ARC BRIEF. Ace Hardware Leverages LeanLogistics to Drive Excellence in Freight Procurement. Summary. Why TMS? Why LeanLogistics?

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1 ARC BRIEF APRIL 4, 2013 Ace Hardware Leverages LeanLogistics to Drive Excellence in Freight Procurement By Steve Banker Summary A transportation management system (TMS) can reduce a shipper s freight spend in several ways. One key area is through the provision of data that improves the transportation procurement process. This article is a case study of how Ace Hardware leveraged LeanLogistics procurement technology, lane benchmarking application, and Managed Procurement Services, to greatly improve Ace Hardware s strategic procurement capabilities. A transportation management system can provide many benefits to shippers. One key benefit area, freight savings from improved procurement, typically occurs after the initial engagement. This article is a case study of how Ace Hardware leveraged LeanLogistics applications and services to greatly improve capabilities in this area. Why TMS? Why LeanLogistics? Eight years ago, Ace Hardware began working with LeanLogistics to help with inbound freight moves. Scott McLean, Director of Transportation, and Carey Skoglund, National Logistics Manager, explained to ARC their journey to more fully leverage LeanLogistics to improve the transportation procurement program. Ace Hardware is a cooperative that serves 4,000 independently owned and operated retail stores across the US. The cooperative helps these local entrepreneurs purchase goods more cost effectively because of their ability to buy in bulk, and provide logistics services to streamline getting goods to the stores. On the inbound side, 60 to 65 percent of Ace Hardware s business moves freight collect, meaning Ace Hardware pays for the moves. They have 2,700 truckload (TL) and intermodal inbound lanes over which 50,000 loads per year move to a network of 14 Distribution Centers (DCs). Ace Hardware also has 3,600 less than truckload (LTL) lanes that move This paper was written by ARC Advisory Group on behalf of LeanLogistics. The opinions and observations stated are those of ARC Advisory Group. For further information or to provide feedback on this paper, please contact the author at sbanker@arcweb.com. VISION, EXPERIENCE, ANSWERS FOR INDUSTRY

2 ARC Brief, Page 2 30,000 loads per year. LTL shipments move to one of six cross dock facilities, where the freight is combined into full TL moves that then move to DCs. LeanLogistics is a provider of multitenant, Software as a Service (SaaS), transportation management systems (TMS), LeanTMS. LeanLogistics also provides Supply Chain services, including Managed Procurement Services. Because LeanLogistics offers a multitenant, network style TMS, they can capture anonymous data on all the moves, made by all clients, on all lanes. LeanLogistics customer data is aggregated, in a manner that protects the privacy of an individual shipper while allowing for the creation of lane benchmarking rates across the US and Canada. LeanLogistics customers can access current lane benchmark, as well as historical trends, via a standalone application or embedded analytics within LeanTMS. Ace Hardware s relationship with LeanLogistics began in 2005 when Ace Hardware began a search for a TMS provider that could help automate their manual transportation processes. Ace Hardware was already convinced that a TMS solution offered a solid return on investment. Ace Hardware was in the midst of implementing an enterprise resource planning (ERP) solution and thought the implementation would take three to four years. At that point, the ERP supplier did not offer a robust TMS solution and Ace Hardware did not want to wait three to four years for their ERP provider to catch up with the rest of the TMS market. Ace Hardware decided on a SaaS solution because of the need to get up and running quickly, and IT resources would be limited. Ace Hardware chose LeanLogistics over other SaaS TMS providers because they felt LeanLogistics team offered superior transportation domain expertise many of LeanLogistics personnel have extensive transportation backgrounds and because LeanLogistics was willing to collaborate with Ace Hardware to develop a supplier inbound management portal and application (LeanInbound), that would address their needs. A Collaborative Journey to Procurement Excellence When Ace Hardware started their relationship with LeanLogistics, the initial focus was to use TMS for tendering, routing and optimization. After six months, Ace Hardware looked to harvest the information from their TMS to drive better transportation procurement. At this point, Ace Hardware

3 ARC Brief, Page 3 collaborated closely with LeanLogistics, leveraging LeanLogistics Managed Procurement Services. The combination of Managed Procurement Services plus LeanSource, the procurement application, and LeanDex, the benchmarking application, helps drive better procurement decision making for Ace Hardware. A rate that was competitive a year ago may no longer be competitive. As the hardware retailer goes through multiple rounds of lane bidding with carriers, they continue to compare the rates being offered by the carriers to the industry benchmark offered by LeanDex. Ace Hardware points out that in addition to savings; another advantage of annual Ace Hardware s initial managed procurement services event was focused on intermodal and TL procurement events is that it cuts down on the amount of time needed to spend carriers for their higher volume lanes. Any lane with different carriers. If Ace Hardware that generated less than one move per month was gets a call from a new carrier midyear, they just tell the carrier about the addressed through spot market purchases utilizing annual procurement event, invites the LeanSource. Since 2008, the retailer runs a strategic procurement event every year, and expanded carrier to send information, and informs the carrier will be invited to participate these Managed Procurement Services engagements at the proper time. to also cover high volume LTL lanes. On certain lanes, Ace Hardware may discover they are currently getting a very good rate. In this case, Ace Hardware doesn t need to issue a request for a proposal (RFP), as long as the carrier agrees to move forward with the current rate while maintaining contractual service levels and tender acceptance rate. Ace Hardware is still very much in charge of the overall procurement event. The RFPs go out with the Ace Hardware name on top and Ace Hardware decides which carriers can bid on lanes as well as which carriers win the business. Ace Hardware s transportation department resources are limited and can only dedicate so much time to support procurement events. LeanLogistics Managed Procurement Services helps by insuring that the core data is clean, aiding in RFP preparation, analyzing the responses, and finally building the analytics that illustrate the results from the multi-round bidding process. LeanLogistics has also been instrumental in bringing new, qualified carriers into the bid process on particular lanes. Here LeanLogistics can leverage

4 ARC Brief, Page 4 network data. In the upper Midwest, for example, Ace Hardware might not have enough carrier participation; and yet LeanLogistics knows that certain carriers that have a strong presence in this region have not been invited to participate in the procurement events. In fact, some of the carriers initially suggested by LeanLogistics have subsequently become core carriers for Ace Hardware. LeanSource is a procurement application that can support large, annual, multilane, strategic engagements or miniature, tactical, procurement events. Ace Hardware also uses the combination of LeanSource and LeanDex for tactical, spot market procurement events throughout the year. If the retailer needs more capacity on existing lanes because incumbent carriers are turning down too many tenders, the combination of LeanLogistics Transportation Network data with LeanDex allows LeanLogistics to identify and suggest new carriers that can meet both requirements. There are also situations where Ace Hardware s merchandisers add new suppliers and the transportation department ends up with new lanes to support. On these new lanes with no historical rate data, Ace Hardware needs to approach carriers in the spot market. LeanDex helps showcase how competitive a spot market response is to the new lanes requested. Finally, Ace Hardware uses LeanDex for internal costing purposes surrounding the private fleet. Ace Hardware s private fleet operates as a profit center and to make the most of these assets, the LeanDex rate is used to compare the cost of a common carrier to a flat rate formerly used. Ace Hardware has great success using the combination of LeanSource, LeanDex, and LeanLogistics Managed Procurement Services. The retailer pointed out that over time, as the procurement process becomes highly polished, the savings from each new procurement event will begin to diminish. In 2007, LeanLogistics solutions and services allowed Ace Hardware to save over 8 percent on the lanes covered by the Managed Procurement Services event. More recently, Ace Hardware reduced freight spend by 2-3 percent based on these Managed Procurement Services events. In total, Ace Hardware saved $18 million across four separate strategic Managed Procurement Services events. The relationship with LeanLogistics allows Ace Hardware to reduce the fuel surcharge bill. During an annual LeanLogistics Transportation Net-

5 ARC Brief, Page 5 work event, Ace Hardware discovered one of LeanLogistics partners, Breakthrough Fuel. Breakthrough Fuel replaces fuel surcharge rates, typically based upon national averages, with more granular rates based upon the actual price of fuel for individual freight movements. By using Breakthrough Fuel, Ace Hardware reduced their fuel surcharges by over 10 percent. This article focuses on how a TMS is leveraged to save money through an improved transportation procurement process, a TMS adds value and reduces freight spend in many ways. Ace Hardware is on a voyage to fully leverage LeanTMS technology and data in other areas. Ace Hardware moved from using LeanTMS to control maverick tendering and provide better routing, to also using the TMS for improved freight audit and enhanced appointment scheduling. Now Ace Hardware is leveraging the data generated by LeanTMS to improve broader supply chain capabilities by leveraging data on how often a particular supplier ships on time. If suppliers are highly reliable, Ace Hardware can reduce inventory levels in DCs of SKUs provided by those dependable suppliers. By continuing to leverage data provided by LeanTMS, Ace Hardware will ensure value is added to their entire supply chain. Conclusion Transportation procurement is an area that typically does not lend itself to immediate improvements following a TMS implementation since historical lane data needs to be generated before that data can be harvested in a successful procurement engagement. However, information becomes more powerful when it is provided in the proper context. The ability to combine Managed Procurement Services with lane benchmarks and network analytics is a differentiator for LeanLogistics. This paper was written by ARC Advisory Group on behalf of LeanLogistics. The opinions and observations stated are those of ARC Advisory Group. For further information or to provide feedback on this paper, please contact the author at sbanker@arcweb.com ARC Briefs are published and copyrighted by ARC Advisory Group. The information is proprietary to ARC and no part of it may be reproduced without prior permission from ARC Advisory Group.