Cooperation Alters Operations Among Warehouse Users

By Michele Fuetsch, Staff Reporter

This story appears in the July 26 print edition of Transport Topics.

For more than 15 years, Just Born Inc., the Pennsylvania candy maker of Peeps and of Mike and Ike, transported newly made confections from its Bethlehem plant to two warehouses 75 miles away.

Since March, however, the sweets have been traveling only five miles to a new state-of the art factory owned by the candy maker and operated by Ozburn-Hessey Logistics, a global third-party logistics provider based in Brentwood, Tenn.

“One of the big wins for the project was that we’ve eliminated over 500,000 shuttle miles,” said Alan Sargent, director of logistics for Just Born. And the mileage savings takes about 1,000 tons of carbon dioxide out of the atmosphere, he said.

More significant for the future of the warehousing industry, OHL is recruiting other candy makers — Just Born competitors — to the new distribution center, appropriately named the Confection Connection. Candy makers that answer the call will be part of a cutting-edge practice called collaborative distribution, in which manufacturers with products headed to the same retailers share warehouse space, load planning and truck capacity.

Logistics experts and global climate thinkers are touting collaborative distribution as a key to leaner supply chains and smaller carbon footprints. Collaboration, its backers claim, could eliminate the warehouses and distribution centers owned or leased by manufacturers and retailers, at the same time it eliminates less-than-truckload runs to retailers.

OHL already operates a collaborative distribution center for candy makers in the St. Louis area.

“It’s a model that we’re looking at in other industries,” said Bob Spieth, OHL’s president of contract logistics and North America transportation. “We’re having some discussion in the consumer electronics industry and . . . also having some discussions in the health and beauty industry.”

For the manufacturers, the biggest benefit to collaboration is the savings in transportation costs, Spieth said.

“It’s around consolidating transportation and being able to take their smaller [less-than-truckload] shipments and ship those in larger quantities and share the freight savings of doing that,” Spieth said.

The collaborative model is similar to public marketplace models of centuries past when various merchants shared space, Sargent said.

“Public warehousing is actually an old concept,” he said. “It goes all the way back to docks and colonial times and Jamestown and Boston. The [Boston] Tea Party was on a public dock.

Collaboration, Sargent said, means “the multiple partners benefit by sharing and maximizing utilization of . . . the labor, the warehouse base and the space on the trucks.”

Today, collaborative distribution already has become a best practice among third-party logistics firms serving the food, electronics and automotive parts industries.

“I personally think it’s ‘the next big thing,’ ” said Joel Sutherland, a supply chain consultant and managing director of the Center for Value Chain Research at Lehigh University, Bethlehem, Pa.

“I’ve worked with Best Buy for 10 years now,” he said, “and they are really, I would say, champions of collaboration, and they’re driving it with their suppliers.”

Best Buy was pushing collaborative distribution as a business strategy before greenhouse gas emissions emerged as an issue, Sutherland said.

“They were doing it . . . to reduce inventory because you can plan it and schedule it better,” he said. “They were doing it to reduce transportation costs because they [received] consolidated, full truckloads.

“They were doing it to have better on-time performance from the time that the order was placed to the time it was delivered because they could execute that more predictably and reliably,” Sutherland said.

In a 2008 study, “The 2016 Future Supply Chain,” collaborative distribution is identified as a core element in the future architecture of supply chains.

The study was conducted by the global consulting firm CapGemini, headquartered in Paris, and the Global Commerce Initiative, a group of the world’s largest manufacturers and retailers that includes Unilever, Cadbury Schweppes, Coca-Cola, Henkel, Macy’s and Target.

Collaborative distribution, the study said, could reduce handling costs in the supply chain by 20% per pallet and transportation costs by 30% per pallet, while lowering CO2 emissions 20% per pallet.

Kane Is Able, a 3PL in Scranton, Pa., said collaborative distribution has allowed the firm to reduce supply-chain costs by 35% for its manufacturing customers.

“We’re seeing, annually, double-digit growth — 10%, 12% a year — in the collaborative side of our business,” said Chris Kane, the family-owned firm’s chief customer strategy officer. “It’s a fairly new program. We just started it within the last two years.”

The 3PL, with 8.5 million square feet of space across five states and more than 200 trucks of its own, first offered collaborative distribution at its Scranton facility but is now expanding the service to Atlanta, Chicago, Dallas and Los Angeles, Kane said.

Topps Co. Inc., New York, a candy company that makes baseball cards, and DeMet’s Candy Co., Stamford, Conn., which makes Turtles, are in a collaborative Kane-run distribution center in Scranton, as is the cooperative Sun-Maid Growers of California, Kingsburg, Calif., the raisin producer, Kane said.

Kane Is Able may be the first logistics company to provide something heretofore unknown among 3PLs — cash rebates to retailers willing to participate in collaborative distribution.

“If they take three or four vendors, put them together, and it turns out to be 20 pallets, maybe three or four pallets from each vendor . . . they would get $5 a pallet or $100 a truckload incentive,” Kane said.

Retailers control the ordering process, so they must coordinate orders and manage delivery scheduling, Kane said. “Because we’re asking them to do some coordinating, we thought it would be fair to compensate . . . them.”

Collaborative distribution still allows Kane Is Able to honor retailer replenishment cycles, he said.

“We’re just asking them to put whatever products that fit in that cycle, if it’s weekly or every other week or every few days, it’s just: Let’s look at it collaboratively rather than individual products coming one at a time.”

At the Confection Connection, for instance, the collaboration is so integrated that when OHL gets several suppliers into the facility, it plans to co-package competing brands of candy it trucks to retailers.

The 3PLs dealing in consumer package goods were the first to embrace collaborative distribution but the trend today has been adopted the fastest by 3PLs serving the electronics industry, said Steven Sensing, vice president and general manager of high-tech and electronics for Ryder Supply Chain Solutions, part of Ryder System Inc., Miami.

“It’s a service or a solution that 3PLs are providing to their suppliers and, in turn, creating value for the end-retailer as well in a consolidated shipment.”

Ryder, though, has built on the collaborative model, opening what it calls campuses to match the needs of electronics manufacturers and retailers.

“Their footprint requirements are 250,000 square feet to 500,000 or 600,000 square feet of space, which does not lend to a multiclient solution [in just one building],” Sensing said.

“That’s where we go into more of a campus environment, where you have those suppliers co-located,” Sensing said, “. . . and you still have that ability . . . to optimize across multiple customers in [neighboring] buildings more full truckloads or multistock truckloads versus an LTL.”

For its large electronics manufacturing clients, Sensing said, Ryder has created three major collaborative distribution campuses: in metro Los Angeles and Dallas and in Groveport, Ohio.

From all three places, he said, Ryder is creating full truckloads of products from several manufacturers bound for retailers around the country.

To further enhance its distribution services and cut labor and time from the supply chain, Ryder has created new customer delivery teams.

“In the past, let’s say, four customers, suppliers that we had going into a Best Buy, we would make four different phone calls . . . for those customers,” Sensing said.

Today, just one phone call goes out to a retailer to set up a delivery appointment on behalf of the four suppliers.

“So, what you do is, you build up that relationship with that retailer . . .  It improves the delivery and the appointment setting for those carriers when they go in,” Sensing said.

Like Ryder with electronics, Verst Group Logistics in Walton, Ky., a privately held family firm, has maximized collaborative distribution opportunities in a specific industry — automotive parts manufacturing.

Collaborative distribution is saving as much as 30% in supply-chain costs for the parts makers, said Paul Verst, president of the company his father started in 1966.

“It benefits [our] bottom line, obviously, because we take a portion of the savings and then share the rest of the savings with our customers,” Verst said.

With as many as 15 parts makers, the 3PL moves everything from mufflers, to drivetrains and axles to General Motors, Toyota and Chrysler plants, Verst said.

Verst Group set up its first collaborative distribution centers in the late 1990s to supply The Kroger Co. grocery stores, based in Cincinnati.

Later, when Verst Group decided to leave the tobacco logistics business, the firm needed new clients for its more than 4 million square feet of space in Indiana, Kentucky and Ohio, Verst said.

“We took a look at what opportunities were out there,” he said, “what voids had not been . . . met within the supply chain and realized the automotive industry was really fragmented . . . in how the delivery systems [operated].”

Collaborative distribution, Verst said, meant sitting down with the parts makers “and ourselves in a three-way conversation” with the big auto makers to create strategies to reduce miles, emissions and other costs.

If collaborative distribution cuts miles, emissions and labor for the giant manufacturers and retailers that dominate today’s markets, it may do even more for manufacturers and retailers whose pockets are not as deep.

Consultant Sutherland and others said that collaborative distribution practices pioneered by 3PLs may keep small and midsize suppliers alive.

“When you go to small to medium-size companies that are trying to develop a supply chain to compete with those giants,” Sutherland said, “they’re saying collaboration is the only way [they] can get close. So for them, it becomes a matter of survival.”

Sargent at Just Born, the candy maker, seconded that sentiment.

The real power of collaboration, he said, “has to do with finding this leverage” in shared labor, space and transportation.

“Not all of us are going to become big multibillion corporations,” Sargent said.