When Schneider Electric acquired American Power Conversion Corporation (APC) at the beginning of this year, the two companies realized they had a lot to learn from each other about reigning in logistics and transportation costs.

For example, APC manufactures uninterruptible power supplies in Asia using its own factories and people, while its new parent’s manufacturing and distribution is regionalized—each strategy presents its own challenges and advantages. So, in cross-examining their respective global and regional approaches at this early stage in their relationship, both entities will be able to determine—eventually—which is the better model for their combined forces. It may even mean a hybrid approach to logistics management, combining the best of both cultures.

But, that’s the future. Let’s first talk about APC’s past—the time before it was even a twinkle in Schneider’s eye. Let’s look back to when the principals at APC put their collective heads together and realized that they had to gain better control over their $200 million transportation spend and the movement of 28,000 TEUs from Asia to distribution points around the world as well as within North America and Europe. They also realized they had to reverse a cost spiral that was eroding corporate margins—a major portion of this spiral was how much APC was spending on air shipments.

In fact, putting that air freight figure on the chopping block while streamlining the company’s global supply chain practices was one of the first tasks given to the company’s new director of global transportation, Carl Rossi.

Rossi’s marching orders were of such a high priority to the corner office that they were actually spelled out in APC’s annual report in 2006: “As we look forward to 2006,” the report stated, “we need to eliminate redundant operations costs created by prior transitions; deploy and improve distribution capabilities in all regions globally; accelerate the responsiveness of supply chain to minimize availability issues for the more complex solutions; and improve demand to supply signaling capabilities.” Welcome aboard, Carl.

APC’s transportation cost-savings strategy actually started coming together well before the Schneider acquisition.

At the time, the company’s corporate transportation team consisted of three managers in the U.S. and Ireland who were accountable for controlling all logistics and transportation costs. This team interfaced with manufacturing and distribution professionals around the globe and shared similar functions—but, according to Rossi, didn’t communicate on a regular basis. When he came on board, he saw the opportunity to bring all worldwide staff together for the first time in a cohesive team under the theme “One APC.”

His approach was to manage the entire carrier base (air, ocean, and ground) as one company, with one strategic vision and one voice. On the air side, there would be only four go-to carriers to use globally—a primary and secondary carrier by region. That means two in India and two in China. However the primary in China may not be the primary in India. To make those decisions, Rossi depends on input from the APC transportation team working in those regions.

By reducing their number of preferred air carriers to four, Dave Morin, manager of APC’s North American transportation, says he expects better service from them. “The more you spend with one provider the more resources they are able to place on the account,” he says. “As we’ve leveraged more spend with fewer providers, more resources have become involved to resolve issues when they come up.”

The new plan kicked off in early 2006 before air freight and sea freight negotiations began. Almost immediately, says Rossi, the new approach changed the way carriers addressed APC. According to Rossi, “They now saw APC’s transportation team as one entity.” And although APC’s local team members had some say in determining primary and secondary carriers, the carriers knew they couldn’t make a local deal without creating expectations in other regions.

“We said, 'You can’t go to Bangalore and give them some kind of good deal at the expense of our people in the Netherlands,’” Rossi explains. With the logistics and transportation teams around the world now thinking as one, Rossi was able to gain better visibility into the company’s internal systems. He realized that he needed to make some cultural changes right off the bat. According to Rossi, the operations team needed to put aside local concerns and view the company’s overall transportation needs in the same unified way.

“Our people in operations, sales, and order management received guidelines to bring air freight down to a livable level in a quick time period,” he says. “This trending down happened within four months of implementation. The end result was a significant reduction in cost.” Such compromise resulted in dramatic savings year over year. Average sea container rates dropped 10 percent and air rates dropped 8 percent. More importantly, excessive premium transportation expense dropped 68 percent from 2005. According to Rossi, this is a direct result of establishing an empowered global team.

According to Brian Lamarre, APC’s senior manager of international logistics, it was quite a challenge to change a corporate mindset that viewed transportation as a general commodity without modal distinction. “We try to educate our internal resources about the different air freight services out there,” he says. “People use FedEx as a buzz word—saying 'FedEx it’—without realizing there are other options. A lot of that savings came about by educating our people to select the proper service once we have the approval.”

With everyone more sensitive to how air freight approvals are made, Rossi made sure that no one would be making the mode choice on their own. Now, anyone requesting air freight within APC must justify the decision based on the impact to gross margins. If it was determined to have a negative impact, the decision would have to have approval at the VP level. And to improve accountability, the air-freight approval request form features a root cause analysis identifying who owns the corrective action.

According to Rossi, all of these decisions were made with APC’s customers in mind—that’s what made them such a challenge. APC has two sets of customers: traditional outside customers and internal customers such as order management, sales, and distribution. Many of the external customers are electronics retailers such as CompUSA and Best Buy, but it also serves resellers such as CDW and Tech Data. The newly restructured company is a more than $3 billion business, and to serve this entire customer base better, APC’s processes have been fine-tuned to provide more promised ship dates—but not by blindly relying on air to do it.

APC’s normal shipping route from its manufacturing site in South Asia has been by ocean; but if there were internal supply chain glitches it would have to use air freight. Before 2005 the company used significantly more air freight than it does today, and did so to make logistics as transparent to its customers as possible.

“The biggest reason for going air was that if we didn’t release a product as quickly as we thought we had to meet our commitments to customers,” Rossi explains. “Our cost in 2005 was 2 percent of revenue. In 2006, it was 0.5 percent of revenue. That money we spent in ’05 on air freight we freed up in ’06 to further improve customer satisfaction at the distribution centers and improved engineering for new product development.”

When it does use air freight, APC relies on reports from its preferred carriers indicating how many kilos the company shipped each week and what the cost was in each lane. Rossi’s transportation group monitors that report on a weekly basis and creates a “spend by category” analysis that ties the spend on air freight to the corporate budget—which gets rolled into a year-to-date report.

There’s little doubt that a large part of Rossi’s success has been in improved internal communications. APC’s ERP system is now a global platform offering every location a real-time database. “This really helps with the communication transfer,” adds Dave Morin. “We are looking into the Oracle traffic management system which could help improve the compliance component.”

Another solution APC is considering: putting in a consolidation point somewhere in China—possibly Shanghai or Hong Kong. The company has an extensive vendor pool there, which will help them ship via LCL cargo. This would mean better rates and better visibility.