Integrating 3PL into a Sustainable Supply Chain

Transcription

1 Integrating 3PL into a Sustainable Supply Chain Jacob KILBY Group Leader, Logistics, JCB UK JCB JCB was founded in 1945 by Joseph Cyril Bamford. JCB has 17 factories in the UK, and is one of the world s top three heavy equipment manufacturers. There are 8,000 employees. Despite being firmly British-based, JCB has subsidiaries in China, US, Brazil and India. The revenues are 2 billion, with 200 million in profit. JCB has had huge growth. 20,000 units per year were being made in This has grown to 80,000, with a massive impact on the supply chain. Inbound There are two points to look at with regard to a sustainable supply chain. These are inbound goods transport and logistics and distribution. The heavy duty industry is less mature than the auto industry in terms of supply chain, optimising inbound goods etc. Some of the key aspects are ISO 14001, audit supplies, fair partnerships, and centralised warehousing. Most of JCB s suppliers are in the UK, which reduces transport distance but generates other issues. How do JCB set about improving the supply chain side? First, it is important to train the supplier development engineers in fair partnerships etc. Second, ISO must be integrated across the supply base. Thirdly, JCB needs to work with NYK Logistics to develop milk rounds, consolidated inbound freight, warehousing systems etc. Outbound Factors to be examined in outbound include distributing finished products by reducing air freight. This is done by setting up subsidiaries. The Indian factories supply most of the India and the Middle East. The UK factories supply most of continental Europe and UK. The Savannah, GA plant supplies the US. There is also a new plant in China. There is also the issue of reducing empty mileage on supply and distribution runs. Another supplier, Brit European, comes into play in terms of optimising outbound freight. JCB and the Environment JCB staff use 5,000 gallons of fuel per day. JCB has policies on lift sharing and flexible working hours. This reduces fuel consumption and car park congestion. Most JCB plants are based on the same model. Their grounds are landscaped, with lakes, wildlife and greenery. It is about integrating the factory into the environment. Money has been invested in producing fume-free paints. NYK Logistics have been assisting in developing paper reduction strategies such as electronic data transactions and web related information systems. Current Scenario Most manufacturers buy their goods ex works. However, JCB purchases goods on a duty delivery unpaid (DDU) basis, meaning that JCB pays the supplier to send the vehicle in. This causes issues with regard to variability of freight, time of arrival, congestion, health and safety etc. Furthermore, there are numerous impacts from purchasing decisions all along the supply chain. One of these is increasing the supplier portfolio for a short-term cost-down, without necessarily Vol. 17 N 1,

2 taking into account the impact on the supply base and communications, for example. Increasing the supply base also increases inbound inventory movements, causing congestion, health and safety issues, and concerns about quality and vehicle auditing. The basis of lean manufacturing is to outsource stock to suppliers and have more frequent deliveries. The irony is that this involves the use of more inbound transport. It has to be asked whether lowering stock or increasing transactions is more important. JCB is working on improving reverse logistics. This involves managing packaging returns, information systems, and packaging engineering. Use of 3PL A major aspect is integrating 3PL into ex works purchasing. JCB currently has 300 suppliers, each one delivering their own goods. Integrating 3PL into the transport decision-making process is also very important, because JCB s has less expertise in the logistics area. The operational role of 3PL is very important in terms of freight consolidation and early warning of shortages. Dock planning, or delivery planning, is also important. JCB has no set incoming delivery times at the moment. Benefits are reduction of congestion and wait times, a safer working environment, and facilitation of labour planning. Integrated information systems reduce and standardise paperwork and improve the good receiving process. They help to avoid booking-in errors and invoice discrepancies, and enable consolidated advanced shipping notification. Loadall Division There are approximately 200 suppliers for Loadall. Most are in the UK. Very few of these are from Eastern Europe, the US, or the rest of the world. All inbound goods are purchased DDU. The average load is two or three pallets. Therefore, there are many deliveries of small quantities rather than big consolidated loads. This has implications for managing the receiving function, quality, vehicle auditing etc. Materials planning and production scheduling cannot be controlled without control of inbound transport. Contrary to the standardised delivery vehicle sizes in the auto industry, JCB Loadall receives vehicles ranging in size from Transit vans to 38 tonne trucks. Many JCB suppliers own their own vehicles. JCB are working with their LLV on control over delivery times and the ability to schedule the gatehouse and receiving function. Group Purchasing An increase in supplier portfolios will result in an increase in transaction movements and the possibility of error. Increased inbound movements result in greater use of resources. Strategic partnerships and continuous impro- 86 Vol. 17 N 1, 2009

3 vement initiatives are much more difficult when there are 500 suppliers instead of 50. This leads to two issues. Firstly, there is the real quantity of interest of short-term cost downs from purchasing, and how JCB needs to work with group purchasing to find the best supplier base for managing inbound freight. Secondly, there is the long-term impact on business relationships with suppliers. Increasing inbound movements has an environmental cost. More errors, invoice queries, and issues with labelling are generated with the goods receiving function. There is the health and safety issue. Controlling the inbound function is not only good for the environment, because the number of vehicles is reduced and loads are consolidated, but also for health and safety. The vehicle auditing process is also important. The supply base is difficult to audit if there is no control over inbound goods. NYK s Cheadle project is the model for consolidated goods and inbound freight. It is benchmarked on Jaguar and Landrover, as NYK has much experience working with automotive OEMs. It also looks at dock planning and aspects of returnable packaging. The Cheadle improvement programme has been going for about two years, involving 400 suppliers for three JCB factories. Benefits and Disadvantages of 3PL Firstly, 3PL enables JCB to focus on the core business. There are significant cost saves through transport consolidation. This enables energy savings, control of the receiving process, standardisation of advice notes, consolidation of paperwork and system standardisation. Another benefit is better contingency planning and communication systems, because one 3PL is being used rather than 500 suppliers. Development of a strong working relationship can be difficult because there can be a lot of resistance to the idea of Kitting Function Outsourcing There are two main assembly lines at Loadall. There were two trolleys which would not fit on a truck and were not very safe to transport. Loadall worked with NYK Logistics to merge two trolleys into one, and how to maximise cube space when the kitting function was outsourced. It had to be decided whether the existing trolley could be modified or not, and whether or not wheels were needed. Other issues were how to go about ensuring traceability down the supply chain between Loadall and NYK, health and safety, labelling, ergonomics, paint protection, and costing. Service level agreements and maintenance programmes were also important. 24 of the redesigned trolleys can be loaded onto a 38-tonne truck, as opposed to only nine of the old trolley. They are stackable. There is improved stacking capacity and better identification. NYK helped JCB negotiate with steel fabricators and packaging specialists to develop the unit. They also helped map out the kitting area and gave advice on transport operations. Vol. 17 N 1,

4 working with 3PL. Finally, having a 3PL drives a professional mindset. A very significant drawback is the loss of skill sets. Outsourcing the functions for receiving inbound goods, warehousing, inventory management etc can be hard to reverse. There can also be a degree of dependence on 3PL. Costs can be dependent on macroeconomic factors, not only on 3PL. There needs to be a sharing of risks and gains when working with 3PL, because cost saves are potentially not passed on. Challenges There are rising costs and complexity related to energy consumption, waste disposal and information transfer. European and national legislation will impact on inbound and outbound goods and the management of supply chain management. There is the issue of JCB s internationalisation. The working relationship needs to be consolidated. One needs to develop an understanding of the specific building culture of the 3PL. JCB needs to improve on consistency in project management and sustainability. Understanding the roles of each company helps eliminate the blame culture. The supply base needs to be professionalised and standardised through international quality standards. Finally, it is essential to adhere to a long-term project, because rewards, cost saves and efficiency increases take time. Working with JCB to Create a Sustainable Supply Chain Howard HUGHES Regional General Manager, NYK Logistics UK NYK Group NYK is 120 years old. It is divided into shipping, logistics, and dock and terminal services. NYK employs approximately 48,000 people globally. Last year s turnover was $18 billion, and $18.1 billion of assets were employed. This year s turnover is $24 billion. There has been a 14-16% increase year on year for the last three years. NYK UK came into being after the merger of UCI and New Wave Logistics, supplemented by extra revenue from NYK. Turnover is over $330 million. This has grown by approximately 25% each year over the last five years. This has caused integration and cultural issues. NYK supplies anything from total integrated supply chains, to basic warehousing, goods receiving etc. Various elements of the Indian organisation began in The component parts were only integrated in JCB were then brought in. Vision for Collaboration Both parties are trying to work together, merge their operational capability, and create competitive environmental advantage. JCB required a one-stop shop. They needed to create an end-to-end profile for manufacturing in India through to supply and subassembly in the UK. That was the strength offered by NYK. However, NYK had to operate both within competitive pricing and statutory and corporate ethics requirements. JCB want to be able to build machines, and it is NYK s job to give them the parts to do that. Supply Chain Improvement NYK looked at the secondary issues such as maximisation of containers through utilisation, reduction of container movement, reduction of vehicle frequency, and reduction of dockside routes to India. This meant reduction of vehicles arriving onsite at JCB in the UK. The original packaging was unsuitable. It used costly, non-recyclable elements, such as cardboard and wood. High volumes of damage were taking place in transit because of stacking of wooden pallets. Wood was replaced with a very simple bucket stillage. The stillages are also collapsible. They do not scratch the parts in transit. Labelling was the source of several problems. Some parts were arriving in the UK with no labelling. Therefore, part identification was difficult, and locating parts was a problem. A basic label was introduced, and pushed across 88 Vol. 17 N 1, 2009

5 the Indian site. A lot of effort was put toward creating a generic process for all the Indian suppliers to follow. The result has been a reduction in delays and an increase in inventory integrity. Moreover, the right stock is in the right place at the right time. Regarding frequency reduction, container tonnage was increased, and container number entering the UK thereby decreased. A regional delivery centre was developed in the UK, and the Indian deliveries were matched to the requirements of the JCB sites. Therefore, the dock plan could handle deliveries more effectively. It was designed as a backward flow process, so that all the returnable packaging returned by the same routes. Results Environmental No data was kept before January The first thing NYK had to do was to collect data and try to understand the results. NYK recorded only one near-miss in the health and safety category in Container acceptance has not declined. The number of customer complaints has declined. Scheduling adherence was a source of problems owing to packaging lists and various other labelling issues. NYK increased adherence rates from 50% in January to a sustained level of 100%. Container sizes have increased from 16 to 24 tonnes. The containers are packed at 102%, instead of the previous 76% fill. That leads to fewer containers being shipped, fewer kilometres, better performance, and a better position for JCB. Costs JCB India requested that costs be measured in rupees per kilogramme. The rate in January was rupees. The rate for the three weeks of April was between 8.1 and The current rate is 8.0. That reduction is equivalent to approximately 31%. Detention rates have been reduced. The effect of detention on sustainability is that special deliveries are required. Overall Result The logistics cost, in terms of cost per tonne, has decreased, whereas tonnage has increased. Movement has been reduced by better tonnage in utilisation, shipping, container frequency, and vehicle mileage. That can only yield an environmentally positive result. The next stage is to work out carbon footprints with JCB. A lot of work has been done to calculate the carbon footprints of various deliveries by JCB, and therefore of NYK s services of JCB. This information is needed for future comparison, because at this stage no historical emissions data is available. However, it must be remembered that the problem is one of mindset. JCB is based on a different model of working. NYK must help them change to a sustainable route, so that they can reduce cost and meet their ethical guidelines in the future. Questions and Answers From the floor Jacob said it was very important to have a relationship with the supplier in which there is a gain share and a risk share. What are the main learning points that will enable acceptance of this in JCB? Jacob KILBY The management team at JCB have found that it costs more money to resource a supplier. Therefore, when a contract is established, it is important to ensure that the supplier is making some money to enable him to invest in improvements, and that JCB is making a cost save on the logistics function. The purchasing function will drill suppliers into the ground until they go bankrupt. The cost of resourcing a supplier is greater than that of sharing gain and risk. The risk for JCB is the loss of some skills. However, JCB gains a network, as well as experience from NYK. JCB is becoming more like a mass-production industry as it grows, and it needs a logistics function which can follow. JCB did not have the logistics functions in place to allow for 20-40% growth per year. Howard HUGHES The major problem is that it depends on the cost model one starts with. It also depends on the evolution of the customer. JCB are reliant on NYK s expertise. Toyota is not reliant on NYK s expertise, so it would not be as likely to enter into a gain-share mechanism. There are also different types of cost model. A new relationship usually starts with a cost-plus position. However, that is not a good thing because one is tempted to throw various costs at it. Therefore, the policy should be transparent, so that all parties can understand what the true costs are. Vol. 17 N 1,