For most distribution/supply chain managers, the question doesn't really require much in the way of explanation. When asked how many distribution centers they oversee, they can give a simple, direct answer: two or 17 or 153. But Mark Pollard doesn't have this luxury. Though his company ships to sites all over the country, it operates without a single DC.
How does he accomplish that? He gets by with a little help (well, actually a lot of help) from his motor carriers. His company, the Finland based Raflatac, has U.S. manufacturing facilities in Fletcher, N.C.; Loveland, Ohio; and Ontario, Calif. From these sites, it reaches customers across the United States with a combination of truckload consolidation and less-than-truckload (LTL) distribution service. In essence, it has built a distribution network without ever building a DC.
That might have been a difficult feat to pull off a few years back. But not today. LTL haulers have made a big push in recent years to trim transit times on thousands of lanes and extend the geography they can reach in one or two or three days. As a result, some next-day lanes stretch out as far as 700 or 800 miles (and on-time performance among top carriers now routinely reaches close to 99 percent).
Stock in trade
A relatively new presence in the United States, Raflatac manufactures paper and film pressure-sensitive label stock that is used in a wide variety of industries. Raflatac label stock turns up on everything from the small labels on your apples to the fancy embossed labels on fine wines to the barcode labels used in your DC. Its primary customers are the printers and converters who produce the actual labels.
Pollard, who is supply chain manager for Raflatacs U.S. operations, says his company's strategy for competing in the U.S. market centers on speed. Not only will the North Carolina facility take orders as late as 4 pm. on Monday for delivery to a customer in the eastern United States on Wednesday, he says, but the whole manufacturing system is geared toward fast replenishment.
To keep expenses under control, Raflatac ships products out of its DCs in truckload quantities. On average, the company ships 30 to 40 truckloads a day from its Fletcher facility. (C.H. Robinson, a major non-asset-based third-party logistics company, manages the truckload shipping process for Raflatac.) Many of the truckload shipments move directly to customers, which is Pollard's preference because of the cost advantage over LTL. "We only do LTL if we have to," he says.
Even so, 14 or 15 of the daily truck loads shipped out of the North Carolina plant are consolidated LTL shipments. The average order consists of about 2.5 pallets, and as many as 15 customers' shipments may be in one consolidated truckload. Each of those consolidated truckloads moves to one of 11 FedEx Freight hubs. There, the shipments are shifted into the LTL carrier's network for next-day delivery to Raflatac's customers. (FedEx Freight is the multiregional LTL subsidiary of FedEx Corp. It has two units, the former Viking Freight System and the former American Freightways, which combined reach most addresses in the United States.) Despite the time required for handoffs, Pollard says, this is faster than pure truck load freight transportation.
With its "rolling DCs" in place, Raflatac was able to create a nearly instant—and extremely flexible—nationwide distribution network. "As a bulk manufacturer, we felt it was important for us to consolidate our sites to as few as possible," says Pollard. "This has allowed us to compete differently. We penetrate markets using our distribution network." That, he says, is far cheaper than building distribution facilities, especially since the destination hubs change continuously, based on Raflatac's current orders.
The system also allows Raflatac to split production among facilities but still consolidate individual customer shipments at the FedEx Freight hubs so that customers receive a single delivery. "It gives us more agility," Pollard says."It allows us to make the best use of our resources internally."
Making the system work requires close collaboration between the company and the carriers, he says. And that means finding the right partners. "It comes to one thing," Pollard says, "people."
That's people, not price. Pollard is quick to note that the company competes based on efficient network operations, not on the transportation rate."The key thing for me is that FedEx makes good money," he says. "We bring costs down by innovative solutions, not the rate. Many people don't realize that transportation costs are not determined so much by rates as by the way you manage it.We've brought down our costs by 20 percent by collaborating to increase efficiency. You'd never be able to reduce costs by 20 percent through rates alone."
One key to making the system work is finding collaborators that offer sufficient geographic reach, Pollard adds. "The companies we work with have to have nationwide coverage," he says, noting that this requirement limits the pool of available carriers. "You can't build links with many companies. First, they need physical presence, then consistent service capability. They have to be strong across the board."
Though FedEx Freight met all the stated requirements, Pollard still moved cautiously in selecting the company as its LTL carrier. Though his goal from the outset was to have a single LTL provider, he used several carriers in the early days to mitigate risk. Why the caution? Because in a system like this, the carrier must necessarily become part of the distribution strategy, he answers. "Once the systems are in place, it is very difficult to change."
Raflatac is not the only manufacturer using trucks as rolling DC s these days. The accelerating velocity of inventory-or at least the desire to accelerate the movement of goods through the supply chain-is driving many companies to use carriers to extend distribution's geographic reach. Denny Carey, vice president of marketing for FedEx Freight, says, "It is not an exaggeration; we have customers manufacturing products today that are shipped tomorrow to be on the shelf tomorrow afternoon." He says that based on customer demands, FedEx Freight is continuing to cut transit times between hundreds of ZIP code pairings.
A number of other LTL carriers have followed suit, including regional, multiregional and national haulers. For example, Roadway Express, a major national LTL carrier, has tightened its service standards on 40,000 lanes, says Tom Collins, a group manager in the carrier's marketing department. "From a distribution standpoint, our customers are looking to use our network in place of their real estate," Collins says. He adds that Roadway has set up regional networks to help meet the growing demand for regional transportation. "Customers are using our distribution network as their distribution network."
Dave Miller, president and CEO of Con-Way Southern Express, has observed this trend as well. He says that his company's customers are using the regional carrier's network "to be closer to their customers without expending capital." Con-Way Southern is part of the Con-Way Transportation Services family of regional LTL carriers that also include Con-Way Western Express and Con-Way Central Express.
Con-Way, too, has made major efforts to tighten service standards in its carriers' networks. Its next-day service now reaches as far as 700 miles, Miller says. For example, John Guice, vice president of sales for Con-Way Southern, says the carrier has improved service on 6,000 lanes in the past year. "We've found some customers who have been able to close warehouses by allowing direct LTL shipments to customers," he says. He reports that one customer distributing petroleum products from central Texas uses the carrier to reach both coasts in two days.
And there's every indication that this trend will continue. A recent Freight Pulse survey by Morgan Stanley Dean Witter asked shippers what services they were using. Not only did the results show a continuing shift away from national LTL carriers and toward regional carriers, but the analysis indicates there's plenty of reason to believe that regional carriers will gain further market share as they extend their geographic reach.