Logistics Management Best Practices Gold Award: The Fine Art of Persistence
By creating strategic sourcing teams consisting of purchasing, operations, and logistics personnel, Ashland Inc. has cut its TL costs, ushered in carrier accountability, streamlined its carrier base, and improved on-time service—all with a wink and a smile.
By Michael Levans, Group Editorial Director -- Logistics Management, 6/1/2008
The situation that drove Ashland Inc. to streamline its logistics and transportation spending seems all too common: Here was a diversified, Fortune 500 company comprising several well-know divisions (Ashland Performance Materials, Ashland Distribution, Ashland Water Technologies, and Valvoline), yet each division had its own program developed to meet its unique transportation needs—without any effort given to consolidating the spend across divisions. The arrangement found the company racking up $45 million annually in package truckload (TL) costs alone—the company’s second highest transportation expenditure.
“That made us a bit fractured in terms of our transportation operations,” says Craig Cover, the transportation buyer who focuses on the chemical company’s truckload (TL) relationships. “We had all four of our divisions doing things their own way, plus there really wasn’t enough carrier accountability.”
It was time to hit the breaks and re-evaluate. In the fall of 2006, Elizabeth Potts, the company’s vice president of purchasing, suggested the creation of strategic sourcing teams including members of purchasing, operations, and logistics from all four company divisions. The goal was pretty straightforward: To improve the understanding of all the transportation Ashland buys—and the value it brings—and build synergies across all of Ashland’s supply chain and business units. “It was time to centralize and get everyone involved in the transportation decision-making process together in order to understand each division’s specific needs—and then put everything under one spend,” says Cover.
While the cultural change was met with some resistance at the outset, the results over the past year have not only changed minds internally but have also earned Craig Cover, the truckload team’s logistics manager Frank Dreischarf, and the entire truckload sourcing team at Ashland Inc. this year’s Logistics Management Best Practices Gold Medal. Over that time, the formation of the team and the unified TL transportation program have helped the company make decisions based solely on what’s best for the overall company—not one particular division. In the first year alone, Ashland reduced its line-haul costs for TL shipments by 5 percent.
And, according to Cover, this deeper examination into its truckload transportation operations also helped Ashland better assess its carrier base. Furthermore, it gave the team a new accountability program that would ultimately reward the carriers delivering superior results.
As a result, the program has helped the shipper reduce its core carriers by 44 percent while simultaneously increasing on-time service to 98.5 percent. And so much for resistance: Cover proudly reports that non-core carrier usage is currently less than 1 percent.
“It may sound cliché,” says Cover, “but you do need to have a partnership with your carriers, and you need to have a firm grasp of all you internal locations. If you have everyone on board, and everyone sees the benefits and realities, everyone is a winner in this.”
Changing the Culture
While the truckload sourcing team saw enormous economies of scale at the outset, they were well aware that they were going to experience some push back from the more than 90 Ashland sites. It was simple: The team had to begin its justification process with a hearty dose of persistence and patience.
“We first had operations come in to tell us their needs,” says Cover. “Many said, and rightfully so, 'If you’re going to make me change from a carrier I’ve been doing business with faithfully for the past 20 years and bring in some program carrier, then you better make sure you meet this list of needs,’” says Cover. The team had its work cut out, but it knew the message it needed to communicate to put these fears at ease.
“We had to approach each location and outline the Ashland focus, and in doing so, we emphasized that the people who manage the transportation are centrally located,” says Cover. The team stressed that customer service was, of course, a top priority and that the centralized TL program will not only guarantee the location the capacity it needed but will guarantee savings—and that everyone will win.
Once operations had its list of needs down on paper, purchasing pulled the bids together and nailed down the TL carriers—then it was then up to Dreischarf and his logistics team to sell the plan to the locations. The sales pitch was simple: Ashland went from each location having seven carriers to call to just one loaded in its TMS for each location—and that carrier is going to pick up when it’s supposed to.
“It took about three months for this to take,” says Cover. “We set the system up this way: If you don’t have a carrier rate in TMS, then the system kicks it out. That’s the warning flag so you can send it to logistics so they can follow up with the location and ask: 'What is not working for you?’ If there is an issue, then we’ll follow up with the carrier and get everyone together and sort it out.”
The first issue the logistics team realized it needed to solve was that each location insisted on using local carriers within a local metro area for same-day “hot shot” deliveries as well as for long haul—they thought that those were the only carriers that could be used for all deliveries.
“We realized later that the other issue we had was with the upfront communication,” says Cover. “When we started this, purchasing asked logistics to go to their sites and ask what their requirements were—drop trailers, hazardous needs, shipping hours, delivery hours, etc. We needed to know what they needed from us to make a program work.” The truth was that many sites did not provide the right information at the beginning of the process. “They thought they were immune from the program and could continue doing what they were doing,” adds Cover.
Which put logistics back into the field to implement compliance: Logistics would approach a site to tell them they understood their resistance, but that they needed to give the program a try. “We kept reinforcing the program benefits, explaining the reasons and why it will work,” says Dreischarf. “The operational challenges really made us think about how we could make this work better; and as of now we have complete compliance with the program.”
New Visibility
And with complete compliance has come a list of supplemental benefits that the team is certain will keep savings and service high for the foreseeable future.
First and foremost, the truckload team feels that it has a plan in place to which it can firmly commit for two years and then evaluate to see what’s working and make changes accordingly—and then plan for the next two years. “That’s given us some strategic visibility right off the bat,” says Cover. “We have yearly rates with all of our carriers and we’ll be going for a yearly bid process.” Meanwhile, the team will be looking at its core carriers as well as carriers outside its system. “The purpose of going out with an RFP is finding what the market rates are. Are the rates justified? Do we need to make changes?”
The new Ashland-wide program has also given the TL group the leverage to increase carrier accountability and raise service levels. “We had a very stringent requirement for the bid,” says Cover. “We’re a Responsible Care provider, meaning our carriers have to hit our minimum safety requirements for hauling chemicals; but on top of that, the carrier has to agree to all of our assessorial requirements, must standardize our fuel surcharges; and, if you’re awarded the business, we give you 24 hours notice and you provide the capacity—meaning if you have to call an LTL or an expediter, it doesn’t matter, you’re going to pick up the load.”
Perhaps the biggest benefit for Cover was the improvement in what Ashland calls its low-volume regions. The company had its bids set up in two different areas: high volume, or anything above 40 loads per year, and low volume, or anything under 40 loads. “The problem was that we don’t have a lot of high volume locations,” says Cover. “We have a few locations where we might only ship six truckloads a year; so, when the carriers were going down the list they really didn’t know the locations, they knew they were Ashland, but there was no incentive to pick them up…it may have taken three days to get a load picked up at these low volume locations.”
So, at the end of 2006, and as part of the centralized program, the team wanted to make sure that regardless of volume all of Ashland locations would get the capacity they needed. If a carrier is awarded the business, in 24 hours it has to have a truck there regardless. “High volume lanes now will have one single source provider,” adds Cover. In the meantime, all other low volume lanes have been consolidated into four geographical shipping regions with one provider awarded all of the other volume in each region.
At the end of the day, says Cover, the success of the program all came down to the right people in the right places—and the right justification for making the change. “This is not about a fancy process, and we did not have to buy any additional IT, everything was focused internally with the resources that we have.”
Headquarters: Covington, KY
Products: A diversified, global chemical company, providing quality products, services, and solutions to customers in more than 100 countries.
Revenue: $7.8 billion
Logistics Best Practice: By creating strategic sourcing teams consisting of purchasing, operations, and logistics personnel from its four divisions, the chemical company has centralized its transportation expenditures. As part of the process, it cut TL costs by 5 percent, reduced its core TL carriers by 44 percent, while simultaneously increasing on-time service to 98.5 percent.
Ashland Inc.
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Let’s see closer the statement and look over the detail. There is not one common carrier getting involved on this. There are four regions and therefore one carrier on each of them. The truck load agreement is based on partnership with a company that has several sources therefore the 24 hours pick up and delivery on time service will be accomplish. Well, put it this way that 5 % plus the 180 degree change, so far, it’s remarkable. I would like to add that this saving plus others are few of the many in order to reach the 75M overall. Once again, it is outstanding.
Luis Vs - 2008-15-6 13:28:00 EDT -
Saving 5% on such a large spend is just scraping the surface of the problem. Having only one Carrier to service such a large operation is also not the answer on that LTL, typically you need a minimum of three Carriers to handle situational delivery and timing issues. Not all Carriers can do all things in every part of the US or World.
I had a much smaller operation in just one Hub location, and cut 7 million off the spend in one year back in the year 2000 for a much smaller multi-national tech company with shipments around the world. And then I doubled the savings in one year at my next tech company, something I specialized in.
For guys like me, our assessment would be that this company is at stage one of a rebuild, why are they winning a gold award? I understand somebody has to win, but recognizing a problem is common; doing something about it in a big way quickly is another. Change must start at the top, to allow a Logistics Manager to properly handle the corporate decision making, or a Director. Buyers are not Logistics Managers. I find the choice and article surprising for my field.I would think an award would be forthcoming when achievement has occurred, not at a 5% reduction in cost, which can be easily obtained with minor Carrier negotiation.
Headless Horseman - 2008-10-6 18:20:00 EDT
