Sometimes even the most venerable among us needs a hand crossing the street now and then. The same can be said of a storied U.S. manufacturing company—one that literally had a part in writing U.S history all the way back to just after the Revolutionary War.
Not to put too fine a point on it, but when Timothy Gomez came aboard as director of distribution center operations for North America at Dixon Ticonderoga five years ago, the esteemed pencil manufacturer needed to sharpen its distribution processes.
“One word—nightmare,” says Gomez.
And it was at that time that he launched a logistics transformation program at the privately held 218-year-old company that brought its distribution and logistics processes into the 21st century. The transformation entailed vertically linking its manufacturing plant with its logistics processes through a series of modernizations at the company’s major distribution hub.
In the past five years, these new processes has saved the company $5 million in logistics costs, helped to propel Gomez into the roll of CEO, and has now earned Dixon Ticonderoga the distinction of 2013 NASSTRAC Shipper of the Year, an award given annually by the association and Logistics Management to a shipper that has transformed its operations through the implementation of best practices and innovative thinking.
Here’s how Gomez and the logistics team at Dixon Ticonderoga made it happen.
Underlining the problem
When the 45-year-old Gomez joined Dixon Ticonderoga back in 2008 as director of distribution center operations for North America, he discovered some of its shipping practices were nearly as old as the company.
According to Gomez, it was using too many trucking companies to have any leverage over rates, while its processes and layout of its principal warehouse were outdated and cumbersome. He also found that the company’s system for handling defective merchandise was costing the company too much money and additional time.
“I had a disorganized warehouse, we were using 15 different transportation providers for inbound and outbound, we used receiving docks for shipping docks, shipping docks as receiving docks, three or four different brokerage services, and we were using significant expedited freight service to maintain service levels,” Gomez recalls.
To top it off, the company was getting hit with high fines from retailers because of transportation service failures.
For a company that sells a half billion pencils a year and has 150,000 different store keeping units (SKUs), that chaos meant mass confusion because its major production facility in Mexico City was not linked in any way to its logistics and distribution arm in the U.S. When product was ready, Gomez recalls, logistics often was was not.
A major problem was split loads. Because manufacturing was not linked to transportation, truck inefficiencies were commonplace. Instead of one or two full truckloads by handful of chosen core carriers, it was sending partially loaded trucks by as many as 15 trucking companies.
“Let’s say we needed 150,000 units of XYZ, but we could only load 120,000 on the truck,” says Gomez. “The other 30,000 units would come later. It was erratic, and it was costing us plenty.”
Dixon Ticonderoga had no system linking its production to its available logistics resources. This caused service failures, which in turn caused some retailers to fine the pencil manufacturer because the correct amount of product was not available in a timely manner.
Writing the solution
One of Gomez’s first achievements was whittling 15 former trucking partners down to four. These “core four” include UPS Freight and its brokerage arm, which now receive 85 percent of Dixon Ticonderoga’s total logistics business today.
It also utilizes Old Dominion Freight Line (ODFL) for what Gomez calls “daily milk runs” into the U.S. from its 1,000-person production facility in Mexico City. It also uses C.H. Robinson as its chief third-party logistics provider (3PL) and Georgia-based TQL for truckload freight.
Interlining carriers offered freight savings due to the increased volume given to the carriers. Contracting with a limited number of core carriers enabled Dixon Ticonderoga to estimate future freight costs, improve on-time delivery, and work to eliminate issues in the future due to a solid relationship with those core four.
Gomez says that the key to its logistics turnaround was working with UPS. The $54 billion freight and logistics giant has strategically and vertically integrated with Dixon Ticonderoga, which also utilizes UPS’ brokerage services in Far East and Europe, as well as inbound and outbound transportation.
“Over 85 percent of my logistics is vertically integrated with UPS,” Gomez says. “They have really been the glue that holds this all together.”
ODFL has been used strategically to improve inbound freight from Mexico, which produces about half of Dixon Ticonderoga’s products. Before, shipments used to come sporadically; but now, during its peak season from January through July, daily full truckloads come via ODFL to its major distribution center in Macon, Ga. “I call them ‘milk runs’ because they’re just as reliable as the milkman delivering milk to your doorstep was a half century ago,” says Gomez.
But the improvement is not just in transportation. Gomez developed a stable and workable logistics plan to not only integrate shipping logistics inbound and outbound, but also to manage supply and purchase orders and link them to logistics capability.
“We have 5,000 different SKUs and we know exactly how much we can load,” Gomez says of Dixon Ticonderoga’s varied product lines of not just pencils, but paints, watercolors, crayons, industrial supplies, arts, and crafts.
With factories in China, Korea, India, and elsewhere, Dixon Ticonderoga used its established relationship with UPS to gain a foothold in logistics is in these places. “When you have to fight for container space on a ship, UPS definitely has clout with getting space for our containers so we don’t have service levels drops,” Dixon says.
However, the layout of the 200,000-square-foot warehouse in Macon, Ga., was another headache. Originally, the receiving area was separated into two areas of the warehouse with the shipping staging area between them, thus creating additional movement when the receiving team crossed into the path of the shipping team. By combining the receiving areas into one within its distribution center, the team reduced unnecessary movement of product and streamlined the receiving process.
Using the Lean process, Gomez created direct load lanes (called “SWIM” lanes in Lean-speak) to enhance processes and the layout of the warehouse to increase value and efficiencies. He says that the entire process requires just 15 people who are employed with wireless handheld devices to track thousands of SKUs at all times.
Additionally, Dixon Ticonderoga improved how defective materials are handled by staging a permanent non-conforming area within the warehouse. This has reduced both freight refusals at delivery and freight claims by insuring non-conforming product does not ship to customers.
Prior to the change, Gomez says that retailers had been charging Dixon Ticonderoga in excess of $1 million annually for defective and non-conforming products. Today, those charges amount to about $25,000.
Bottom line savings
From the first year to the second year of its transformation, Gomez says that Dixon Ticonderoga achieved more than $1 million in savings. That has grown to more than $5 million in the five years that the program has been in place.
“We are able to sustain it,” Gomez says proudly, referencing the continuous improvement processes.
And it shows. According to market analysis, the most efficient companies spend between 3.8 percent to 4.2 percent of total revenue on logistics. Dixon Ticonderoga was way above that percentage when Gomez came aboard. The company has since reduced that spend by 1.4 percentage points to now fall between the benchmark, he says.
Because it was successful integrating logistics inbound on container shipments coming from overseas, Gomez says that the company was able to reduce the number of containers it uses by 15 percent. “That’s real money,” he says.
Inventory turns have been reduced by 25 percent, and the amount of inventory was cut by 28 percent since it now has a predictable supply chain. During the five year period, Gomez says, Dixon Ticonderoga’s revenue grew by 50 percent.
As one of the few supply chain professionals to gravitate to the CEO level, Gomez has a distinct appreciation for how vital, innovative, and well-run supply chains are to the health of the overall corporation.
“When you try to pioneer something with a company that hasn’t done this before, it’s like driving on a dirt road,” Gomez recalls. “At the beginning, it’s always bumpy. But as we started going the first year, we realized we weren’t on a dirt road any more. We were on a paved road. It may have some potholes along the way, and you hit them.”
But in the second year, Gomez adds, the logistics team felt as if they were riding on a brand new road. “Nothing is perfect when you start,” he adds. “When you pioneer something, it’s a blank canvas. Mistakes can be made, but there were many more positives than negatives.”