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CTM in Europe
 

CTM in Europe

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US and EU have many of the same transportation issues. CTM is the solution.

US and EU have many of the same transportation issues. CTM is the solution.

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    CTM in Europe CTM in Europe Presentation Transcript

    • Collaborative Transportation Management: A Solution for US and EU Transportation Challenges Joel Sutherland Managing Director Center for Value Chain Research Lehigh University 12/2/2009
    • Agenda • Industry Overview (US) • Transportation Challenges • Comparisons – EU vs. US • Supply Chain Collaboration • Collaborative Transportation Management • Case Studies
    • Industry Overview (US)
    • GDP by Country There are only 10 countries with a GDP = to or greater than what the US spends on logistics There are only 13 countries with a GDP = to or greater than what the US spends on transportation US Logistics Cost = $1,344,000 US Transportation Cost = $964,000 Source: CIA World Factbook 2008 (Purchasing Power Parity)
    • Cost of US Logistics Relative to GDP Logistics % GDP Inventory CC % GDP Transportation % GDP 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 80 82 84 86 88 90 92 94 96 98 0 2 4 6 8 10 12 Source: CSCMP, Annual State of Logistics Report
    • US Logistics Costs by Category 5% 22% Transportation Warehousing Other Inv CC Shipper & Log Adm 9% 64% Source: CSCMP Annual State of Logistics Report
    • US Transportation Costs by Mode 1% 5% 3% 5% 7% Truck Rail Ocean Pipeline Air Other 79% Source: Capgemini, Trends and Issues in Logistics and Transportation
    • Where Do US Freight Dollars Go? Domestic Spending by Mode Source: Capgemini, Trends and Issues in Logistics and Transportation
    • Transportation Challenges
    • Transportation Challenges Fragmented industry Highway congestion Limited infrastructure Driver turnover Deadhead (empty) miles Idle (waiting) time Fluctuating fuel costs Hours of Service
    • Fragmented Industry Number of US Carriers by Mode 1990 1995 2000 2001 2002 2003 2004 2005 2006 Major air carriers 14 11 15 15 15 14 14 17 21 Class I railroads 14 11 8 8 7 7 7 7 7 Interstate motor carriers 216,000 346,000 560,393 592,909 600,104 674,314 677,317 679,744 U 679,744 Source: Bureau of Transportation Statistics
    • Highway Congestion Cost of delays equals $77.10 per hour of truck time Source: Texas Transportation Institute Urban Mobility
    • Limited Infrastructure System Mileage Within the US +13% since 1960 -55% since 1960 By 2050, it is expected that there will be a 250% increase in freight and passenger traffic, yet miles of highways are only expected to grow 10% Source: Bureau of Transportation Statistics
    • Driver Turnover Mode Turnover Conditions Away from home for TL 100% long periods of time LTL 10% Home more often (Groupage) Local 5% Home every day Traditionally ~100% annually (hit a high of 130% in 2005) In 2005, the ATA predicted driver shortages of 111,000 by 2014 In 2008, ~60% due to the slow economy - so driver shortage is delayed Old dynamics will return with stronger economy Source: ATA; various other
    • Deadhead (Empty) Miles Approximately one out of every five trailers (20%) on the road is empty.
    • Idle (Waiting) Time The average waiting time for drivers was 33.5 hours per week. Source: TCA, Dry Van Drivers Survey; Various other “The easiest of all wastes, and the hardest to correct, is the waste of time…because it does not liter the floor like wasted material.” Henry Ford, Today and Tomorrow, 1926
    • How do you plan?
    • Hours of Service Introduced in 2003 – first major revision in 64 years Cumulative to consecutive Old: The clock starts when the engine starts…and stops when the driver was done New: The clock starts when the engine starts…and stops after 14 hours
    • Comparison – EU vs. US
    • Geography: EU vs. US • 27 countries in the EU – US = 50 states • GDP of $14.9 trillion – US = $13.2 trillion • Covers an area of 4.4 million sq km’s – US = 9.8 million sq km’s • Population of 492 million people – US = 308 million Source: CIA World Factbook
    • European Transportation Challenges • EU is <1/2 the size of the US but a far more complicated market to operate in – Roughly the same amount of freight as the US – Population density 112 vs. 32 per sq km
    • European Transportation Challenges • Europe is facing many of the same transportation issues as the US – Fragmented industry (400,000+ trucking companies) – Highway congestion (worse) – Limited infrastructure (older and showing age) – Driver turnover – Deadhead miles (higher at 25-40%) – Idle (waiting) time – Fluctuating (and higher) fuel costs
    • European Transportation Challenges • Truck: TL and LTL (Groupage) – Few docks so lift gate is required – Most carriers use curtain side trailers – Unique driving restrictions by country • Rail – Difficult to switch between countries – Tunnels, bridges, etc, prevent piggyback – Fewer number of rail cars/train • Water – Protectionism by other modes
    • European Transportation Trends • Time definite delivery required • Smaller more frequent shipments • Road congestion increasing • More warehouses being built “Customers want more and more product delivered in a very short period of time. Before, we delivered in a month. Now, it’s two days.” - Jean Claude Massit, Tecumseh Europe
    • Supply Chain Collaboration - Defined
    • Global Flatteners Supply chaining and collaboration… “Forces that are Flattening the World” Source: Thomas L. Friedman, The World Is Flat
    • Collaboration: More Than Cooperation All companies involved share information, knowledge, and risks Everyone involved Cultures are must benefit meshed All parties work actively together towards common objectives
    • Collaboration = Value 88% of companies believe that collaborating with carriers, suppliers and customers will create more economical supply chain processes. Source: Aberdeen Group But…few have started down this path. Why? Because It’s hard !
    • Collaboration Concerns & Opportunities At a Lehigh University Center for Value Chain Research Symposium on Supply Chain Collaboration, companies were asked the following question: What are the concerns and opportunities you see related to supply chain collaboration? These were their responses…
    • Concerns: Control and Trust • How can we develop a trusting relationship? • How are power issues resolved? • Who has control over intellectual property? • How accurate is your partner’s data?
    • Concerns: Risks and Information Sharing • How are risks and rewards shared? • How is proprietary information protected? • How accurate are demand forecasts received from partners? • How are information systems and technology integrated between partners?
    • Concerns: Measurement and Benefits • How can the success of collaborative relationships be measured? • If cost reduction benefits everyone - how can these savings be documented?
    • Concerns: Implementation • Takes too long - project orientation • Technology investment & integration • Cultural incompatibility • Metrics to assess benefits • Gap between strategy and execution • Silos bigger & stronger than ever
    • Opportunities • Reduced inventory • Reduced order to delivery cycle times • Stronger focus on core competencies • Stronger emphasis on supply chain whole • Competitive advantage over other supply chains
    • Collaborative Transportation Management
    • www.ascet.com/documents.asp?d_ID=2576 CTM Paper published in Montgomery Research’s ASCET, Volume 6
    • Private Rate Inbound Marketplace Negotiation Management Routing Guide Reengineered Standard BOL Backhaul Yard Management Dock Business Continuous Appointment Process Scheduling Move Scheduling Collaborative Mode Terms LTL shifting Conversion
    • CTM can Improve Profits and Leverage Assets Increased Sales Improved Profitability Reduced Costs Improved Transportation Asset Utilization Improved Inventory Balance Sheet Reduction Performance Improved DSO
    • Documented CTM Results Metric Documented Results Reduced transportation • 3% to 20+% reduction costs • Deadhead reduction 16% to 3% Increased asset utilization • 25% improved private fleet utilization • 98+% on-time performance (varies Improved service levels based on definition) • 100% visibility by SKU from load tender Increased visibility to delivery • Increased “perfect orders”: complete Improved end-customer order; correct items; damage free; satisfaction delivered on-time; billed correctly • 50% inventory reduction Increased ability to grow • Working capital freed up for business business growth
    • Paths to Achieving CTM Benefits The value of CTM can be obtained through two primary paths: Carrier 1. Direct communication between Shipper(s), Supplier Buyer Receiver(s) and Carrier(s) 3PL 2. 3PL facilitation of the communication and execution process
    • CTM Value Continuum Opportunity to add value through CTM increases as multiple shipper networks are integrated, carriers Consortium are connected, and communication Collaboration and execution capabilities • Multiple Shippers, Carriers are enhanced • Third-party facilitation Value • Information Hub • Relationship management Partnership Collaboration • Shipper, Receiver, and Carrier • Shared forecast Trading Partner • Committed capacity Collaboration • Visibility and security • Shared forecast by lane of traffic • Automated transactions Traditional Vendor • Transactional • No visibility Level of Collaboration
    • CTM Case Study
    • CTM Value Continuum Opportunity to add value through CTM increases as multiple shipper networks are integrated, carriers Consortium are connected, and communication Collaboration and execution capabilities • Multiple Shippers, Carriers are enhanced • Third-party facilitation Value • Information Hub • Relationship management Partnership Collaboration • Shipper, Receiver, and Carrier • Shared forecast Trading Partner • Committed capacity Collaboration • Visibility and security • Shared forecast by lane of traffic • Automated transactions Traditional Vendor • Transactional • No visibility Level of Collaboration
    • AutoZone Background • Largest auto parts retailer in North America ($6.5 billion ‘08) • 4,200 stores in the US, Puerto Rico, and Mexico
    • Objectives • Support rapid growth of company • Use existing assets more efficiently • Employ best available technology • Provide visibility for all inbound flows • Reduce transportation lead times • Execute scheduled, time definite shipments • Achieve competitive advantage • Capture and retain market share
    • Product Flow Before CTM
    • Mode Conversion Benefits - Cost 1100 1000 900 Relative cost by % Air Freight: 1040% higher 800 Parcel: 700% higher 700 600 LTL : 250% higher 500 Full Truckloads: Lowest cost 400 300 200 100 0 LTL Par ir TL cel A Source: Sam’s Club
    • Mode Conversion Benefits – Time LTL Truckload Driving: 6 Days Driving: 4 Days Weekend: 2 Days Weekend: 2 Days Trapping: 2-7 Days ------------------------------------------- ----------------------------------- Total: 10-15 Days Total: 4-6 Days Source: Sam’s Club
    • Implementation Process • Benchmark inbound freight costs – Convert freight terms from prepaid to collect • Establish product profiles – Products, cube, weight, stacking characteristics • Conduct detailed site location analysis – Operational business rules • Determine reliable transit times – Flows between vendors, DCs, and stores – Mode, route • Establish cross-dock methodologies
    • Product Flow After CTM
    • Results Before CTM After CTM • Vendors controlled freight • 77% of vendors converted to collect • 85% LTL inbound shipments • <2% LTL inbound shipments • 1 week average transit time • 1.5 days average transit time • No shipment visibility • Complete shipment visibility • Excess freight damage • Freight damage nearly eliminated • High transportation cost • >20% transportation cost reduction • Growth constrained • Significant inventory reduction • Poor on-time performance • 98%+ on-time performance • Poor utilization of private • 25% increase in private fleet fleet utilization
    • CTM Case Study
    • Transplace Background • Formed in 2000 with the merger of six non-asset transportation business units from top US truckload carriers • Manages 2.4 million shipments, in multiple modes, per year • Annual transportation under management exceeds $2.4 billion • Focus on reducing transportation waste (Lean)
    • Collaborative Continuous Move (CCM) Objectives Shipper • Lower transportation cost • Improve on-time performance • Guaranteed capacity Carrier • Reduce empty miles • Minimize idle time • Improve asset utilization
    • Types of CCM’s Static • Predictable, repetitive • Long term arrangements • 8-15 % discounted rate Dynamic • Unpredictable, random • Daily opportunities • 2-5 % rebate
    • CCM’s in a Regional Hub Concept How it works • Select freight hubs • Identify strategic regional shippers • Understand freight patterns & trends • Establish regional core carriers • Establish price (rate per mile)
    • Example 1536km “I-5 Corridor”
    • Benefits/Value Shipper Carrier • Savings: 10% to 15 % (per client) • Growth opportunities • Committed % of total lane volume • Consistent annual lane commitments • Consistent year-round capacity within specific hubs/lanes • Reduced carrier base: 3 carriers = 95% • Reduced competition (other carriers) • Improved Service: • Improved utilization of equipment • On-time pickup & delivery (>98%) • Reduced deadhead (16% to 3%) • Complete shipment visibility • Decreased operating cost • Same carriers delivering to • Increases revenue per truck per day customers
    • CTM Works in the EU Background Solution How they did this? Nestlé’s UK delivers over 15 loads per day from its factories in the North of England to its DC in UB and Nestlé’s participated in a series of workshops run by ECR UK, aiming Leicestershire. Only 80% of these loads could be to bring together companies in the food and grocery industry to identify tied to a return journey, so everyday 2 or 3 trucks opportunities to reduce empty running by closer collaboration. During these would return empty workshops they discovered that a potential match in flows United Biscuits deliver loads on a daily basis to They put together a process that enabled UB trucks to collect a load each day Yorkshire from its NDC close to Nestlés DC in the from Nestlé’s facilities for delivery to their DC. Midlands This process had to ensure that; Both businesses were happy that products were being moved on a trailer branded with a competitors livery. The drivers didn’t get sight of the products they were moving, in order to protect Benefits the integrity of any new products – trailers were loaded and sealed before the driver collected them. Nestlé’s and United Biscuits created roundtrips The vehicles went directly from the factories to the DC and that trucks were which were more efficient, avoided empty truck fitted with satellite tracking movements They proved to the industry that it was possible for two competitors to collaborate to generate a significant environmental and cost saving, and truck livery shouldn’t be a blocker to collaboration Companies that have engaged in similar projects Source: Collaborative Green Distribution – www.idg.com 59
    • Questions?