Hendrickson Intl.: inbound strategy cuts costs.
CONSISTENCY CUTS COSTS
Headquartered in Woodridge, Ill., Hendrickson International makes truck and trailer suspension systems as well as axles, bumpers, steel springs, and other aftermarket parts. The privately-held company recorded about $500 million in sales last year. A global manufacturer, Hendrickson operates plants in North America, Europe, Australia, and Asia Pacific. In North America, it has 12 manufacturing facilities--10 in the United States, one in Mexico, and another in Canada. It also operates single warehouses in Canada and in Mexico. Although Hendrickson does import parts from its overseas factories and several global supplies, most of the materials and components used in its North American planes are domestically.
Four years ago, Hendrickson conducted a comprehensive assessment of its supply chain practices. That study identified the need for a new inbound logistics strategy for its North American plants and distribution centers.
The majority of Hendrickson's shipments in Notch America (21,330 shipments totaling in excess of 285 million pounds in 2003) constitute inbound or interplant movements. At the time of the supply chain analysis, the company's five divisions regularly used high-cost expedited transportation to make those deliveries. In addition, there was no systematic, company wide method for carrier selection, nor did the company leverage its freight volumes across the divisions to secure lower rates. Each division, moreover, worked with multiple providers of transportation services. "Each plant did what they wanted to do," says Logistics Manager Kelly Ingersoll.
It was clear that Hendrickson needed a transportation strategy that would apply consistent procedures across all five divisions. As a first step, Ingersoll and his counterparts at other facilities mapped each plant's shipping processes. They then created a manual that prescribes standard operating procedures and documents for 23 activities. For instance, the manual lays out the criteria for choosing a secondary carrier if the preferred transportation provider is not available. The manual also offers guidelines for completing shipping documents and filing loss-and-damage claims.
Rather than purchase costly transportation management software, Hendrickson turned to a third-party logistics company (3PL) that already had the capability to optimize shipments. (That 3PL now manages daily transportation operations.)
Since taking over inbound transportation in 2001, the 3PL has pared the ranks of Hendrickson's service providers. The number of motor carriers, for example, dropped from 117 in 2000 to 54 in 2003. Hendrickson also uses one customs broker instead of four and cut the number of freight-payment companies from five to one.
The third party then used Hendrickson's consolidated freight volumes to negotiate lower rates with the remaining carriers. Because of those lower rates, Hendrickson has realized savings of 9.2 percent on less-than-truckload, truckload, flatbed, and expedited shipments; 12.9 percent for small package shipping; 19.7 percent on customs brokerage; and 19.4 percent on freight forwarding fees. Overall, Hendrickson cut its transportation expenditures by an average of 12.8 percent in 2002 and 14.4 percent in 2003.
To help manage the contract distribution provider, the company has created a logistics council, which includes managers from each plant. The logistics council meets once a month with the third-party provider to review key performance indicators, both at the plant level and across the company.
THE MOVE TO LEAN LOGISTICS
Hendrickson's costs per hundredweight for materials declined 14.9 percent between 2000 and 2003. Ingersoll attributes that success to his company's adoption of the coordinated inbound strategy. But he's confident that there are more savings to be had.
One way Hendrickson hopes to achieve further improvements is by working with the third-party provider to transition to a "lean logistics" operating model. The new system will shift inbound shipments and deliveries to a predetermined schedule that will spread the delivery of materials at consistent levels across all shifts, Ingersoll explains.
As part of that program, Hendrickson will establish a standard frequency for inbound parts shipments. The company also plans to set up standard routes for picking up shipments from multiple suppliers and then delivering them to plants as consolidated loads on a set schedule.
Establishing predictable schedules while taking into account such factors as materials and inventory-carrying costs will build on Hendrickson's current program by optimizing total costs, not just transportation costs, Ingersoll says. It won't be easy, though: "Right now, the [supplier's] plants ship multiple times a week," he notes. "What's slowing us up [in implementation] is gathering all the part-level detail from those suppliers."
However time-consuming, Hendrickson's efforts will be worthwhile. The first phase of the inbound strategy not only cut costs but also increased shipment visibility and simplified processes by standardizing them across the entire company, Ingersoll observes. Now he and his colleagues are aiming for the next prize: Implementing the lean logistics network, he predicts, will reduce inbound costs by another 11 to 15 percent.
U.S. Headquarters: Woodridge, Ill.
Products: truck and trailer suspension systems, axles, bumpers, and steel springs
Facilities: Operates 12 plants and 2 DCs in North America
Revenue: Approximately $500 million in 2003
Logistics Facts: Inbound strategy reduced transportation costs by 12.8 percent over three years. design of delivery schedules is expected to yield another 11- to 15-percent savings.
With companies needing to squeeze out every penny of supply chain savings, logistics departments today have no choice but to run with awesome efficiency. To find out how our readers are meeting that challenge, we launched the "Best Practices in Logistics Management" contest. Our editorial staff evaluated each submission and chose those that stood out for their effectiveness and demonstrable results.
This month, we profile the Silver and Bronze Award winners. Look for a profile of the Gold Award winner in our June issue.
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|Author:||Cooke, James A.|
|Publication:||Logistics Management (Highlands Ranch, Co.)|
|Article Type:||Cover Story|
|Date:||May 1, 2004|
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