trucking ceos speak frankly about survival transportation ... · good gameplan how a wms and some...
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& LogisticsTransportation
CANADIAN
Published Since 1898
OCTOBER 2009
TRANSPORTATIONTrucking CEOs speakfrankly about survival
TECHNOLOGYKick-starting a productivity drive
OUTSOURCINGIs the recession creating new opportunities for 3PLs?
Couriers’ express retail outlet strategy has stuttered. Can it survive under a better economy?
Out of Box
Thinking
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CITT09E-PA02-reposition-OUTLINES1 1 9/8/2009 10:57:48 AMOCT CONTENTS 3.5.indd 2 19/10/09 11:27 AM
VOLUME 112 ISSUE NO. 10 OCTOBER 2009
Published Since 1898
3CT&L OCTOBER 2009
Couriers’ express retail outlet strategy has stuttered. Can it survive a better economy? . . . . . . . . . . . . . . . . . . . 14
cover
www.ctl.ca
Features12 . . . GOOD GAMEPLANHow a WMS and some reengineering kick-started an enormous productivity drive at RMP Athletic Locker.
16 . . . LET’S GET SURGICAL (AGAIN)A bonus part from our series on finding the biggest, fastest transportation savings! If you thought last month’s strategies were tough, these are the toughest going, so get ready.
20 . . . CHANNELING DARWINProminent trucking CEOs speak frankly about the fight for survival in the industry’s greatest down market.
26 . . . DOWN AND OUTSOURCEDAn annual 3PL survey has found that the recession has created new opportunities for outsourcing. Plus: CEOs of 3PLs offer economic predictions in a new report.
Departments4 VIEWPOINTThe secret to successful outsourcing relationships hinges on dealing with the IT capability gap.
6 IN THE NEWSThe Association of Canadian Port Authorities gets candid about logistics, China and shortsea shipping at its annual conference; Ontario carrier Bruce R. Smith files for creditor protection; Canadian General Freight Index continues its downward slide; highlights from the 23rd Annual Transportation Conference; and more.
28 INSIDE THE NUMBERSHow many North American trucking companies have declared bankruptcy thanks to the recession’s impact? Plus: findings from the 14th Annual Logistics Outsourcing Survey, including measurable benefits from the use of 3PL services and the budget percentage logistics shippers are devoting to outsourcing.
30 THE BIGGER PICTURELaurie Turnbull outlines the differences in how C-level and O-level managers perceive supply chain management.
Are you prepared for your next round of carrier negotiations?
You need to be up on the latest transportation buying trends and benchmarks.You need our annual Transportation Buying Trends Survey.
• Anticipated shipment volumes by industry • Rate increase averages by mode • Surcharge increases by mode • Capacity concerns by mode.
All this key information and more can be yours, FREE of charge. Fill out our survey and youwill receive the full results, free of charge. . . and you'll be entered into a special prize draw.
Look for our e-mail survey.CONDUCTED IN PARTNERSHIP WITH CITA AND CITT
Out of Box
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9/8/2009 10:57:48 AM OCT CONTENTS 3.5.indd 3 19/10/09 11:28 AM
The depth of the recession and its disastrous impact on revenues is forcing shippers to seriously con-
sider if their supply chains are the most efficient they can be. In our look
at trends in outsourcing this issue, we report on the findings of the Annual
Third-Party Logistics Study. Not surprisingly, six in 10 shippers responding to the international
survey agreed that current conditions are serving as an in-flection point to rethink their supply chains as well as their relationships with third-party logistics providers.
Whether you’re a shipper or a carrier, liquidity is of prime importance during tough finan-cial times, so it’s no surprise that
converting fixed costs to variable costs is a popu-lar strategy right now and one most likely to in-crease interest in outsourcing. It includes not only outsourcing more logistics activities to 3PLs, but also using a SaaS (Software as a Service) model, a pay-per-use concept, when implementing new technology. Redesigning supply chain networks and expanding to new markets are other strate-gies that would favour increased use of 3PLs and their special skills in the years to come.
North American shippers already devote, on average, 47% of their total logistics budget to out-sourcing, but if that’s to grow to the 60% levels found in Europe and Asia, outsourcing providers will have to deal with their Achilles Heel: the IT capability gap. As the study’s authors and any sup-ply chain manager on the ball will attest, logistics and IT are inexorably linked. The data provided by IT systems have become the lifeblood of sup-ply chain planning and execution processes. IT that is responsive and tied to strategic objectives is central to providing the visibility into transporta-tion and warehousing functions that’s necessary for creating truly efficient supply chains. So it’s only logical to assume that shippers considering outsourcing supply chain functions must be im-pressed not only initially, but regularly by their 3PL’s IT platform.
Yet this year’s version of the annual study has once again found a considerable gap between ship-pers’ expectations for 3PL IT capabilities and their satisfaction with those capabilities. While 88% of shipper respondents feel that 3PL IT-based ser-
CT&L OCTOBER 20094
Want to know the secret to successful outsourcing relationships? Deal with the IT capability gap.
view point
VOLUME 112 ISSUE NO. 10 OCTOBER 2009
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vices are important, only 42% of the same users in-dicate they are satisfied with those capabilities. Just as revealing is the fact that 81% of 3PL respondents feel their customers consider IT-based services as important, yet only 59% feel their customers are satisfied with these same services. When the exis-tence of an IT capability gap is acknowledged by both shippers and their 3PL providers (albeit the gap appears wider from the shipper point of view), it’s clear this is an issue that requires addressing.
Yet it’s not an issue that will prove easy to ad-dress because, as the study points out, considerable investment in functionally siloed legacy systems stands in the way. Essentially, the root of the prob-lem is deeply buried with those considerable tech-nology investments made many years ago. Many 3PL providers are still operating legacy ERP and operational applications that run on mainframes or mid-range systems. The spate of acquisitions prior to the recession only added to the complexity. As a result, 3PLs are spending the lion’s share of their IT resources keeping it all running, the study points out, and the difficulty of rationalizing and modernizing legacy applications means some 3PLs are maintaining multiple data silos with duplicate and incorrect data. Lack of internal IT integration within 3PLs leads the list of shipper respondent complaints (55%) with 3PL IT. Shippers, too, face issues with legacy technologies that consume re-sources and impede integration efforts.
As a result, shippers say these IT challenges, when working with a 3PL, are keeping them from attaining the KPIs, alerts and visibility required to run the adaptive supply chains they desire. On the other side of the fence, 3PLs say they are frustrated with their difficulties in getting the data and com-mitment they need from shippers. Number one on their wish lists is real-time interfaces to shipper order management systems (63%), followed by timely demand forecasts (54%).
Clearly, improvement is needed on both sides for this issue to be resolved. Yet beyond the in-vestment necessary, trust is an issue. As the study points out, 3PLs hesitate to devote resources to a shipper who may not stay (our own research rou-tinely finds the average length of contract is just a year), while shippers avoid becoming too invested in one provider. And both fear sharing data will cost them control.
Seems there is much to work out before IT can be properly leveraged to achieve the supply chain efficiencies possible through outsourcing relationships. CT&L
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WORTH REPEATING“Technology should support your business processes, not drive them. Don’t automate a bad process.”
– Andrew Miller, president, ACM Consulting Inc.
OCT VIEWPOINT 4.indd 4 19/10/09 11:31 AM
5ct&l october 2009www.ctl.ca
Blogs• Dan Goodwill of Dan Goodwill and Associates opines on how and when this recession will end.
• Editorial director Lou Smyrlis makes a case for taking needless cost and waste out of transportation.
• Laurie Turnbull of the Cole Group digs to discover how Illinois knocked Michigan out of its traditional spot as the top state for surface trade with Canada. His take? Blame the ostriches.
• IT expert Gagan Goraya ponders whether the Internet has eaten away at company productivity.
You Said It . . .
“An organization should not be afraid to build a ‘profit centre’ with freight charges, whether it’s small package, truckload, LTL etc. After all, there is a lot of painstaking work that goes into contract/rules/fuel charges preparation, along with keen negotiations and the ability of identifying lanes, tonnage, imbalances and, of course, the 80/20 of actual tender. But remember if you are to develop a ‘profit centre’ with freight, the actual invoice to the customer must read ‘shipping and handling charges’ not ‘freight charges.’”
David DiSanto of DiSanto and Associates, commenting on Dan Goodwill’s blog: Managing Inbound Transportation.
Web TV: Transportation Matters• CITT president Catherine Viglas and Calyx Transportation Group president Doug Harrison discuss the highlights of Reposition 2009.
• GROWING YOUR BUSINESS:Is bigger really better in the current transportation marketplace?
• hIRING hELP:How do top supply chain professionals stay current with new hiring trends? Find out as our HR Issues roundtable continues.
• FLEET TALK:Trucking executives share tips on differentiating yourself from the competition and discuss the importance of diversity.
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Wake-up calls on logistics, China and shortsea shippingBy Leo Ryan
The 51st Annual Conference of the Associ-ation of Canadian Port Authorities (ACPA) in Prince Rupert, B.C. was highlighted by the candid views of speakers on subjects ranging from logistics and China to unex-ploited shortsea shipping opportunities.
Canada needs to become more agile and appreciate that logistics constitutes a funda-mental part of production when dealing with global markets, emphasized David Fung, chair of Canadian Manufacturers and Exporters and chief executive of the Van-couver-based ACDEG Group of Compa-nies with partnerships in Europe, Asia and North America.
“The old idea that I buy from you and you buy from me is passé,” he said. “Nations are no longer competing with nations. In-stead, one industry supply chain is compet-ing with another industry’s supply chain.”
Fung warned that Canada is losing mar-ket share in the US to China, while Cana-dian productivity is also falling behind the US.
He observed that the most successful companies have learned not to compete with China and India, but to manage and incorporate them into their global corporate strategy. For example, the top exporters from China are not Chinese enterprises, but Toyota of Japan, US-based GE and US-headquartered Caterpillar.
Looking at Canadian transportation trends, Fung suggested there was no future for long distance trucking. Trucks should be used for the last 200 kilometres of a supply chain. “We need to use rail and ships.”
Fung said Canada should start establish-ing simple container transfer terminals and exploit the potential of the whole Great Lakes/St. Lawrence system, emulating the extensive barge movements in Europe and on the Pearl River in China.
“We are the only continent in the world that regulates ourselves out of using short- sea shipping,” Fung said, citing develop-ments in Oshawa.
Instead of shipping auto parts directly from the GM auto plant in Oshawa across Lake Ontario to the US, the parts are shipped along the congested Highway 401
and enter the US by road.Fung attacked the US Harbour Mainte-
nance Tax, which charges a levy on shippers based on the value of goods. Thus, one can-not afford to transport high-value goods from ports like Oshawa.
Robin Silvester, president and CEO of Port Metro Vancouver, Canada’s largest port, declared: “We have witnessed in the past 15 years extraordinary growth, includ-ing the emergence of containers as the pre-ferred means of shipping, and significant public and private investment in ports. To manage the future, we can’t be compla-cent now.”
George Stalk Jr. of the Boston Consult-ing Group noted that even before the recent recession, global supply chains were rapidly approaching capacity with degradation of performance.
In this context, Stalk said that ports are elements in increasingly complicated global supply chains that are facing renewed con-gestion and capacity challenges. He alluded to a looming “infrastructure crisis,” pointing to such trends as loads on roads increasing by 10 times of capacity.
Rear Admiral Tyrone Pile, Victoria-based Canadian navy commander of Mari-time Forces Pacific and Joint Task Force for the Vancouver 2010 Olympic Games, held nothing back when evaluating the China Factor on the world scene.
“China’s maritime expansion has been phenomenal. The country that controls the oceans of the world dominates the econo-my,” Rear Adm. Pile said in reference to the Chinese naval and freight shipping presence in the Pacific.
He also referred to China as “the most important non-Arctic nation in the world” – indicating that China will soon join other countries that are conducting research mis-sions in the Arctic.
After listing great, past Canadian infra-structure achievements like the railways, the Trans Canada Pipeline and the St. Law-rence Seaway, Pile said, “The time is over-due to take the next leap forward as the gateway to North America.”
For his part, Tim Heney, president and CEO of the Thunder Bay Port Authority and newly-elected ACPA chair, said the As-sociation is working closely with govern-ments and other stakeholders to ensure that
Canada’s national port system is prepared to handle growing trade as the country emerg-es from recession. “It is clear,” he said, “that the current economic downturn presents an opportunity for Canada’s ports to invest in infrastructure and technology to be ready when global trade begins trending upwards.”
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Bruce R. Smith files for creditor protectionBruce R. Smith has filed for protection from creditors under the Companies’ Creditors Arrangement Act (CCAA).
The company filed with the Ontario Superior Court of Justice, which will give it time to restructure its business affairs. KPMG is the court-appointed monitor and Hamilton, Ont.-based law firm Scarfone Hawkins LLP will assist the carrier in its restructuring efforts.
Bruce R. Smith has been trucking since 1947 and celebrated its 60th anniversary two years ago. It operates about 250 trac-tors and 1,100 trailers out of six locations in Ontario and one in Montreal, Que.
The company currently employs about 325 people.
“As a result of the severe North Ameri-can economic recession, and particularly its impact on the North American automo-tive/manufacturing sectors, Bruce R. Smith’s revenues have declined significant-ly, and the corporation now has more equipment and equipment carrying costs than can be supported by its decreased rev-enue base,” the company acknowledged in a statement.
“While its revenue base is showing early signs of recovery and Bruce R. Smith has taken every possible step to address the nec-essary restructuring issues outside of formal legal proceedings, it has determined that it is in the best interests of its shareholders, em-ployees and creditors to seek protection pur-suant to the CCAA in order to restructure to bring its short- to mid-term cost structure in line with a lower revenue model.”
The company said its creditors are sup-portive of the application. Bruce R. Smith says it’s business as usual while it restruc-tures, as far as its customers are concerned. It also said it will try to retain as many of its employees as possible.
OCT NEWS P.6-10.indd 6 19/10/09 11:33 AM
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YRC and YRC Reimer reducecross-border transit times YRC, Inc. and YRC Reimer in Canada have enhanced their northbound and south-bound service between the US and Canada by reducing transit times in 5,500 lanes.
“As we expand our cross-border services provided by YRC and YRC Reimer, reduc-ing transit times is one more way we can offer better predictability and more precise delivery options,” said Mike Smid, president of YRC and chief operations officer of YRC Worldwide.
In addition to improved transit times, YRC and YRC Reimer say they provide a seamless experience through the availability of YRC Border Ambassadors – who work with customers to ensure proper shipment documentation – and integrated customs brokerage services through affiliated broker, YRC Logistics. Customs brokerage is pro-vided free of charge when new customers
book guaranteed or expedited shipments.YRC is also border-security compliant
and certified in the US Customs-Trade Partnership against Terrorism (C-TPAT) program, as well as the Canada Partners in Protection (PIP) program; the Free and Se-cure Trade (FAST) program of the Cana-dian and US governments; and the Cus-toms Self-Assessment (CSA) program.
World shipper group continuesto press for maritime reformThe Global Shippers’ Forum (GSF) wrapped up its annual two-day meeting in London, UK on Sept. 15, as it continued to press for other major trading nations to fol-low the lead of the European Union in abolishing liner conference exemptions from anti-trust laws.
The Canadian Industrial Transportation Association (CITA) joined with shipper groups from Asia, Africa, Australia, Europe
and the US at the GSF annual meeting. This year’s GSF meeting focused on mari-time regulatory reform, transportation se-curity, and the need for the GSF to expand its role with intergovernmental and inter-national agencies, such as the United Na-tions, to ensure that the concerns of ship-pers are effectively represented.
“This year’s meeting covered a number of issues of importance to Canadian ship-pers and importers and looked at ways to make the GSF a more influential voice for shippers throughout the world,” said Bob Ballantyne, CITA president.
The GSF Joint Declaration, issued at the end of the conference, cautioned that the current global economic slowdown should not reverse the tide of liberalization and competition in trade and international transport. The GSF continues to promote the end of legal shipping cartels and the declaration noted that Asia would be the
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focus for a GSF campaign for continuing regulatory reform of liner shipping. How-ever, the GSF does support non-ratemak-ing agreements in liner shipping, noting the efficiencies these can bring to both the car-riers and their customers.
Doug O’Keefe, chief of international marine policy and liability for Transport Canada, attended part of the meeting to brief the GSF on recent discussions by gov-ernments in the Asia-Pacific Economic Co-operation (APAC) group covering the oversight of non-ratemaking agreements. This was particularly helpful to the GSF in its work to promote global harmonization of regulations, Ballantyne said.
The other major topic covered was the growing barriers to trade from security and customs initiatives. The GSF emphasized its support for rigorous transportation secu-rity, noted that officials need to improve their consultation with the shipper com-munity, and particularly stressed the need for governments and international agencies to work for a more harmonized and com-mon approach to security programs.
The Global Shippers’ Forum comprises organizations that represent shippers (re-tailers, manufacturers, wholesalers) and their freight transport interests. These orga-nizations come from all around the world: from Asia, Africa, Europe and North America.
Canadian General Freight Indexcontinues downward slideThe cost of ground transportation for Cana-dian shippers continued to fall into the summer. In June, over-the-road transporta-tion costs declined 1% when compared to the prior month, and 11.8% when com-pared to June 2008, according to the latest results from the Canadian General Freight Index, published by Nulogx.
The Index has fallen consistently over the last six months, dropping 8.2% since the end of last year.
The reduction in costs is the result of the combined impact of declining fuel sur-charges and reduced base rates charged by carriers. In June, base rates had fallen 3.4% when compared to the end of last year, and 1.5% versus the prior month. The fuel sur-charge percentage has also fallen by 30% when compared to the end of last year,
although it did increase 4.9% in June versus May.
The CGFI is sponsored by Nulogx, a transportation management solutions pro-vider, and is used by shippers and carriers to
benchmark performance, develop business plans, and secure competitive agreements. It was developed with the assistance of Dr. Alan Saipe, president of Supply Chain Sur-veys, a long-time analyst and observer of
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newsin thenews
the transportation and logistics industry.According to Saipe, “There has been a
clear trend toward reduced transportation costs for Canadian shippers. Lower fuel prices, excess carrier capacity, and a highly competitive marketplace created a ‘perfect storm’ for Canadian carriers and shippers have benefited as a result.”
Results and additional information are available at www.cgfi.ca or www.nulogx.com.
23Rd AnnuAl TRAnSpoRTATIonConFeRenCe RepoRT
Transportation outlook brighter,but inventory must first clearFreight volumes, in the dumps for a couple of years now, will start to grow once again within six months, David Newman, a se-nior vice-president of National Bank Finan-cial, told the 23rd Annual Transportation Conference.
Newman said he has been looking for “absolute sequential increases” in the econo-my as signals that the worst is behind us, and he has been finding them. For example, the ISM new orders index is definitely showing green shoots within the troubled manufacturing sector, Newman told the conference, which was organized by well-known transportation lawyer, Richard Lande, and held this year at Ontario Place along Toronto’s lakeshore.
“We need the (existing) inventory to clear and then the new orders will kick in…We are seeing firming of demand, but no outright bulls,” Newman said.
Looking specifically at how the modes are faring, Newman said things are looking a “tiny, tiny bit better” for the Canadian Class I railroads, which have suffered a valuation drop of around 25%. Their stock price is now starting to recover, Newman said. Rail, with its focus on bulk commodities, is somewhat less sensitive to downturns and has a diversified customer base with some long-term contracts. Also, during a reces-sion, shippers are more prone to shift to a lower-priced mode.
Rail is also progressively taking market share away from trucking competitors at the border, likely thanks to issues with bor-der congestion. James Cairns, vice-president of intermodal and ground transportation for
CN, also told the conference that his com-pany is looking to take a bite out the trans-border reefer market, which is basically a 100% truck solution, currently.
Trucking is a $67 billion sector in Can-ada, controls 40% of transportation GDP and accounts for 90% of the consumer products and food moving in Canada. But it has been hit particularly hard by the re-cession and is not seeing the rate recovery that rail is starting to experience, Newman said. He also expects more bankruptcies as banks get more aggressive in culling truck-ing companies in dire straits when the used truck market rebounds and their equip-ment is worth more.
“He who has the best balance sheet and liquidity is the winner in a recession,” New-man emphasized.
Recovery, however, is in sight and the market leaders will be the ones best poised to leverage their scale to take advantage of the new market opportunities. Traditional-ly, the LTL market also tends to perform better during a recovery.
To appreciate just how badly manufac-turing has faltered the last couple of years, one need look no further than the automo-tive market, which has suffered a 21% drop in North American sales. George Magliano, a director with Global Insight, said the hole in automotive, a key customer for both truck and rail, is deep and it will take long to dig out. He projected that the US automo-tive market will not get back on track till 2012 and will not get back to pre-recession norms till 2014 while US production will take a big beating. The Canadian market looks a bit brighter, he said, although Cana-dian automotive production will continue to lose market share to Mexico.
“Demand will be weak for the next 18 months and production will be under pres-sure till 2013,” he said.
The spectacular demise of the North American automotive market, and of De-troit’s Big Three in particular, has made life particularly difficult for motor carriers and rail, which count automotive as a major customer.
“You can’t ship half a car,” said John MacGregor, president of TransDevelop-ment, pointing out the last couple of years have seen unprecedented cuts to rail car blocks and moving larger shipments only when needed. “However, difficult times
also present carriers with opportunities to focus on efficiency gains in areas such as scheduled less-than-daily headhaul moves, scheduled backhaul moves and better man-agement of their facilities,” he emphasized.
Mike Riggs, chairman and CEO of In-novative Equity, majority owner of Active Transportation and Jack Cooper Transport, is certainly a believer in finding a “pony amidst all the manure.” It is possible to im-prove margins, even during tough economic times, if you focus on a variety of areas to improve, ranging from better purchasing practices for fuel, tires and insurance, to im-proving load times and watching overtime. Investing in technology that identifies prob-lem areas and helps drive efficiency is key to turning a financial loser into a winner.
Speaking of watching costs, Paul Merrier, retail electricity manager with Comsatec, warned transportation professionals respon-sible for purchasing electricity to be wary of all the special deals in the marketplace.
“The great deals may not be so great as you think. If you are looking at hedging, you really have to understand the market dy-namics. And if they are putting time con-straints on you and pressuring you to make a decision, walk away,” he advised.
Just as important as keeping costs in line during a downturn is the need to challenge current ways of thinking when it comes to running our businesses and supply chain op-erations, said Gerhard Fiedler, president of Lime Route.
“When you look at the typical freight bill or warehouse document, there is a lot of du-plication and that results in cost some-where,” he said, adding that reducing sup-ply chain costs should not be about beating up on transportation providers over price, but rather about taking out concrete steps in the supply chain and reducing costs by im-proving efficiencies.
One area in particular that can yield sav-ings is sustainable transportation practices, such as taking into account how a supply chain needs to be designed to simplify recy-cling of products, pointed out Doug Tozer, CEO of the Wheels Group.
“Green initiatives will continue to ex-pand and we are representing the people responsible for implementing them. Ideas will have to come from the logistics groups and logistics providers of these organiza-tions,” Tozer said.
Toronto Pearson is the leading air cargo gateway in Canada, offering
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Transportation ans Logistics, The Forwarder
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889719_gtaa_1646_09_100.indd 1 9/17/09 9:04:23 PMOCT NEWS P.6-10.indd 10 19/10/09 11:33 AM
Toronto Pearson is the leading air cargo gateway in Canada, offering
world class facilities and infrastructure for all-cargo operators. Open
24/7, Toronto Pearson features five runways that can handle all types of
aircraft and offers 1.2 million square feet of airport warehouse space,
capable of processing 1 million metric tonnes of cargo annually.
Internal:
Client: 1
Studio #:
Agency #:
31011660
31011646
Date: September 09
Ad #: gtaa_1646_09_100
Client: GTAA
Job Description: Cargoitalia Ad
Transportation ans Logistics, The Forwarder
Art Director/Date Acc. Manager/Date
Account Service/Date Acc. Director/Date
Copy Writer/Date Proof Reader/Date
Prod. Manager/Date Client
Mechanical Approval
Mechanical Size:
Colours:
8 1/8” x 10 7/8”
4 colour
Publication List or Component
Announcing nEW intErnAtionAl FrEightEr SErvicE bEtWEEn toronto PEArSon And MilAn, tWicE WEEKlY. viSit WWW.cArgoitAliA.it to lEArn MorE.
889719_gtaa_1646_09_100.indd 1 9/17/09 9:04:23 PMOCT NEWS P.6-10.indd 11 19/10/09 11:33 AM
In April 2005, when Carlos Maciel started work as the inventory manag-er for RMP Athletic Locker, he found
himself in the right place at the right time. Earlier in January, the company had installed the Accellos One Ware-house WMS (warehouse management system) software in its 19,646 sq. m. (211,645 sq. ft.) Mississauga, Ont. distri-bution centre (DC).
Before the introduction of the new WMS, RMP managed inventory using a paper-driven manual system. But the One Warehouse implementation and the firm’s extensive process reengineering ef-forts helped kick-start an enormous pro-ductivity drive. In four short years, the number of SKUs (stock keeping units) the DC handles has quadrupled to 55,000 from 13,000, while the head count dropped 60% to 60 employees from 150.
The Accellos application has made it easier for RMP to prepare and manage “perfect orders” for retail customers in the savagely competitive world of athlet-ic shoe and active wear marketplace. “The software made order picking more focused,” says Maciel. “With the old ap-proach, order picking was random.
“And since the system was simple to understand and use, workers easily switched from manual to computerized picking. It’s all based on logic, so it makes sense so everything in the DC happens smoothly. The system is now the founda-
tion of how we manage the DC. It helped us reach the next level.”
One Warehouse is easy to maintain, since DC staff can handle it on their own. They only bring in the IT department to deal with updates and occasional tweaks. One Warehouse also links seamlessly with the Microsoft Navision ERP (enter-prise resource planning) system that serves as RMP’s IT backbone and with the corporate database that feeds inven-tory information to the WMS.
The One Warehouse application has Canadian roots since Accellos acquired Toronto-based Radio Beacon in 2006. “Our other Canadian acquisition was Headwater. Both are developers of our core products, Accellos One WMS and Accellos One Logistics, respectively,” says Tim Baumgartner, Chicago-based director of central region for Colorado Springs, Colo.-based Accellos. “Overall, about 65% of our employees are in our Markham and Oakville offices.”
Besides the new technology, other processes helped modernize the DC. The transformation resulted from teamwork involving all RMP executives starting with the owners Mike and Paul Dyon along with John Kotarba (vice-president of operations and logistics) all the way down to DC employees. For example, IT director Jeff Bach and IT systems analyst Domenic Rozzi decided early to intro-duce one-on-one training for all DC em-ployees – even those that had already
12 CT&L OCTOBER 2009 www.ctl.ca
How a WMS and some reengineering kick-started an enormous productivity drive at RMP Athletic Locker
B y K e n M a r k
OCT RMS P.12.13.indd 12 19/10/09 11:36 AM
13ct&l october 2009
been trained before. But it took four or five months for major benefits to appear.
To reduce employee push back, facility managers, along with IT, made sure that DC staff became comfortable with the new system. They trained them to use it properly, emphasizing how it would make their jobs easier, faster and more accurate. “We did not want them to be afraid of su-pervisors,” Maciel says. “We told them, we’re here learning the system with you.”
Employees have responded to such poli-cies with their loyalty. More than 50% of RMP’s core DC employees have worked there for more than 10 years.
The system also enabled RMP to reorga-nize the DC’s layout. Clustering brands to-gether in various sectors, as well as separat-ing major retailers’ stock from random customers’ items, resulted in better-orga-nized picking. And to simplify picking even more, inventory items were further broken down into size, colour and style.
Overall, RMP handles 25 different brands of athletic footwear and clothing, including Brooks, Fila, Powder Room, Ripzone and Umbro. Some of the targeted sports activities are soccer, skate, running and snowboarding.
Thanks to computerization, pickers sim-ply follow the instructions on their hand-held scanner screens. They guide pickers through the process by indicating which bin to go to, how many items in the order and the next stop within the zone. Since the goods have been consolidated in rational sectors, pickers no longer need to run around all over the DC. Such convenience helps boost picker productivity while re-ducing their frustration. On very busy days, the DC handles as many as 500 orders, to-talling about 60,000 units.
The system also increases pick accura-cy. As pickers scan an item, the scanner will beep if it is the wrong one. But if the beep is missed, as the carton containing the picked items rolls down the line to the shipping department, an overhead scanner compares the contents of the box against the pick list on the box. If the two do not match, the conveyor diverts the box for manual inspection.
RMP plans to take advantage of a future enhancement that will add another accura-cy check. Currently, RMP records the indi-vidual weights of all incoming SKUs in its
database before they are put away. Later, when the completed box is on its way to shipping, an overhead scanner can compare the weight of the individual items in the carton against those on the pick list and de-tect if the shipment is underweight. If it is, the carton is diverted for con-firmation.
This is another example of RMP’s overall continuous improvement philosophy. “We tell our employees, ‘If it is not broken, break it,’” says Bach. “That’s how we analyze what’s happening and make it better.”
To handle system updates, RMP maintains a fully functional virtualized test environment to facilitate user evaluations. “We can try out different options without affecting our actual operations,” says Ma-ciel. “It’s not live or real, so it’s more like a video game. But it gives us an idea of the new functionalities and what they could do for us. We can also test it against what we already have.”
Another benefit of the new system is fewer customer complaints. According to Maciel, RMP’s customer service level now exceeds 90%. And in its last three year-end inventory audits done by a third-party firm, the results achieved close to 99.8% accura-cy. The DC usually contains about 2.3 mil-lion units.
In addition, by updating the organization of its fleet of product movers, RMP has squeezed more racks into the same space. As a result, the company was able to accom-modate the inventory gained from repre-senting another major brand, Fila, that had been kept in a separate 3,902 sq. m. (42,000 sq. ft.) DC.
Another contributor was updating its goods-handling vehicle fleet. For example, conventional forklift trucks require 9-ft.-wide aisles between racks to turn and ma-noeuvre. Cherry pickers only need aisles just over 4 ft. wide. And Swing-Reach lift trucks need only 6-ft. aisles since their forks need even less room to pivot. RMP now uses the excess space as a staging area to provide value-added services for a few re-tail customers.
Other improvements are in the works. RMP is banking on One Warehouse up-dates such as multi-client configuration ca-pability. By managing segregated major cus-
www.ctl.ca
tomer inventory better, it can meet their orders in a more timely way. For example, if the DC has 1,000 total units of a particular SKU – 500 for major customers and 500 for random ones – and a major customer wants all 500 and even a few more, RMP can “borrow” some of the other stock to meet the order.
But if random customers need more than 500 of the same items and RMP bor-rows some from the major customer’s stockpile only to have the major customer order 500 items, it faces a real problem. But by eliminating such conflicts, One Ware-house can further boost service levels to both types of customers.
On a more everyday level, Bach is look-ing forward to using the updated applica-tion for printing custom labels. “We now use a separate application that makes edit-ing and duplicating very difficult,” he says. “The update will automatically save previ-ous versions, simplify changes and print la-bels faster and easier.”
But the last word belongs to Maciel. “In a DC, you move goods in and out as quickly as you can,” he says. “In a warehouse, you store products for longer and use it more as a staging area where you have value- added services.”
The Accellos One Warehouse system enables RMP to automate both approaches in the same facility. CT&L
Veteran technology expert Ken Mark has covered supply chain manage-ment since it was called distribution and has documented its legitimiza-
tion as a critical business function. He holds an MBA from York University.
By implementing the Accellos One Warehouse WMS, RMP Athletic Locker has quadrupled its SKUs, lowered staff levels by 60%, and enjoys close to 99.8% accuracy.
OCT RMS P.12.13.indd 13 19/10/09 11:36 AM
14 CT&L OCTOBER 2009
cover
Couriers’ express retail outlet strategy has stuttered.
Can it survive under a better economy?
B y I a n P u t z g e r
LookingBeyondthe Box
story
OCT COVERSTORY 14-26.indd 14 19/10/09 11:40 AM
15CT&L OCTOBER 2009
storycover
The savage downturn in business is forcing the large ex-press carriers to revise their retail outlet strategy. Bold expansion projects they embraced two to three years ago have turned into millstones on their balance sheets.
In the quarter that ended May 31, FedEx took a US$810 million goodwill impairment charge related to the acquisition of Kinko’s, which it had bought in 2004 and subsequently rebranded FedEx Office. FedEx Services, which includes FedEx Office and FedEx Global Supply Chain Services, posted a 13% drop in revenues dur-ing the quarter, which management attributed largely to declines in copy product revenues.
The write-down marks the latest disappointment in the Kinko’s saga for FedEx. In May, it bowed out of the British market when it sold its five Kinko’s locations in the UK for an undisclosed sum. Last September, FedEx had announced that it would close the Kinko’s operations in Australia, the Netherlands and Mexico.
Florida-based transportation consultant Albert Saphir is not sur-prised by the international retreat. “The set-up and structure is more of an American concept. Overseas, the postal service is play-ing a different role in many markets, and people don’t ship as much personally and don’t work as much from home as in North Ameri-ca,” he comments.
This assessment matches with the sale of UPS’s international network of Mail Boxes Etc. to Italy’s Fineffe Group in May. Already the largest master licensee for the brand with branches in four Eu-ropean countries, Fineffe gained the master licence agreements for 1,227 Mail Boxes Etc. locations in more than 30 countries. UPS has held on to the UPS Stores and Mail Boxes Etc. brands in the US, Canada and India.
However, the malaise at Kinko’s goes beyond the international arena. A year ago, FedEx already took a US$891 million charge in relation to dropping the Kinko’s name. Several efforts to turn the operation around failed, including a change in top management last year.
It was not supposed to go this way when FedEx bought Kinko’s for US$2.6 billion five years ago. The SME market was growing rapidly, promising good returns for facilities that combined office functions with shipping services. In 2006, Kinko’s declared that it would add 200 new outlets in the US to its network. The same year saw the opening of its twenty-second outlet in Canada. Besides boosting its footprint, the company was also experimenting with larger retail outlets that stocked up to 2,500 products, as opposed to some 700 in standard locations.
“It’s certainly not the goldmine that people had anticipated, al-though it does facilitate access,” says Saphir. “In hindsight, Kinko’s probably was not worth over $2 billion, but when they made the investment there was no banking crisis, no economic downturn, no drop in shipping. The market looked altogether different then.”
The painful decline in business this year has forced FedEx man-agement to revisit the retail strategy with a view to reducing cost. “The recession has brought under scrutiny the whole retail concept. It’s not really a core business; you have a lot of overheads, and volumes are down,” says Gary Breininger, president of Infobase Marketing.
However, he does not regard the retrenchment as a harbinger of a complete withdrawal from retail. For that matter, FedEx is signal-ling that it intends to hold the line. “We don’t have any closure plans for Canada at this time,” declares Sonya Thorpe, a spokesperson for FedEx Office.
“We provide customers with access points to shipping and print-
ing expertise through our digital and physical networks, and these access points are an important channel for the FedEx transportation network,” she comments. “FedEx receives almost $1 billion in ship-ping revenue through the FedEx Office network every year.”
Breininger agrees that retail outlets play an important role for the express shipping business. “It is a big win for courier companies to have a good retail strategy,” he comments. “If you can drive up den-sity, that’s the fastest way to add profit to your bottom line. It di-rectly contributes to profitability.”
Moreover, SME customers, the main target group for this strat-egy, are not eligible for the corporate discounts that come with regular high-volume shipping, so the margins tend to be higher, he adds.
“I don’t think the whole retail concept is being abandoned. It is morphing, changing in structure,” he concludes.
Shortly after the Kinko’s write-down, FedEx gave an indication of a new direction in its retail strategy with the conclusion of a multi-year partnership agreement with OfficeMax in its home mar-ket. The retail chain will offer domestic services of FedEx Express and FedEx Ground in over 900 stores.
The cooperation kicked off in June in a number of locations in Chicago and Memphis. By this fall, all OfficeMax outlets in the US should be on board, accepting drop-off packages from FedEx customers.
“This expansion of the FedEx retail network is designed to ben-efit express and ground shipping customers, including small busi-ness shippers and consumers,” commented Michael Glenn, FedEx executive vice-president for market development and corporate communications.
Breininger views the OfficeMax alliance as a step that leaves all options open, but over time, he anticipates a migration to the part-nership approach. He points to Purolator’s arrangement with Sta-ples which was introduced in 2006, which gave the express com-pany more than 250 retail outlets. “It’s been around for a few years now, which suggests that it’s working,” he says.
Saphir sees no danger that the new partnership could cannibal-ize business at FedEx Office stores. The number of FedEx Office outlets is relatively low, compared to the UPS Stores network, so there should be relatively little overlap with OfficeMax locations, he reckons.
According to previous experiences with retail points, the danger of cannibalizing existing business seems small. Neither Purolator nor the two big US express firms saw a decline of business in their pure courier locations when they embraced other retail options like Kinko’s Mail Boxes Etc. or (in Purolator’s case) the Staples alliance, they claim.
Over the next 12 to 24 months, Breininger expects to see more alliances between express firms and retail chains, but he does not anticipate a stampede in this direction any time soon. “The market is still down. People have enough on their plates – cutting costs, retaining customers, adapting to market conditions – to do much with alliances in the retail space,” he reflects.
FedEx seems in no hurry to expand its OfficeMax deal beyond the US. The agreement does not extend to Canada, and there are no plans to do this in the near future. CT&L
Ian Putzger is an award-winning journalist with more than 20 years experience covering transportation and logistics issues. He is a former writer and editor with the Hong Kong-based Asian Sources Media Group, and Airtrade, a British magazine covering the global air cargo industry.
OCT COVERSTORY 14-26.indd 15 19/10/09 11:40 AM
16 CT&L OCTOBER 2009 www.ctl.ca
let’s get surgical
COST SAVING STRATEGIES THAT ARETHE MOST DIFFICULT TO IMPLEMENT
Continuous moves and tours play a much smaller role in order optimization savings, and are usually approached when all other optimization opportunities have been exhausted. The most difficult task to implement, one that requires more work, more time, and more money, is network modeling. For certain companies, network modeling is likely to offer good savings potential.
CONTINUOUS MOVES
What it is: Combining full truckload orders into a string so you can leverage rates from a low cost area into longer moves.
Who benefits most: Those who have implemented all other methods of optimization.
How long it takes: Ongoing process for TMS. The big issue is the timing of pick-ups and deliveries.
Estimated savings: Total savings will probably be less than 1% of the transportation budget.
When full truckload orders can be combined into a string so you can leverage rates from a low cost area into longer moves, you’ve cre-ated a continuous move. For example, at one point in time in 2005, a load from Miami, Fla., to Atlanta, Ga., cost roughly $585, and a move from Atlanta, Ga., to Chicago, Ill., $870. But a combined load from Miami to Chicago with an Atlanta stop at that same time cost $1,355 – a savings of $100. In the case above, where the savings on the load was 7%, more than 14% of the truckload shipments would have to be turned into continuous moves to make the savings hap-pen. This would be 28% of the truckload shipments, since it takes two shipments to make a continuous move. The biggest problem with continuous moves is timing. Unless you can pick up the second load right after you deliver the first, the economics don’t work. Even when both pick-up and delivery happen at the same facility, inbound and outbound are typically controlled and scheduled by different individuals and departments; usually each of these individuals is try-ing to minimize the labour costs in their own receiving or shipping departments, not reduce transportation costs. Even with good systems and good tools, the cost of managing a continuous move can quickly become cost-prohibitive.
Part IV of our series on where to find the biggest, fastest transportation savings. There are many ways
to reduce transportation costs. But the smartest supply chain managers understand which options produce
the best results for the effort involved. At an SCL seminar moderated by editorial director Lou Smyrlis earlier this
year, Kevin McCarthy, manager of logistics at C.H. Robinson, outlined how to prioritize such methods
according to their ease of application. In previous issues, we profiled the easiest options to implement and
strategies that would require more work to pay off. In this final installment of our series, we look at the most
difficult strategies to implement and the savings possible by implementing them.
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TOURS
What it is: A company and carrier work together to achieve continuous moves and to reduce deadhead miles, on the theory that the car-rier will share the resulting savings and want to do more business with the company.
Who benefits most: Works best for short-haul freight.
How long it takes: Typically found in an ongoing manner by using a TMS. If collaborating with other cus-tomers, you will have to reach out with data; overhead from these efforts can significantly
cut into any savings on the rate side.
Estimated savings: From 1% to 30% at the load level, with a total savings potential of less than 1% of the total transportation budget, in most cases.
Tours, and collaborating with other com-panies to create tours, is the hot trend in the industry, something everyone aspires to do. Tours require a modeling tool that looks for highly repeatable movements to string together, creating cost-effective roundtrip tours. There can be a high risk if your net-work changes and there is no longer a need for contracted, dedicated assets.
Tours have some built-in flaws that you should know about before you attempt them. They are based on the assumption that if you take deadhead out of a carrier’s network, the carrier is going to want to share the money with you instead of keeping it for themselves. In a seller’s market where there is a shortage of equipment and plenty of freight to be had, there is very little incentive for the carrier to share the savings. In a buy-er’s market, where there is more equipment than freight, an interesting phenomenon oc-curs. In a buyer’s market, carriers that are not well capitalized have the least ability to weather the storm. These carriers are the quickest to lower their rates below market level to keep cash flowing so they don’t go out of business. Since this sub-group of carriers is already willing to give you below market rates, it becomes difficult to create a tour that is below market. And finally, even if the carrier shares some of the savings with you, you have to figure out how to keep as much of it as possible after taking into ac-count what you paid to administer the tour.
On average, how much money per load is there to split with the carrier on a tour that proves successful? Consider an average move of $700, with an average rate per mile of $1.65 and 15% deadhead; total deadhead costs are less than $100. If, by creating a tour, you could reduce the deadhead to 5%, you would have less than $70. Your take, after splitting with the carrier, is less than $35, which must cover all the administrative costs for your optimization effort.
* Even with a good TMS, these types of moves have high administrative overhead –
Continued on p.24
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20 CT&L OCTOBER 2009 www.ctl.ca
n recent months, CT&L hosted two separate panels fea-turing some of the sharpest minds in over-the-road trans-portation. We combine their comments in this issue to help shippers gain a top-level look at what will shape their future dealings with truck service providers. Included in the panels are: Joe Guimond of Purolator Freight; Doug
Harrison, president of Calyx Transportation Group; Dan Einwech-ter, CEO of Challenger Motor Freight; Julie Tanguay, executive vice-president of sales with MacKinnon Transport; Doug Munro, CEO of Maritime-Ontario; and Serge Gagnon, CEO of XTL Transport.
CT&L: Looking at over-the-road transportation, there is some very real pain in the marketplace. We are perhaps facing the worst transporta-tion-related recession since the ’70s, with many bankruptcies and a se-vere drop in company valuations. Just how bad are things right now?
Guimond: I think there is a lot of pain on both sides of the bor-der, with probably a little bit more pain south of the border. But pain is pain and we are certainly experiencing our fair share of that pain in Canada.
Harrison: One of the biggest challenges will be the impact of the dollar on Canadian manufacturing (a key customer base for truck-ing). We’ve also seen big shifts in fuel pricing, so how do you react to that? I think overall you will see further consolidation in the in-dustry, in Canada and in the US. And I think it will be very much like any other industry, the strong will survive while others will ei-ther restructure or go out of business.
Einwechter: One of my sayings is that volume is vanity and prof-it is virtue. There are not many virtuous carriers right now. If I talk to American or Canadian carriers, the general theme is freight vol-umes are down anywhere from 15% to 30%. If you look at new truck sales they are down significantly because of that. I heard ear-lier of a major shipper doing quarterly checks on its carriers. I wish more shippers would do that to check out the financial viability of the carriers hauling their freight. Make sure you work with the right
carriers because there are big challenges and there are failures either occurring or going to occur. Do I like it personally? I don’t like living through it, but as a carrier that is big and substantial, I think it will be good for the long term. It’s nature’s way of culling the herd. But it hurts like hell.
CT&L: As leaders in the industry, you all have implemented, I’m sure, survival strategies to take you through this time. What would you say have been the most effective strategies you have implemented?
Harrison: It’s a multi-pronged approach which includes making sure we are operating effectively, making sure we have the right headcount, are spending capital correctly, and we have the right dialogue with our funders and lenders. The other piece is the fact this presents an opportunity as well. In March, we announced the acquisition of three carriers, we are continuing to make investments in the business, we are top-grading talent and adding new roles. It comes back to financial stability, not only during this period, but in the period that follows, because if you don’t manage through this and be ready for the upside, you will be suffering.
Guimond: The most important strategy, for sure, is to stay close to the customer. Understand what they are going through and under-stand their needs and the needs of their customers. It’s very easy during these times when freight volumes drop to do your analysis to just assume that the decline in business you are experiencing from a particular client is because of the economy. It’s important to separate the economic decline from customers who may have left you. An-other important strategy is to enhance and accent for your customers your value proposition. What are you bringing to the customer to help them get through this difficult time? Understand their business, understand their supply chain and then point out how your value proposition is going to benefit them during this time.
CT&L: There are more than 10,000 for-hire trucking companies in Canada, so there are likely a lot of strategies out there for surviving the downturn. When you look at the industry, what are some of the strate-
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sssmmmmmmProminent trucking CEOs speak frankly about the fight to survive their industry’s greatest down market
n recent months, turing some of the sharpest minds in over-the-road transportation. We combine their comments in this issue to help shippers gain a top-level look at what will shape their future dealings with truck service providers. Included in the panels are: Joe Guimond of Purolator Freight; Doug
iii
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21CT&L OCTOBER 2009www.ctl.ca
gies you see being put in place that are the wrong ones and may be making it difficult for everyone else?
Einwechter: The obvious thing that is occurring is rate stupid-ity. We have been in business for 34 years and when I talk to our new class of driver recruits every week, I tell them that we make decisions every day that hopefully will allow us to stay in business for another 34 years. But it’s extremely tough in a marketplace where a lot of our competitors are making decisions for the next 34 days or even the next 34 hours. They need cash flow, they have truck payments to make – I liken truckers to the Old Wild West. They go into a bar, get in a fight, dust themselves off and go back at it. They can’t do that anymore though – they’re getting older. I see a shift happening. This recession in trucking has been going on since August of 2006 and the stamina is just not there. So we are seeing a lot of prospectuses coming across our desks from carriers that would like to exit with some dignity. There are a lot of really good people in this business, but I am surprised at the number of carriers who have been able to continue to exist in a very challeng-ing environment and there are a whole number about to fail.
CT&L: We went through a good three or four years of strong financial times. I would have assumed during those times there would have been some money set aside by these companies to weather a future storm. We know that we get an economic downturn about every seven years or so. What happened?
Einwechter: I think that did happen to some degree, so people are living on borrowed time. There is a saying that a bull market disguises intelligence or lack thereof. I think that’s what happened; with the dollar at 60 cents, getting paid in US dollars was great, trucks were getting financed at 110%. You would actually get the truck financed, get the money for the GST, pay for the truck a month later and get the GST refund – not a bad deal. We were out of sync and that’s why there was such a proliferation of new carriers. But at the end of the day, we are in a demanding, challenging envi-ronment where we need the technology to monitor the freight; we need to on-time metrics. I welcome metrics. Tell me that I need to perform at a certain level and measure me, or if you can’t measure me, I’ll do it and report back to you. That is key. That’s where so many carriers now are not going to make the grade, because they don’t have the ability to invest in technology, the desire or the inter-est. They are spending their kids’ inheritance now.
CT&L: By how much would you estimate capacity has decreased in your sector, and is it likely to come back?
Guimond: It’s difficult to place an absolute number on the capac-ity reduction that has occurred, but certainly there has been signifi-cant capacity reduction in all the transportation sectors. Especially with the idling of equipment, laying off of drivers and reduction to the volumes experienced. When the economy does come back, it will be those carriers who have set up processes and procedures to improve their service and improve their relationship with custom-ers that are going to thrive. When the volume does come back, ca-pacity, especially for the LTL industry, is fairly easy to ramp up again with respect to drivers and equipment. There are areas of the country, Western Canada for example, that may experience diffi-culties as we did before, but overall, the ability of the industry to ramp up capacity is fairly good and somewhat flexible.
CT&L: In the past, whenever we’ve had an economic upsurge, a lot of the capacity additions have come from the smaller and medium-sized companies. Will those players be able to come back this time or is the financing so tight that those players will no longer be able to be players?
Harrison: I’m going to express a different opinion. I don’t think you are going to see capacity come back. I think the pressure from the capital markets and the learning that has gone on will make people much more cautious coming out of this downturn. Volumes now are off 20-25% and you look at some of the forecasts for 2010 for maybe 4-5% growth, you are still not going to see the return to capacity we’ve seen in the past. I think we’re coming into a very different world entering 2010. I think you will see everyone focus-ing on what investment to make and you will continue to see bank-ruptcies and consolidations. The strong will survive, but the chal-lenge will be with the small and medium-sized carriers who will struggle because at the end of the day, if you don’t have cash, you can’t pay, and margins have always been tight in this industry.
Einwechter: The trucker is the last frontier of the cowboy and the entrepreneur and I think that’s great. But it will be tougher to do that, and with all the challenges out there, the numbers will definitely go down. In regards to capacity specifically, I’ve spoken to carriers who have taken 15% capacity out of their fleet and we are probably about the same. But when volumes are down 20%, there is still some space to tighten up before seeing the rebound. As far as
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growth, the big regulators of this industry will now be the financial institutions and the insurance companies. The banks are going to be so much tougher in their criteria to lend money, so you are not go-ing to see easy access to capital. By 2013, when all of this is in the rearview mirror, it will get looser again, but not as liberal on the liberal policies as we’ve experienced.
CT&L: Ten years down the road, do we see a much more consolidated industry? How is that good for shippers?
Tanguay: I think we will see more consolidation, but the ones that have made it through this tough time are going to look at their succession plans and their long-term strategies. We are not seeing a lot of mergers and acquisitions right now, but I compare it to retire-ment investments – whatever we had put away, everybody took at least a 20% hit and it happened so fast. The same thing is happening with these small private companies. Things were going great and then the recession hit and balance sheets were being weakened and the trucks were not worth what they once were. A lot of these small carriers are family operations, they’re lifestyle operations, and they have a lot of blood, sweat and tears, maybe one or two generations in. They have a perception of what they are worth and a buyer comes in and explains to them mathematically what he thinks the company is worth and the two numbers don’t jive. I think some of these operators are going to spend the next couple of years rebuild-ing their companies, rebuilding their balance sheets with the intent to sell because they don’t want to go through this once again. On the upturn, you will see more mergers and acquisitions.
Harrison: I think we will see more consolidation. There is no doubt about it. There are carriers that want to be seen as an acquisi-tion target. In terms of a benefit to the shipper, I think there is great benefit. There is economies of scale, the ability to invest in the busi-ness, the ability to have greater reach, not only domestically, but globally. It’s stronger companies which create a stronger industry and bring more value back to the customer. It will be a good thing for the industry.
Guimond: I definitely see mergers and acquisitions occurring. They are occurring right now and will continue to occur. If the ac-quisitions are strategic in nature, such that the acquirer is increasing their scope and capabilities, it will be beneficial for shippers when the carrier provides a better and broader product for their customers.
CT&L: One of the most interesting trends we’ve found in our research is the changes in growth between transborder and domestic freight. Of course, we all know that transborder freight has been hurt the last
couple of years but, in fact, we have been following a trend since 2002 which has shown domestic freight growing three times faster than transborder freight. Do you see this trend continuing after the economic recovery?
Gagnon: Our domestic business right now has not been impacted by the recession, I must say. With our openings in Vancouver and Calgary, our business is 50% domestic and going the way that do-mestic will be an increasingly bigger part of our business. We have basically retail clients in our domestic business and business is still fairly good. While some clients’ business is down 1 or 2%, with some clients it’s up. If you are hauling basic foods, for example, business is growing for bulk stores.
CT&L: What does this mean to you from a competitive standpoint? Are we going to see more carriers trying to move into national domestic and regional lanes as their other business starts to hurt? Are we going to see more regional players grow into super-regionals, like Pitt-Ohio in the US, covering a larger part of the domestic market?
Munro: Yes, I think it will be exactly like you said. There will be a general changeover to more regional types of carriers. Business grav-itates to where successful business is, so to the extent that the Ca-nadian domestic market is growing, or at least shrinking less than the rest, there is that movement. And, as you say, as regional players get into the market, they will try to bolster the lanes they are servic-ing or add on to them to sell their clients into more services.
Tanguay: As more 3PLs become players in the purchasing de-partment of the shipper, I think we are going to be very challenged to use the relationship to really sit down across the desk and share costs. We do that now; we show customers what it costs to serve a lane. When you are dealing directly one-on-one with a shipper, they understand it, they want to see you healthy, they want the long-term relationship. But once the 3PL gets in between, it’s going to be harder to have those conversations. The 3PL model is not what we have built our company on over the past 60 years. We did business with one shipper for three generations on a handshake, not one piece of paper was signed. I think we are going to be really chal-lenged over the next few years. There are almost going to be two lists of customers. I know which customers are going to get our ca-pacity and which ones are not going to get our capacity. I do believe capacity will be tight. When supply and demand is going to be in our favour, there is going to be aggressive action. I think there is go-ing to be the attitude that the industry has been kicked pretty hard and we are bruised and cut pretty bad and I know quite a few carri-ers are looking forward to the recovery. CT&L
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in the range of $15 to $20 per tour – since there is a higher incidence of difficulty once two or three shipments are strung together.
NETWORK MODELING
What it is: Network modeling compares transporta-tion costs, but also considers inventory and manufacturing costs when optimizing a net-work. A model needs to be built at the item, family, or department level, depending on the company and mix of products. Cross-functional teams are required to build and validate findings.
Who benefits most: Larger companies with multiple distribution points that are look-ing for the next level of growth, or those that have acquired com-panies recently and haven’t looked at how the distribution networks overlap. Also valuable for compa-nies that are reengineering networks and making strategic tradeoffs be-tween inventory, transportation, and service.
How long it takes: Depending on the company’s size, it can take three to six months to gather the data required to build and baseline a network model; costs easily run $100,000 or more. Maximizing the investment in network modeling requires ongoing man-agement so that potential changes in the network can be constantly evaluated.
Estimated savings: Savings can be very large (20% to 30% is not uncommon) if the company improves its in-stocks and if inventory can be eliminated with network changes.
Network modeling is the key tool for strategic savings, since it makes a compre-hensive assessment of current transporta-tion, inventory and manufacturing costs and develops strategic models for optimizing the entire supply chain. The strategic mod-els created during the network modeling process are not a precision tool. They bring
you into the vicinity of where you need to be. They won’t tell you whether to put a distribution centre in Long Beach or in the Southern California desert. They will tell you that Southern California makes more sense for the DC than Sparks, Nev.
The biggest difficulty with network modeling is collecting the baseline data. It is not an insignificant effort to collect ship-ment history and rates and to understand the capacity of various DCs. It becomes very complex if an organization has acquired two or three other companies, each with its own challenges.
When multiple entities are involved, different data
sources and different methodologies for ac-counting for costs can be at play, adding to the problems.
Logistics consultants can usually find a way to get to the needed data, if they look long enough and hard enough.
But if collecting all the required data has its difficulties, it is also one of the big-gest advantages of doing network model-ing. Without common data, there will be competing data and assumptions, some more aggressive than others, within a com-pany. Developing a network model creates a shared understanding of how the network works, and a shared set of assumptions and
data to be used by all teams considering changes.
Savings can be very large (20% to 30% is not uncommon) if the company improves its in-stocks and if inventory can be elimi-nated with network changes. This is huge and meaningful, not just to transportation and distribution, but to the company’s bot-tom line.
SAVINGS AND THE SPEED OF CHANGE
As you work toward optimizing your sup-ply chain, savings are the light at the end of the tunnel. But just as each company has a hierarchy of tasks that will lead toward optimization, each organization will also have its own tolerance level for changes that are necessary to produce those changes. When multiple divisions and business units must agree on and implement process changes, achieving the highest possible levels of savings may take longer. Buy-in and support from the highest levels of manage-ment can help facilitate the process of change. So can skilled logistics consultants, who regularly use all of the optimization tools and know how to get the most value out of them.
Using a particular method of optimization for one pur-
pose can sometimes become a catalyst for further change in another area. Consider, for instance, that when a TMS is imple-mented, it forces discipline into the order shipment process cycle. Quite often, the enforced discipline will expose irrationali-ties in the current process. For example, manufacturers without process controls will sometimes allow customers to change their orders right up until the shipment ar-rives, and certain customers tend to get into the habit of making changes of this sort. As the TMS captures the data, the com-pany will learn exactly how much it costs to make these last-minute changes and how it negatively impacts the bottom line. The company can use the information to make more changes that will lead to savings and improve overall profits. CT&L
functional teams are required to build and
nies that are reengineering networks and making strategic tradeoffs be-tween inventory, transportation, and
Depending on the company’s size, it can take three to six months to gather the data required to build and baseline a network model; costs easily run $100,000 or more. Maximizing the investment in network modeling requires ongoing man-agement so that potential changes in the
its own challenges.
When multiple entities are involved, different data
As you work toward optimizing your supply chain, savings are the light at the end of the tunnel. But just as each company has a hierarchy of tasks that will lead toward optimization, each organization will also have its own tolerance level for changes that are necessary to produce those changes. When multiple divisions and business units must agree on and implement process changes, achieving the highest possible levels of savings may take longer. Buy-in and support from the highest levels of management can help facilitate the process of change. So can skilled logistics consultants, who regularly use all of the optimization tools and know how to get the most value
pose can sometimes become a catalyst for further change in another area. Consider, for instance, that when a TMS is imple
Continued from p.18
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26 CT&L OCTOBER 2009 www.ctl.ca
The economic downturn is serving as impetus for shippers to reconsider the roles 3PLs are allowed to play in their supply chains, according to the 14th Annual Third-Party Logistics
Study, completed this year. North American shippers devote, on average, 47% of their total
logistics budget to outsourcing, but tend towards outsourcing logis-tics activities that are more transactional, operational and repetitive, and less frequently those that are more strategic, customer-facing and IT-intensive. However, this year’s survey found shippers more open in the future to outsourcing strategic services that may be available from 3PLs.
The economic downturn has challenged shippers to better deal with factors such as unpredictable demand, volatility in fuel costs and currency valuation, and excess inventory. And some of the strat-egies they are putting in place to deal with these issues could lead to greater use of outsourcing. Nearly 60% of shipper respondents agreed that current conditions are serving as an inflection point to rethink their supply chains as well as their relationships with 3PLs.
“It is very important for us to mitigate or reduce any adverse service level impacts or financial risks that result from the current economic environment,” concurs Mark Holifield, senior vice-presi-dent of supply chain management at The Home Depot. “Although supply chain and logistics management are areas of core compe-tency for our company, there are selected instances where the use of 3PLs may be a wise business decision.”
The survey found that to overcome these obstacles in the near-term, shippers are employing tactics such as cutting operat-ing costs (82%) and improving forecasting and inventory man-agement (77%).
“But they’re also using the downturn as an opportunity to assess their supply chains’ strengths and weaknesses and make changes designed to increase agility, be more responsive and reduce costs. Strategies here include network redesign and creative collaboration with trading partners and even competitors,” the report states. It adds that those strategies most likely to increase shipper respon-dents’ use of 3PLs include converting fixed to variable costs (59%), expanding to new markets or offering new products (56%) and re-structuring the supply chain network to improve financial perfor-mance (48%).
Converting Fixed to Variable Costs: This strategy is the one most likely to increase shipper respondents’ use of 3PLs. It includes outsourcing more logistics activities to 3PLs and using a SaaS (Soft-ware as a Service) model, a pay-per-use concept, when implement-ing new technology.
Expanding to New Markets or Offering New Products: Many shippers would welcome 3PL assistance in their global expansion. 3PLs often know local landscapes better and offer expertise in glob-al trade management, enabling trade compliance and other key ca-pabilities. Expanding to new markets and offering new products is the second most-likely strategy to prompt shipper respondents to increase their use of 3PLs.
Network Redesign: Another tactic is redesigning the supply chain network (60%), considering moves such as rationalizing the number of warehouses, using reverse logistics practices, or near-sourcing to reduce transport time and increase predictability. Ship-per respondents to the survey ranked restructuring the supply chain to improve financial performance the third most-likely strategy to cause them to increase their use of 3PLs. CT&L
Annual 3PL survey finds recession creating new opportunities for outsourcing
The CEOs of major 3PL providers re-main cautious about their companies’
future growth, according to a survey on the outsourcing market released by Penske Lo-gistics.
The survey gathered responses from 35 CEOs from North America, Europe and Asia-Pacific about their revenue projections and the behaviour of the market over the next three years. It also compared their companies’ performance this year to the projections given on last year’s survey.
The results were characterized by cau-tion – projected growth for this year was even slimmer than in 2008. CEOs from the Asia-Pacific region anticipated the greatest growth, 12.9% compared with 21.4% in 2008. European CEOs actually projected a 3.3% shrinkage of their companies, when
last year they anticipated a 10.8% growth. North American executives projected 6.9% growth, down from last year’s 12.6%.
While hard decisions had to be made – 28 CEOs reported layoffs in the last year – they bore fruit. Only one of the 35 reported his company was not profitable in 2008.
Those decisions seem to be aimed at helping companies run efficiently over the long term. Only six CEOs reported cuts to employee training, and 25 started up new sustainability initiatives. Not a single CEO reported cutting back a ‘green’ program.
This focus on getting their own houses in order seems to have put a bit of a chill on mergers and acquisitions, with only a quar-ter of companies involved in a significant deal. The surveyed executives expect less than 9% of their revenue growth over the
next three years to come from acquisitions.In speaking about their customers,
North American and European CEOs re-ported nearly a quarter of their customers had worked to shorten their supply chains, and Asian CEOs reported a still significant 9%. Twenty of the respondents reported major customers moving manufacturing from Asia to the Americas and Europe.
The questions about their customers also gave an interesting snapshot of how other business owners are coping with the pressure of the recession – all regions re-ported a full quarter of their customers were more adversarial. Yet American CEOs reported a third were more collab-orative. Europeans saw a fifth of their cus-tomers become more collaborative, and Asians more than one-tenth. CT&L
By John Evans
OCT COVERSTORY 14-26.indd 26 19/10/09 11:42 AM
28 CT&L OCTOBER 2009 www.ctl.ca28
inside the numbers
3,0
00
3,000
That’s the rough number
of North American trucking
companies that have declared
bankruptcy thanks to the im-
pact of the recession. Trucking
company valuations are down
about 45% and employment
in the for-hire sector is at levels
not seen since the mid-’90s.
While trucking may be the
worst hit, it has plenty of com-
pany. More than one million
ocean containers are sitting
idle, while the usually robust
Canadian Class I railroads have
also suffered significant drops
to their valuations.
PENETRATION OF OUTSOURCING PROJECTED TO GROW
The penetration of outsourcing is projected to continue growing,
according to the data from the 14th Annual Logistics Outsourcing
Survey. The current percentages of logistics shipper respondents’ budgets devoted to outsourcing
for Europe, Asia Pacific, and Latin America (66%, 62%, and 51%,
respectively) are slightly higher than those reported in the 2008 study. This may indicate a small increase
in expenditures on 3PL services over 2008 in those regions.
Shippers in all regions predict that the percentage of logistics budgets
they devote to outsourcing will increase in the future.
Spending on Outsourcing as % of Total Logistics Spending
OUTSOURCING A PROVEN BENEFITShippers responding to the 14th Annual Logistics Outsourcing Survey reported measurable benefits from using 3PL services. Metrics relating to logistics cost reductions and to logistics fixed asset reductions are consistent with those reported in previous years. This year, the survey also asked respondents to indicate any inventory cost reductions they experienced. Users reported an average 8.6% decrease due to use of 3PLs.
Measurable Benefits from use of 3PL Services
Results All Regions
Logistics Cost Reduction (%) 12.3%
Logistics Fixed Asset Reduction (%) 23.4%
Inventory Cost Reduction (%) 8.6%
Order Cycle Time Changed From 10.2 days
Changed To 9.8 days
Order Fill Rate (%) Changed From 86.0
Changed To 92.7
Order Accuracy (%) Changed From 90.4
Changed To 95.3
All
23.4%Logistics Fixed Asset Reduction (%)
Inventory Cost Reduction (%) 8.6%
Changed From 86.0Order Fill Rate (%)
Changed From 90.4Order Accuracy (%)
Order Cycle Time Changed From 10.2 daysChanged From
Changed To
Changed From
Changed To
Changed From
Changed To
Changed From
Changed From
Changed From
Changed To 9.8 daysChanged To
Changed To 92.7Changed To
Changed To 95.3Changed To
Current 2009
Projected 2010-2011
Projected 2012-2014
0
10
20
30
40
50
60
70
80
North America Europe Asia-Pacific Latin America
47 50 54 66 71 74 62 65 70 51 55 60
PENETRATIONOF OUTSOURCING PROJECTED TO
OCT NO'S P.28.indd 28 19/10/09 11:51 AM
So, where do you find accurateinformation about industry trends andfuture estimates for shipment volumes,rates and surcharges, so that you canplan your operation accordingly? Wherecan you find stats that allow you tocompare your operation to others, so thatyou can identify potential problems andopportunities for your own operation?
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30 ct&l october 2009 www.ctl.ca30
Laurie Turnbull, CITT, P.MMLaurie Turnbull is a
supply chain consultant
with the Cole Group,
a leading Canadian
logistics company
providing customs
brokerage, warehousing
and worldwide
transportation services.
Turnbull can be
contacted at
the bigger picture
Understanding the differences between C-level and O-level perceptions of supply chain management
There has been a growing awareness in recent years of a difference in perception between C-level executives (CEOs, CFOs, COOs) and O-
level managers (Operations-level managers including transportation, purchasing, logistics, inventory, mate-rials management, etc.) when it comes to the role of supply chain management.
These differences in perception within the same organization may seem paradoxical, but they also il-lustrate a potentially troublesome scenario for trans-portation managers.
Julia Kuzeljevich, features editor for Canadian Transportation and Logistics magazine, touched on this subject in her excellent cover story “Not Too Close For Comfort” in the May issue of CT&L. The cover story addressed changing global sourcing strategies identi-fied in the 15th Annual 3PL Provider CEO Perspective study. One of the many important trends identified by participants in this study was the increasing number of organizations adopting near-sourcing strategies, re-locating their operations away from Asia and closer to home (reportedly 20% of European CEOs and over 30% of CEOs in the Asia-Pacific area) in response to increasing fuel costs, currency fluctuations and time-to-market concerns.
These changes in direction also serve to highlight the differences in perception between C-level execu-tives and O-level managers. For example, transporta-tion managers traditionally balance cost and service concerns, although with the advent of global sourcing practices, increasing freight costs are a reality, focus-ing more attention on service concerns as a result. Faced with longer transit times, potential delays and multiple border crossings, it’s understandable that transportation managers would strive to develop long-term carrier partnerships based on consistent, reliable service patterns.
In many cases, cost concerns may take second place to delivery performance as transportation managers respond to requirements for sales-driven customer service objectives, balanced by financial concerns for minimal inventory levels. Optimally, these carrier re-
lationships tend to be founded on repetitive (or fore-casted increases in) shipping volumes.
However, the 3PL Perspective study identified concerns among C-level executives that extended chains also raise vulnerability issues, resulting in a de-sire for more agile supply chains, providing flexibility to relocate operations to other countries as market conditions dictate. These differences in perception can result in competing interests between transportation managers focused on supply chain costs and attempt-ing to develop long-term supplier relationships based on stable, repetitive shipping volumes, and C-level executives more concerned with quarterly results and total landed costs, requiring flexible supply chains that can have adverse effects on rate levels and may result in shorter-term carrier relationships.
For transportation managers faced with this dilem-ma, two requirements should become abundantly clear: 1. The need for O-level managers to have senior man-agement representation so they can have access to in-formation that might indicate pending market changes. 2. Provision for flexibility when developing strategic supply chain plans, including the potential need for contingency carriers in the event near-sourcing be-comes reality.
Another consideration in this decision-making pro-cess is the impact on inventory, both from the perspec-tive of investment costs and carrying costs. Near-sourcing may result in shorter lead times, which, in turn, can have a significant impact on inventory levels.
Employees look at inventory in different ways: C-level executives view inventory in terms of its im-pact on working capital, while O-level managers view inventory as a buffer against erroneous forecasting and potential customer complaints. In fact, inventory over-laps both of these areas and needs to be reviewed as early as possible when organizations consider changes in strategic direction.
Understanding this difference in perception is criti-cal for O-level managers to be successful, particularly with regard to how their performance will be mea-sured by the executive suite. CT&L
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Increased Visibility...At Hub Group Canada, you'll receive web-based information technology that pushes exceptions and status
reports to you 24/7. This, along with a host of other on-line features provides you with increased visibility,
valuable management data and overall peace of mind.
Our North American network of local offices, qualified carriers and specialized services can help solve even your
toughest transportation problems. Clearly, you benefit by partnering with our team of professionals to optimize
your transportation dollar.
Please contact : Barry O’Neill, Vice PresidentHub Group Canada, [email protected] www.hubgroup.com
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