Best Practices in Transportation: Network in progress

Cross-functional teams at Best Buy Co. Inc. (www.bestbuy.com) and W.W. Grainger Inc. (www.grainger.com) are redefining the specific customer service needs that drive transportation decisions. The result of these efforts is a layered approach to transportation. On the surface, Best Buy and Grainger are in completely different businesses. Best Buy is a big-box retailer focusing on home electronics and appliances, while Grainger serves an industrial market, providing maintenance, repair and operating (MRO) supplies. But from the customer's point of view, both companies are in high-service markets with plenty of competition.

Grainger and Best Buy's transportation strategies are multi-faceted, reflecting the differing needs of the various constituencies up and down their supply chains. Inbound lanes, volumes and product mix for the two companies look very different. Their range and location of suppliers differs from the location of their ultimate customers — often with a layer of distribution in between. And changing marketing and distribution channels and demands all along the supply chain have added complexity.

Controlling multiple transportation networks in this rapidly changing environment taxes internal resources. In the end, there's more than one last mile between supplier and retailer, wholesaler and distributor, and even internally from store to store.

Grainger started as a catalogue business and now has hundreds of suppliers, a network of distributors and a variety of customers. Best Buy introduced Best-Buy.com as a direct marketing channel, but still focuses fulfillment on its retail outlets. In both cases, the outbound and inbound networks look very different.

"Our subliminal promise to customers is that if you order today, generally you will receive your order tomorrow," explains Brian Williams, director of transportation management for Grainger. He adds that with nine distribution centers (DC) and four other distribution points in smaller metropolitan areas, Grainger's DCs handle 80,000 shipments per day.

Most suppliers are on a freight collect arrangement and use Grainger's carriers. This means they end up working through Transplace Inc. (www.transplace.com), a transportation logistics provider. Once purchase orders are entered using webbased capabilities at Transplace, it runs an optimization routine that allows Grainger to build consolidations, Williams explains.

After a careful examination of its supply chain, including individual assessments of each supplier, Grainger's cross-functional team concluded continuous replenishment would help it reduce inventory levels and improve product availability to customers. As part of the initiative, Grainger was looking for lead time reductions from its suppliers.

Any time you go to continuous replenishment, you encourage a mode shift from truckload to less-than-truckload (LTL) and parcel carriers, Williams points out. He takes a holistic view, saying, "When you look at what it's done for our supply chain, it's a tradeoff we were willing to make."

Grainger recognized its decisions didn't operate in isolation from its suppliers or its customers. In asking suppliers to reduce lead times and make other improvements, Grainger told them the resulting improvement in product availability for customers would translate into more sales for Grainger's suppliers. To keep that promise, the delivery network had to be closely managed.

With 350 courier and messenger services in the markets it served, it was clear Grainger had room to improve on the outbound side as well. Managing 350 relationships, measuring performance and simply paying invoices for all of those moves represented an insurmountable obstacle.

Williams says Grainger started setting up a courier management process with a goal of reducing the number of faces across the table. Four asset-based companies piloted courier management efforts with carriers in their geographic areas. Williams wanted to get the number of companies down from 350 to three — or even one.

Just as it had on the inbound side, Grainger turned to a logistics service company to help with its outbound challenges. One of the benefits has been improved visibility on shipments and carrier performance. Ensenda (www.ensenda.com) handles much of the routing, reporting and measurement for the local carriers who perform Grainger's deliveries.

Local delivery is so fragmented, it's hard to get access on a national scale, says Rob Howard, VP of operations for Ensenda. Just as Transplace has done for Grainger on the inbound side, Ensenda is able to use its pool of pre-qualified carriers to provide efficient service.

Inbound shipments to Best Buy's stores rely on quite a lot of truckload, including a dedicated fleet. Outbound from a store is typically in the hands of the customer. Large appliances are usually handled as direct deliveries from a distribution center or a third-party logistics provider's (3PL) facility.

When Best Buy opened an urban store in Toronto, Ontario, the retailer found it needed a home delivery capability for over-sized items customers couldn't take with them. Ensenda put in a delivery operation for the Toronto store, and soon it was handling similar requests from other Best Buy retail stores and its Future Shop stores across Canada.

When that process became formalized, it opened the door for Rick Hazelton, Best Buy's logistics and transportation manager, to start looking for a solution to move materials between stores to support the launch of Best Buy's Image Lab service.

The cost of image processing equipment to print customers' digital photographs is prohibitive, and Best Buy's Business Partnership Directors — a cross-functional team that includes product development, marketing, transportation and finance — suggested placing one machine in a region and serving multiple stores with that device.

That meant a transportation system had to be designed to pick up customer orders and digital media, take them to the hub store with the processing equipment, and then return the finished prints. Best Buy had no compatible transportation network in place, so based in part on Best Buy's experience in Canada, Hazelton contacted Ensenda.

As Best Buy rolled out its Image Lab service, it placed processing equipment in hub stores in a handful of markets and set up "milk runs" using local courier companies to service the four or five stores that were served by the hub store's processing lab. The driver enters the store during business hours and removes the customer orders from a drop box and delivers them to the processing lab. Pick ups and deliveries are unattended, freeing store personnel from the tasks of packaging the orders for shipment or unpacking them for customer pick up.

Hazelton notes the transportation network is dedicated to Image Lab. Early success with the concept is helping Best Buy as it rolls out Image Lab services in more markets. That's where Hazelton is focusing his attention right now, but he admits that once the stores hear about something, they all want it. Even though the milk runs are in place between stores, he won't mix Image Lab moves with store-to-store moves because he doesn't want to risk degrading the Image Lab service.

Hazelton declines to say exactly what's next, but he admits that he can't ignore the potential of home delivery. Bestbuy.com orders are currently delivered to the store nearest the customer for pickup, opening another possible demand point for home delivery.

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