The fine art of shipping

Shipping lightweight gases might sound easy, but factor in the heavy metal cylinders they travel in and the picture changes. Air Products met this challenge with an innovative transportation program that has earned it Shipper of the Year honors.

By -- Logistics Management, 10/1/2000

Managing motor carriers is about more than moving freight. The art and science of logistics management may begin with finding cost-effective ways to move goods. But the more crucial objective of modern logistics management is to help meet the company's customer-service and strategic goals.

For the Gases and Equipment Group of Air Products and Chemicals Inc., an innovative carrier management program has accomplished just that. The company has reduced less-than-truckload (LTL) costs significantly while at the same time developing tools and tactics to improve the flow of product between company facilities and from those facilities to customers. That success was recognized last month when Air Products was awarded the Shipper of the Year award by Logistics Management & Dis tribution Report and NASSTRAC, the national organization of shippers of LTL and parcel shipments.

The techniques used in Air Products' LTL program vary from the familiar to the innovative. For example, the company has adopted the time-tested core-carrier approach, sharply reducing the number of carriers it uses, which has resulted in substantial savings and improved performance. Similarly, it has collaborated with customers to increase the average shipment weight, boosting efficiency and productivity. It also has launched an innovative loading program with one carrier that has improved safety, increased direct loads, and provided the carrier with flexibility to improve trailer utilization. Furthermore, the company has developed an informative logistics home page on its intranet that disseminates detailed shipment information as well as information crucial to regulatory compliance throughout the company.

The products Air Products ships include a variety of industrial and specialty gases that require careful handling and management. They include liquid helium used in magnetic resonance imaging (MRI) in hospitals, specialty gases for the electronics industry, plus nitrogen, oxygen, hydrogen, and argon.

The Gases and Equipment Group supplies customers through tankers, on-site plants, and pipelines as well as by motor carrier. Although most of the products themselves are lightweight, the containers shipped by truck-metal cylinders in a variety of sizes-are heavy. Getting empties back to production facilities quickly and cheaply is a crucial part of the logistics program.

Multiple Challenges

Air Products and Chemicals Inc., based in Allentown, Pa., supplies both gases and specialty chemicals to businesses in more than 100 countries. The company, which reported just over $5 billion in revenues in 1999, has more than 17,000 employees in 30 countries. Gases and related equipment make up about two-thirds of the company's sales, while chemicals contribute the other third.

Air Products' logistics operation faces the dual challenges of providing top-notch service to the company's 250 shipping locations that are moving gas products to thousands of customers while safely managing shipments that are often hazardous. "We can't just go buy [service]," says Randy Schaeffer, manager of product transportation. "We have a wide variety of needs in the field. We try to establish a carrier strategy to meet the field's needs."

To achieve these goals, Schaeffer works with a staff of 10 people, who collectively are responsible for contracting, operations support, carrier management, and regulatory compliance. The group also supports contract services for the company's private fleet.

Although that fleet handles the bulk of Air Products' shipments, LTL truckers play a critical role as well, accounting for about $8 million a year of the Gases Group's $50 million transportation budget. The LTL carriers handle about 10 percent of the finished goods moving out of company locations-primarily gases with specialized applications. Many of those products, such as the MRI gases or electronic specialty gases, have critical time windows for delivery, requiring great reliability on the carriers' part. About $2 million of the money spent on LTL service comes from the division's inbound program, which directs suppliers to preferred carriers.

The LTL program has come a long way over the last few years. Like other businesses, Air Products began to trim its carrier base several years ago. In 1988, when Schaeffer joined the division, the company used 150 carriers to handle its LTL shipments. As recently as five years ago, the company had 35 LTL carriers under contract. Today, 10 carriers handle 95 percent of the division's LTL traffic. At the same time, compliance with Air Products' error-free delivery measures has improved to 99.1 percent from 92.0 percent for outbound shipments and to 98.9 percent from 82.0 percent for inbound shipments.

Not Just Cutting Costs

Air Products' LTL carriers represent far more than just a supplement to the private fleet operation, however. Under Schaeffer's leadership, LTL providers have developed capabilities that allow them to provide service that has not been possible under the fleet operation's structure.

A prime example of that is a special pup operation jointly developed by Air Products and one of its primary national LTL carriers, Roadway Express. Because Air Products' private-fleet vehicles make only scheduled interdistrict runs, the Gases Group was encountering problems with unpredictable demand. "One week we would have 60,000 pounds, and the next week 20,000 pounds from the same facility," Schaeffer says.

Another problem was getting empties back, he reports. "Because the trucks moved from one facility to another, the first site would add goods for the second, and empties were never a high priority." That required making truckload shipments of empties back to the production facilities that needed them every so often. At the same time, the company also wanted to find a way to ship smaller quantities than truckloads at a reasonable rate that would also give it a way to react to periodic fluctuations in shipment size.

The solution came from a suggestion by Roadway's "Solutions Team" unit. Roadway would spot pups-28-foot trailers-at Air Products' facilities, which could then be filled as production warranted. What made the arrangement unusual was that the pups were specially configured for Air Products-a rare step for a common carrier. Roadway installed a system called e-tracking in 24 trailers that allowed Air Products to load cylinders upright. The e-tracking system essentially consists of metal bands installed along the sides and rear of the trailer. The cylinders are loaded along the walls. Straps wrapped around the cylinders are ratcheted in tightly to the e-tracking.

Air Products can load up to 24,000 pounds' worth of cylinders into the pups, which is the vehicles' legal capacity. Should a load fall below that level, Roadway can use the space in the center of the trailer for other customers' freight.

The system has multiple benefits. Strapping in the upright cylinders allows safer loading, transportation, and unloading than other methods of loading would. The trailers are not unloaded at a breakbulk facility but move directly through the Roadway system to Air Products' facilities, where they can be unloaded with special cylinder carts. Empties are handled the same way for return to the origin facility.

When production is down, Roadway uses the specially configured pups elsewhere in its system. When production is up, Air Products can call for additional trailers to be staged at its facilities. "This gives us a lot of flexibility," Schaeffer says.

Schaeffer reports that Roadway's management was initially reluctant to modify the pups, but when terminal managers saw how well the system worked, they asked for more. Roadway has since added pups to its system to meet growing demand.

Weight Gain

Another of the LTL-management program's successful initiatives has been an effort to increase the average shipment weight. Today, the average weight of shipments from Air Products' locations has risen to 1,650 pounds from 350 pounds. At the same time, revamping shipping patterns has improved forecasting and order management.

The first step was to collect detailed information on shipping patterns. "We started looking at the frequency of shipments between facilities," Schaeffer says. "We went location by location and looked at where they shipped the majority of their shipments. Then we tried to establish regular shipping days. We gave the [receiving] facilities the peace of mind that comes from knowing that they would get a shipment every Tuesday. They know what they're getting and when they're going to get it. We set up shipping standards and shipping days. That's one of the major reasons the shipment weight went up."

Changing the system was a major undertaking, Schaeffer reports, requiring both facility managers and customers to change the way they operated. The specialty-gas division makes most of its products to order, so little inventory is available to fill incoming orders. Historically, if a facility received an order for 10 cylinders, it might ship two on one day, another the next day, and so on, until the order was filled. That encouraged customers to order more than they needed to ensure supply, and that made accurate forecasting of demand difficult. By shipping complete orders on a schedule, Schaeffer explains, much of the uncertainty was eliminated, total freight costs were reduced, and customer sites have been kept fully supplied.

The changes had other beneficial effects. Sales representatives saw a drop in the number of calls asking about order status. Operations people, for their part, found that it became easier to forecast demand accurately.

Core Carrier Focus

Of course, the foundation of any successful core-carrier program is to locate top-notch providers in the first place. "Our philosophy has been to develop core carriers who can meet the needs of the field," Schaeffer says. "They are rewarded with more business as they develop [more capabilities to meet] our requirements."

Air Products sets stringent standards that carriers must meet before they even become eligible to compete for its business. (To ensure that both current and new carriers meet DOT regulations, Schaeffer has outsourced the carrier-qualification process to a third party.) For instance, Air Products will use only carriers that are financially sound. "We use internally developed financial tools [to determine fiscal soundness]," Schaeffer says. "Those have been a good barometer of carriers' financial performance."

In addition, Air Products checks carrier candidates' transit-time records. But although reliability is crucial, Schaeffer is clear that he does not expect carriers to do the impossible. "We will not ask our carriers to deliver anything outside their standard transit times," he says. "We tell them, 'You set the standard, and we'll hold you to that.'"

Part of the selection process is subjective, Schaeffer admits. Local facility managers may prefer to use a given carrier because they feel that it provides better service than some others do or is more responsive to their needs. The selection process also recognizes that carriers that provide excellent service might be difficult to do business with in other ways.

Once the core carriers have been selected, Air Products' program requires local managers to use the selected carriers, but it always provides those managers with more than one carrier to choose from. That ensures that service will be available. That flexibility is particularly important when the transportation of hazardous materials is involved. For instance, a driver may be prohibited from collecting certain products because they are incompatible with other freight on board on a given day. So managers need to have other options.

The Gases Group has split the nation into three zones for regional coverage: the West, the North, and the South. "We've tried to develop regional carriers within each zone," Schaeffer says. As the company implemented its core carrier program, it looked for regional carriers that could expand to take up more of the business. "Ten years ago, we couldn't have done this with eight to 10 carriers," he says. "Today we can."

Schaeffer points to AAA Cooper as an example. "They were a medium-sized Southern carrier. As they expanded, they fit into our plans. The areas they moved into were areas where we wanted to consolidate. We were able to eliminate other carriers and develop better rates and contracts."

The savings developed through the core-carrier program are calculated in a variety of ways. The company measures savings in both claims and operations, for instance. The logistics group also calculates a number for the value added through the program. For instance, the ability to use an overnight LTL carrier instead of an expedited carrier for some critical shipments has produced substantial savings. Schaeffer also calculates savings in carrier contracts by comparing the rate he is paying with LTL tariff rates minus the average discount that would be expected by a Fortune 500 company.

Performance Reports

Once a carrier wins a spot on Air Products' preferred carrier list, its performance is monitored carefully. The corporate logistics department has established a system that takes reports from the field to watch for any service failures. Those include billing errors, customer complaints, internal complaints, claims, late pickups, and late deliveries that generated a call from a customer.

Each month, carriers are provided with a report on their performance that's based on the number of problems weighted against the number of shipments. Each quarter, the president and the national account representative of each carrier receive a report showing their own company's performance and where it stands among all the carriers. Those reports specify each PRO on which a problem was identified. (PRO numbers are the sequential numbers a carrier assigns to all the shipments it handles.) Should the carrier demonstrate that the problem was not directly attributable to its operations, however, that incident is removed from the report. That report also shows a carrier how it has performed over the previous four quarters. The measurement and reporting system has yielded results, with the weighted scores moving up from about 92 percent when the program started to about 99 percent for outbound shipments today.

The carriers are also subject to an annual review, one that is more subjective. Those are important for revealing concerns in the field. "Even if a carrier has a high rating, problems can surface in the review," Schaeffer reports. For example, he says, a carrier may have an excellent record for error-free, on-time delivery but earn complaints from managers for failure to explain new services it has implemented.

Good, and Aiming Higher

Although the LTL program is already performing at a very high level, Schaeffer and his team are looking at the next stage of improvement. As part of its ISO 9000 requirements, for example, Air Products will demand actual on-time delivery reporting from carriers.

Furthermore, now that billing accuracy has improved, the company may move toward what Schaeffer terms a voluntary pay system, in which it will automate payments to carriers and eliminate much paperwork. (That system is now being piloted by the Chemicals Group.)

Schaeffer stresses that the carrier-management system is designed to encourage mutual discussions to solve problems. "Our overall program is a two-way street," he says. "There's a real give and take."

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