "tremendous" savings through clustering, said May. Unlike Reynolds, the shipper permits total visibility of its available loads. It relies on the third party for shipment planning, load optimization and internet communications.
The charter group includes Miller and Reynolds, whose businesses are complimentary. Companies who joined later include J.C. Penney, Office Depot, Weyerhaeuser, Alcoa and AutoZone. Confidentiality is key to the success of any multi-shipper cluster. Members may share loads but they don't share rates. Negotiations with carriers are still conducted on a one-on-one basis.
For the moment, the clustering project remains focused on domestic moves by truck. But the parties have ambitions to take it further.
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