Bringing carriers into the loop

Best Buy's Collaborative Transportation Management program has proved that when buyers and sellers include carriers in their replenishment planning, everybody wins.

By -- Logistics Management, 9/1/2000

Talk about being ahead of the curve. For the past eight years, Best Buy Co. Inc., based in Eden Prairie, Minn., has been operating an inbound transportation program that's now considered a leading example of a "new" shipper-carrier partnership strategy known as Collaborative Transportation Management. CTM, as the strategy is known, promises to reduce transit times and inventory-carrying costs for the retailer and its suppliers while increasing asset utilization for motor carriers.

CTM has emerged as the latest in a series of business strategies to be championed by the Voluntary Interindustry Commerce Standards Association (VICS), the industry group that spearheaded the push for Collaborative Planning, Forecasting, and Replenishment (CPFR), a program under which buyers and sellers work together to determine what to ship to a retail outlet. CTM is viewed as the next stage of CPFR because it involves the carriers in the replenishment process as well. "CTM grew out of the realization that [efficiency would be improved] if you could bring the carriers into the process of [replenishing] goods," explains Jim Rodriguez, director of logistics for the business process development group at the Uniform Code Council (UCC), the organization that handles administration for VICS. "The idea is to share information not only between buyer and seller but with the carrier as well."

Taking Control

Best Buy, along with being a CTM pioneer, is the nation's largest volume specialty retailer of consumer electronics, personal computers, entertainment software, and appliances. It reported $12.5 billion in revenues for its last fiscal year, which ended Feb. 26, 2000. But the company has also long been a leader in supply chain management. In its annual report, Best Buy said that its inventory turns had increased to 7.2 in the most recent fiscal year from 4.8 five years ago.

The retailer has more than 350 stores in 39 states. At present, it maintains six distribution centers to serve its network of retail outlets. Those facilities are located in Bloomington, Minn.; Ardmore, Okla.; Staunton, Va.; Findlay, Ohio; Dinuba, Calif.; and Dublin, Ga.

Manufacturers generally ship products into Best Buy's DCs for redistribution to the stores. Although the retailer uses 20 truckload and less-than-truckload motor carriers to transport freight from suppliers' facilities to those DCs, seven of those truckers handle about 80 percent of the shipments. The specialty store chain also operates its own private fleet for hauling products from its warehouses to its retail outlets. That fleet picks up some inbound shipments as well.

Back in 1992, Best Buy turned conventional practice on its ear and launched its first freight-collect program with the then personal computer manufacturer Packard Bell, which was based in Sacramento, Calif. "We were experiencing explosive growth, and we needed to get product into our distribution centers and out to our stores as quickly as possible," recalls Kevin Mendel, general transportation manager for inbound operations at Best Buy. "Packard Bell was having trouble getting [its] carriers to our facilities and making appointments."

Best Buy arranged with the vendor to assume control of the inbound freight transportation. Under this arrangement, the retailer determines the shipment's arrival date based on the purchase order and then contacts a carrier well in advance of the delivery date to move the inbound load. That advance notice means the carrier can schedule its equipment to handle a particular shipment on a particular lane on a given day to meet the required pickup and delivery dates.

The retailer's assumption of responsibility for inbound transportation meant a change in the terms of the sale. Instead of purchasing the goods on an "FOB Destination Freight Prepaid" basis, Best Buy buys on "FOB Origin Freight Collect" terms. "We're using our contracted carriers and the [freight] bill is coming to us," says Mendel. To offset the retailer's transportation charges, the vendor either gives Best Buy a break on the product's price or else pays Best Buy's freight bill.

When other manufacturers learned of the program and its advantages, they asked to join in. Today, 37 vendors take part in what's become known as CTM, turning over control of inbound freight to Best Buy. "The program has taken off over the past couple of years as the focus has turned on the supply chain to try and increase bottom-line savings through shorter transit times," says Mendel.

Win-Win-Win

The program benefits all three parties involved-the retailer, the vendor, and the carrier. The retailer and vendor enjoy higher inventory turns because the retailer dictates the ship date. The ship date is different from the delivery date, Mendel points out. "Anybody can load up a trailer and say 'Deliver it,'" he says. In its program, by contrast, Best Buy takes the expected transit time into account when calculating the delivery date. For example, if the retailer requires a shipment from a West Coast manufacturer on, say, Sept. 15th, and it figures a transportation requirement of three days to Minnesota, then Best Buy will schedule the carrier according to the optimum transit time. "We know it takes three days," Mendel explains. "So we say, 'You load it on the 12th' because that's when we're sending the carrier in. As a result, the suppliers participating in this program get [their goods] into our DCs a lot quicker and on time."

For the retailer and its suppliers, the program has also resulted in replenishment-time reductions. Although the reduction varies by vendor, Mendel notes that shipments from the West Coast now take three and a half days, while those from Memphis or Chicago take two days. He notes that one vendor that joined the program last January has witnessed a 60-percent reduction in its transit times.

The retailer also exerts better control over the inventory flowing through its pipeline. Best Buy measures whether the delivery meets the specifications outlined in the original purchase order-a metric called receipt attainment. Mendel says his company's receipt-attainment scores regularly run in the low 90s for a large percentage of CTM vendors. "As long as the vendor has the product ready on time," he says, "we can hit the needed delivery date 99 percent of the time." The program also allows Best Buy to optimize labor requirements at its distribution centers. "If we know the DC has 10 doors open and the staff starts work at six a.m.," Mendel reports, "we can plan the carrier's arrival to match the available labor."

Vendors participating in CTM also benefit because they don't have the hassles of freight-bill administration or of routing and scheduling the carriers. Because the buyer handles the inbound arrangements, they also can hand off the job of tracking and tracing. Furthermore, the manufacturers enjoy improved cash flow because they no longer risk payment delays due to shipment loss and damage. "With the terms being FOB Origin Freight Collect, Best Buy assumes all risk," explains Mendel. "If the shipment is stolen, the vendor still gets paid and we file the claim with the carrier."

Carriers win too under CTM: The program helps them manage their drivers and equipment better. Because Best Buy gives carriers earlier notice of an upcoming shipment, they can improve their trip scheduling and eliminate "dead head" runs where the trucker returns from a trip with an empty trailer.

Appointment schedules also do away with so-called "dwell time," in which the trucker has to hang around for the freight to be unloaded. "The dwell time for the carriers is greatly reduced because they already have their appointments," says Mendel. "They can drop the trailer and be on their merry way."

A Path for Others

Best Buy has recently incorporated its CTM program into the CPFR program it launched two years ago. Not only does the specialty retailer plan its store replenishment with some of its vendors, but it also works with its carriers to plan deliveries even farther in advance. "We're getting a week's advance notice of the ship days from a couple of vendors," says Mendel.

Although Best Buy currently communicates its shipment needs to carriers via phone, fax, or e-mail, it planned to automate the load-tendering process this summer with the rollout of new computer software. That application will facilitate the electronic tendering of loads as well as the scheduling of freight pickups and deliveries. "We hope it will be 90 percent hands off," says Mendel.

The collect-freight program has proved to be such a tremendous success at Best Buy that VICS plans to promote it as a model for other forward-thinking companies to emulate. "With the retailer doing the routing, the retailer can schedule the entire pipeline, and there are a lot of benefits to this," says John Pogorelec, the UCC's director of replenishment. "The carrier can avoid the hassles of trying to schedule appointments with a lot of DCs. And if the customer's responsible for the deliveries, he'll get the products in as soon as possible. If the products get to the sales floor quickly, the consumers can buy them and sales increase."

In short, CTM has enabled a retailer, its vendors, and its carriers to create a more efficient supply chain for Best Buy. "Transferring the freight-handling responsibility to Best Buy resulted in a focused supply chain strategy," Mendel says. "We get the right quantity at the right place at the right time."

ctm tests under way