Navistar Transforms its Global Supply Chain on 4PL Model

Truck manufacturer Navistar Inc. has extended the role of Menlo Worldwide Logistics, contracting with the company to provide an expanded range of fourth-party logistics (4PL) analysis, design and management services in support of Navistar’s five-year plan to reengineer and improve performance in its supply chain.

In this larger “network manager” role, Menlo, a subsidiary of Con-way Inc., is working with Navistar to deploy an advanced strategic collaboration model for continuous supply chain improvement globally. Utilizing this model, the companies are redesigning Navistar’s structure, processes and practices for global logistics, transportation and supply chain management. Navistar’s objective is to achieve a 25% reduction in supply chain spend by 2013, while establishing the team and advanced management skills to drive continuous improvement into Navistar’s operations going forward.

Navistar originally selected Menlo in 2008 as its non-North America lead logistics provider. That award marked the launch of a major effort to identify cost reductions throughout Navistar’s global supply chain while improving lead time planning and net landed cost modeling.

With its expanded role Menlo thus becomes Navistar’s partner in a long-term mission to convert the company’s U.S. and global supply chain into a competitive asset that accelerates Navistar’s growth strategies and plans for global market expansion. For Navistar, the move represents a decision to forego old ways and adopt a new model that embraces collaboration with an outside resource, rethinking traditional supply chain assumptions, instilling lean methodologies and processes for removing waste and inefficiency, and creating a platform for change based on key performance metrics.

“Our goal is to build a world-class logistics capability that drives value and helps us better serve our customers on a continuous basis,” notes Ed Melching, Navistar director of global logistics. “We made great strides in the past 18 months. Probably the biggest is we proved to ourselves, Navistar and Menlo, that the concept of strategic collaboration really works. Vision, strategy and process all came together. We’ve formalized the approach and restructured our team into a blend of Menlo expert resources and Navistar experience.”

Following an 18-month process during which Navistar and Menlo performed a thorough examination of every functional and operational aspect of Navistar’s global supply chain, four key milestones were completed:

1. Established a joint Navistar/Menlo transformation team, then created a cohesive vision, mission and strategy which is providing the road map for change to the new model.

2. Collected and analyzed volumes of operational and cost data to understand current performance and create a baseline, then established a set of tools, as well as clear and unambiguous key performance indicators through which every initiative, project and activity would be measured and graded.

3. Researched, identified and prioritized a list of transformation projects to capture cost savings and/or drive service improvement in specific logistics and supply chain functions, and then began implementing priority initiatives.

4. Introduced into Navistar’s supply chain planning and operational execution a program of lean methodologies, processes and work flows for continuous improvement and removal of inefficiencies.

Navistar has made substantial progress toward its overall goal of reducing global logistics spend 25% by 2013, notes Melching. Milestones of the past 18 months include:

• Evaluation of Navistar’s domestic purchased transportation and the implementation of a core carrier program. The new program will reduce domestic freight transportation costs by nearly 20% annually while improving on-time delivery and transit time reliability.

• Analysis and redesign of its transportation network to reduce costs and increase speed of material flow. Under this plan, Navistar also selected Menlo for a traditional third-party logistics (3PL) assignment responsible for global transportation network design and carrier management. Navistar’s full transportation management strategy will be in place by the end of 2010.

• Launch of five key transformation platforms: Logistics IT Strategy, Sourcing Strategy, Global Network Strategy, Finished Vehicle Distribution Strategy and Lean Material Flow Strategy.

• Launch of 19 projects that have or will yield validated, annual cost savings in the millions of dollars.

Going forward, the Navistar/Menlo team will be implementing additional transformation projects based on its five-year vision and strategic plan. Specific focus areas will include distribution network analysis and planning, sourcing and contract management, network execution, invoicing and payment of freight charges, and performance and compliance monitoring. Goals are based on SMART (Specific, Measurable, Achievable, Relevant, Time-related) targets and measurement against validated key performance indicators.

By embracing its strategic collaboration model, the Navistar/Menlo team anticipates it will continue to drive results and maintain its momentum toward achieving their five-year vision in 2013.

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