Holistic Approach to Transforming Transportation Operations

Transcription

1 Holistic Approach to Transforming Transportation Operations Mark Gallant Director, Canadian Transportation The Home Depot Gary Girotti VP, Transportation Practice Chainalytics

2 Agenda Overview Key Findings and Takeaways Case Study #1 - THDC Key Findings and Takeaways Case Study #2 Q&A 2

3 Agenda Overview Key Findings and Takeaways Case Study #1 - THDC Key Findings and Takeaways Case Study #2 Q&A 3

4 Chainalytics Our Genesis Market Lacked Proven, Focused Supply Chain Analytics Competence Best Analytical Minds in Supply Chain 1 st Named to 100 Great Supply Chain Partners List by SupplyChainBrain; Recognized for 8 Years Running Launch of Freight Market Intelligence Consortium (FMIC) Mike Kilgore named a Pro to Know by Supply & Demand Chain Executive; Jeff Metersky (2006), Gary Girotti (2007), Steve Ellet (2011), and Irv Grossman (2011) also named Pros to Know Established Chainalytics India Private Limited in Bangalore FMIC named Top Supply Chain Innovation by Supply & Demand Chain Executive Named to ARC Advisory s 10 Coolest Supply Chain Boutiques Launch of Sales & Operations Variability Consortium (S&OVC) Strategic Growth via Mergers & Acquisitions Supply Chain Operations (Chainnovations) Packaging Optimization (Adalis Packaging Solutions Group) TODAY Over 70 FTEs Worldwide Our Clients More Than 180 Unique Clients 14 of AMR s Top 25 Supply Chains 57 Fortune 500 Companies 5 of Top 10 Retailers 7 of Top 10 Food & Beverage Manufacturers 5 of Top 10 CPG Companies 6 of Top 10 Forest, Paper and Packaging Companies Our Experience More Than 375 Engagements Empowering Fact-Based Decisions Across Your Supply Chain 4

5 The Home Depot Canada The world s largest home improvement retailer; the largest in Canada. The Home Depot is the youngest retailer in the Fortune 50. The Home Depot Canada is transforming our supply chain into a higher service, centralized distribution network with low cost capability. Our transportation model has changed dramatically. 5

6 Drivers of Transportation Change Network Change Business Change Technology Shift Increase in Customer/ Store Density This was the case at THD, looking to get beyond traditional process of vendor shipments direct to store in relative small LTL shipments Enable flow system Merger or Acquisition Significant Shift in Business Direction Shift from rapid expansion to stable growth Need to Implement or Change TMS Systems 6

7 Transport Economics 101 Carrier Expense Avg. Rate per Load Rate per Mile Number of Miles What are the negotiated rates and how efficient is the fleet/mode? Where are the loads going and how efficient are the routes? Transport (% of COGS) Non-Carrier Expense Number of Loads Physical Volume Utilization (Cube/Load) How much demand (cube, pallets, lbs) do we need to move? How full are the trailers? Product Value COGS/Cube (Mix) 7

8 Holistic Change Cycle Sustain Change (Realize) Develop Strategy (Model) Control Risk (Execution) Simplify Messages (Communicate) Execute Change (Task Leaders) 8

9 Approach to Transformation Strategy Development Design and Model Future State Operations Model results must be creditable and tangible. Assess Organization s Readiness to Absorb Changes People, Processes and Systems Consider the Reality that Operations Must Keep Functioning at High- Level Throughout Transition Start the Implementation Immediately Quick wins are essential. 9

10 Project Approach Business Assessment and On-Boarding 4 Process Assessment Analytical Assessment and Benchmarking Alternative Initiative Development and Visioning 7 Process Re-Assessment Alternate Initiative Analysis Evaluation, Strategy Recommendations Formulation 2 Data Collection, Aggregation, and Validation 10

11 Transportation Mode Analysis What-if Analysis: Simulate Transportation Environment to Evaluate: Mode Changes Fleet Size Changes Cross-Divisional Consolidation Opportunities Consolidation Strategies Delivery Window Adjustments Facility Openings/Closings New Service Requirements Point-to-Point Private/Dedicated Consolidation 11

12 Transportation Assessment Framework Transportation Function Functional Scope Key Program Elements Procurement/ Carrier Relationship Management Modeling and Analysis Shipment Planning Shipment Execution Sourcing Carriers Maintaining Strong Carrier Relationships Maintaining Measurements Modeling for Continuous Improvement Consolidate Shipments into Loads Plan Routes Assign Carriers Tender Freight Set Appointment Execute Shipment and Follow-up Track and Trace Trailer Pool Annual Procurement Process External Benchmarking Procurement Event Using Optimization Technology Post-Bid Compliance Audit Carrier Scorecard with Routine Review Annual Analysis of Dedicated vs. One-Way Carrier Routing Bi-Annual Functionality Assurance Review of Technology and Practices 12

13 Agenda Discussion Overview Key Findings and Takeaways Case Study #1 - THDC Key Findings and Takeaways Case Study #2 Q&A 13

14 The Home Depot Canada Situation Transportation had to change To Improve Service On-Time Consistency Flexibility To Leverage Scale Fewer Trucks Better Modes/Rates/Routes To Central Distribution Efficient Flow Improved Lead Times Visibility 14

15 Project Scope All Shipments from Collect Vendors in Region All Import Shipments from Stocking DCs to Stores in Region All Known Prepaid Shipments to Stores in Region 12% Total Volume Vendors 9 Stores 50 88% Included Excluded 106 Included Excluded 108 Included Excluded 15

16 Collect Freight Scenario DC Consolidation 95% of all Vendor Product (by Weight) Directed Through X-Doc If all vendor freight was forced through the DC, the savings potential remained unchanged from optimum. 18 Future State Vendor Count 88 Total Volume 5% > 90% Thru DC < 90% Thru DC 95% Thru DC Direct 16

17 Vendor Annualized Savings ($K) Cumulative Annual Benefit Collect Freight Scenario DC Consolidation DC Consolidation Savings 90% of benefit 90% of Benefit from 49 vendors from 49 Vendors Savings Converted Cumulated Savings Vendor 17

18 Collect Freight Scenario Cycle Times Average Cycle Time by Market Must Deliver on Historical Date Can Deliver Up To 3 Days Before Historical Date, but No Later Than Area #1 Area #2 Area #3 Area #4 Area #5 Total 18

19 Model Summary for Region Opportunity to Realize Significant Cost Reduction Supports Future Central Distribution Strategy Improved Total Service and Lead Time 19

20 Initial Study Recommendations Test Fleet Range Intermodal versus Over The Road Cross Dock Locations Collect and Track Set of Metrics Target Minimum Load Factors 20

21 Agenda Discussion Overview Key Findings and Takeaways Case Study #1 - THDC Key Findings and Takeaways Case Study #2 Q&A 21

22 Case Study: Retailer Transportation Assessment Company Transitioned from Rapid Store Expansion into Margin Improvement Mode Needed to Evaluate Current Systems Environment in parallel with Overall IT Infrastructure to Support Flow Through Major TMS Implementation Completed a Few Years Earlier; Savings Projections Not Realized Significant and Growing Investment in Dedicated Assets Is fleet properly sized? Is heavy internal reliance on 3PL Dedicated Provider working well? 22

23 Transportation Management Program Transportation Function Client Rating Assessment Procurement/ Carrier Relationship Management Modeling and Analysis Med Low Good Relationships with Major Carriers Outsource Provider Owns LTL Relationship Lack of Procurement Staff within Transportation Lack of Regular Procurement Events Underutilized Fleet Assets; 5-Day Schedule, High Trailer Ratio Lack of Internal Capability to Develop Optimization Shipment Planning Med Outsourced Outbound Planning Limits Optimization Capability Fleet Strategy Limited to Single Line of Business and Extends Beyond Optimized Territory Sub-optimal Static Backhaul Process Shipment Execution High Inbound Electronic Tendering to Preferred Carriers High Manual Inbound Telephone Requirement Lack of Inbound Exception Management Capability Freight Pay and Audit Med Outsource Freight Pay and Audit High Currently Use More Than 75% of Relevant Best Practices Med Currently Use Between 25%-75% of Relevant Best Practices Low Currently Use Less Than 25% of Relevant Best Practices 23

24 TL and IM Rate Benchmarking Comparison of Common Carrier Rates 100% INBOUND 4,154 27,710 $XX.XXM 100% OUTBOUND ,264 $XX.XXM 80% 1,981 16,608 $XX.XX 80% 135 7,020 $X.XX 60% 40% 799 4,760 $X.XX 60% 40% 55 2,860 $X.XX 20% 1,374 6,342 $X.XX 20% 142 7,384 $X.XX 0% Lanes Loads Spend (Millions) 0% Lanes Loads Spend (Millions) BELOW AT ABOVE BELOW AT ABOVE Outbound common carrier rates were basically at market, but inbound rates were inflated due to the lack of a formal procurement process. 24

25 Dedicated Fleet Service Area Actual vs. Modeled Maximum Radius (Miles) Center Current OB Only With Current BH All IB South West East Central Mid-West Optimal Service Area (OB Only) Modeling Results Validate Current Fleet Territories in 3 DCs In West DC, Fleet Sent Too Far In Central DC Too Far Under Current BH Process Suggest Dynamic BH Process Opportunities Service Radius Increases with BH Opportunities 25

26 CEO Takeaways Issue Cause Action Item Ability to Achieve Confidence in Savings Estimate Confidence in Investment Above Market TL Rates No Formal RFP Process Conduct Multi- Round Optimized RFP Process High High ($1.5-$2.5M) Very High ($ K) Lack of Total Network Optimization Under- Deployed Technology Fully-Deploy Already Purchased Technology Inbound - Moderate Outbound - Difficult High ($3.4-$4.5M) High ($4.2-$5.5M) High ($ K) Low ($550-$800) Misaligned Fleet Entrenched Outsourcer Lack of Internal Optimization Capabilities Re-Align Fleet Develop Internal Competencies and Technologies Moderate Moderate ($ M) Moderate ($ K) 27

27 Projected Schedule Project Month Initiative/Key Task FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN TL/IM Bid 3-4 Months I/B Planning LTL Bid 3-4 Months I/B Optimization Tech Work 2-3 Months Process Implementation 1-2 Months Fleet Optimization Planning/Change Management Consensus Building Model Re-Runs 1 Mo Detailed Fleet Engineering 1-2 Months IB/OB Planning IT Work 4-6 Months Process Implementation 1-2 Months Savings Stream Procurement 2Q07 Inbound Planning 2Q07 Fleet Optimization 3Q07 Inbound/ Outbound Planning 1Q08 27

28 Implementation Requirements Recommended Strategy Technology Process Organization Develop and Implement New Transportation Procurement Process None Outsource Stand Alone Procurement Software Conduct Regular Annual Procurement Events for All Modes Individual Dedicated to Procurement and Carrier Relationship Management in Transportation Organization Insource Transportation Planning Technology and Processes Inbound Multi-Stop Optimization Technology Implemented Full EDI Capability Implemented Automatic Execution and Alerts Implemented Outbound Planning Technology Implemented Upgrade to IT Middleware Infrastructure for Planning Insource Planning Capability to Reduce Costs and Increase Optimization Change Relationship with Fleet Planning and Scheduling Change 3PL LTL Planning and Management Develop Processes that Optimally Combine Inbound and Outbound Planning Individuals dedicated to Transportation Planning, both Inbound and Outbound, in Transportation Organization Implement New Fleet Strategy Initially None Ultimately Implement Inbound/Outbound Planning Functionality Implement Sunday Deliveries for Drop-and-Hook Stores in Fleet Area Re-Align Dedicated Fleet to Service Smaller Territory Develop Dynamic Backhaul Process Outside Fleet Area Using Fleet Only with BH Loads Fleet Planning Capability Requires Implementation of Planning Staff within New Organization Does Not Require Store to DC Re-Alignment 28

29 Key Takeaways and Recommendations Decision to Outsource to Obtain Technology Implement Recommendations Using Phased Approach Over 4 Years Continuous Improvement Ongoing Integration of FMIC Data 29

30 Questions?

31 Holistic Approach to Transforming Transportation Operations Mark Gallant Director, Canadian Transportation The Home Depot Gary Girotti VP, Transportation Practice Chainalytics