If there's one thing logistics managers don't like, it's feeling that their operations are not completely under control. But that's just how senior managers at Dayton Superior Corp. undoubtedly felt a couple of years ago when they took a look at the company's transportation practices. Unfortunately, their suspicions turned out to be correct: The manufacturer and distributor of concrete construction products had no systematic control of its freight spend.
This was no small matter. The $500 million company, which sells specialized products such as ties and inserts, bar supports, chemicals, and clamp systems for concrete construction projects, had a direct freight spend of about $40 million annually, split about equally among flatbed, less-than-truckload, and truckload carriers. Another $20 million in trucking expenses were under suppliers' control.
It was a pretty messy situation. Some 100 employees across the company's 52 locations, which include 10 large DCs and four major manufacturing sites, had authority to select carriers. For most of those employees, transportation was just a small part of their jobs.Without decision-support tools to help them, moreover, they were doing business with more than 400 carriers, and they often hired multiple carriers to haul shipments over the same lanes.
Adding to Dayton Superior's trucking dilemma were the dynamics of the construction industry. A large percentage of shipments move not in regular lanes but to construction job sites— often on short notice—and orders are hard to forecast. The result was a heavy reliance on premium transportation to handle a truly diverse freight mix—everything from small packages on pallets to large products requiring a lot of special handling. "It is a challenge for us to get there when we need to be there," says Director of Transportation John Klima.
This lack of coordination was costly and created a host of problems for Dayton Superior. It was time for the Ohio-based manufacturer to take control of the way it purchased trucking services.
Rates and relationships
To help instill greater discipline in its transportation practices and create a more efficient and reliable motor carrier network, Dayton Superior's management brought in AlixPartners LLP, an international consulting firm based in Southfield, Mich., that specializes in corporate turnarounds and performance improvement. The initiative undertaken by AlixPartners (and later handed off to Klima when he joined the company about six months into the project) had lofty goals: to reduce logistics costs while maintaining service and minimizing risk by creating a centralized transportation team.
The project began with an overhaul of rates and relationships. One of its objectives was to take advantage of the size of Dayton Superior's overall freight spend to get better rates from motor carriers. The consultants developed information about recurring lanes and looked for backhaul opportunities. Suppliers' transportation spending also came under scrutiny. "We looked for opportunities to …take greater control [over inbound shipments] so that those were not profit centers for suppliers," says Foster Finley, AlixPartners' managing director.
Decisions about routes, rates, and carrier selection were facilitated by the implementation of a hosted transportation management system from Descartes Systems. Based on the analyses made possible by the new software, Dayton Superior renegotiated its carrier contracts. It reduced the number of carriers it used from a high of 448 at the project's outset to under 300 when Finley's assignment ended, and Klima has continued to whittle away at that number. It now stands at about 150.
One criterion for retaining carriers was the number of Dayton Superior facilities they served. "We tried to [consolidate business with] the carriers that were common across all the sites so we could leverage the network," Finley says. Rate reductions—coupled with high-quality service—were another factor in carrier selection. "We brought in our major carriers, showed them what was available, and asked them to revisit their pricing," Klima says. "We tried to make the carriers understand that service was very important. After that, the best price would get the freight."
Those that were able to meet those criteria have been rewarded: According to Klima, the shipper has concentrated its freight spend with its top 10 truckload carriers. The fact that the market has been soft and truckload carriers are searching for business certainly helped Dayton Superior's cause, but the transportation director emphasizes that the focus is not solely on the near term. Instead, he is determined to protect the company when capacity gets tight again, as it inevitably will—and the way to do that is by becoming a favored customer. "We are trying to use the opportunity in a light market to build relationships with our carriers," he says. "We want prices that will move freight and not be the lowest on the totem pole."
Further analysis turned up opportunities to change modes and realize some hefty savings. For instance, the shipper has doubled its use of costeffective intermodal service. Klima cites the example of shipments that used to move from a facility in Long Beach, Calif., to the Pacific Northwest on flatbed trucks. After investing $20,000 in a new dock that could accommodate intermodal equipment, the company was able to shift those shipments to rail. Dayton Superior also now uses intermodal to re-supply its DCs in Mexico.
Not all changes have resulted in cost savings, however. The company actually increased its spending on stop-off charges when it replaced some LTL shipments with consolidated truckloads. But such instances have been more than outweighed by successes like a remarkable 42-percent drop in accessorial charges.
The power of people
Dayton Superior's transportation transformation remains a work in progress. Klima expects more improvements over the next year or two. Currently, the company is in the process of refreshing its LTL carrier base and is looking at ways to get more favorable parcel contracts. It is also working with customers to find flexibility in delivery dates, which would allow the company to better coordinate multiple shipments to a delivery site.
Although the shipper's drive to take control of its transportation spending launched with a temporary consulting assignment, it was never intended to be about short-term gains alone. Instead, its aim has been to assure continued improvement through long-term investments. "We didn't just want a sugar high," Finley jokes.
Perhaps the most important long-term investment has been in people. In addition to Klima, the company brought on three full-time transportation managers at corporate headquarters. "The company needed dedicated professionals who were focused on daily transportation management," says Finley.
The new transportation team can claim some of the credit for the program's success, but Finley and Klima believe that support from both senior management and those out in the field played a crucial role as well. "Leadership backed us every step of the way," Finley says. "We made a conscious effort not to dictate from Dayton," Klima adds. "We got out into the field, went to the sites, and listened to their problems."
Carrier selection traditionally has revolved mainly around rates and service, but consultant Justin Zubrod thinks that's about to change. The vice president in Booz Allen Hamilton's transportation practice believes a host of new pressures will require shippers to take a more strategic approach to purchasing transportation.
In a presentation at the annual conference of the Council of Supply Chain Management Professionals in October and in a subsequent interview with DC VELOCITY, Zubrod said that mounting concerns about fuel prices, the environment, and security will all enter into carrier selection decisions in the future. Although shippers will still be looking closely at price and service, he said, they'll also be evaluating carriers from the standpoint of supply chain resilience and supply chain sustainability.
The issue of resilience—the ability to recover from supply chain disruptions—has gained attention since the 9/11 terrorist attacks, the Gulf Coast hurricanes, and labor strife at West Coast ports in recent years. External events like natural disasters and internal events like factory shutdowns all pose risks to supply chains. Businesses that keep inventories lean are particularly vulnerable.
Carriers play an important role in shippers' efforts to build resilience into their supply chains. "Shippers are evaluating carriers from a risk-assessment point of view," Zubrod said. That is, they are looking at carriers' ability to adapt to changes in sources of supply, at their labor stability, and so on.
Likewise, the issue of sustainability is becoming a core part of management strategy. "Green" initiatives are at the heart of sustainability efforts, with nearterm goals like waste and emissions reductions and energy conservation. Those are goals that reach well beyond transportation, of course, but they have critical implications for the way carriers and shippers do business.
Zubrod said he is seeing more shippers asking carriers about sustainability and their companies' efforts to reduce their carbon footprints. It is not yet a widespread phenomenon: He estimates that about 20 percent of shippers— including market movers like Wal-Mart—are making those sorts of inquiries in their requests for quotes (RFQs) and requests for information (RFIs).
Europe, which tends to lead on environmental issues, may provide some indication of what is coming our way. "It is beginning to hit the carrier industry pretty hard there," Zubrod said. "The United States is not quite there. No one is making yes-or-no decisions based on this, but we are seeing it more and more in RFIs and RFQs."
Zubrod cautions that with sustainability initiatives, it's important not to lose sight of the big picture. Otherwise, decisions made with the purest of eco-intentions in one part of the operation could end up doing more harm than good to the supply chain overall. "It is fine to say you are going to use hybrid trucks for delivery, but by the time products get to the other end, you have had 15 or 16 hand-offs," he noted. "It comes back to better use of material and waste reduction. The real leverage point is a more efficient supply chain."