When good just isn't good enough

For Lander Co. Inc. (www.lander-hba.com), a manufacturer of skin care products, carrier performance is critical to its success. As its director of distribution logistics, John Lister, explains, freight as a percentage of sales is very high. In fact, it's the number two item in the company's budget.

Lander creates private label, store and national brand equivalent products as well as premium exclusive brands in its two manufacturing facilities in Binghamton, N.Y., and Toronto. Toronto and Binghamton also serve as distribution centers (DCs), where they receive raw materials at one end, manufacture in the middle, then move to finished goods warehouses at the other end. In addition to distribution from these sites, the company uses public warehousing in Charlotte and Los Angeles as distribution locations.

Lister's group is responsible for inbound and outbound warehousing and transportation. Inbound is mostly raw materials. The group also handles a great deal of intra-company product movement.

Warehouse locations are important to the company since they are in close proximity to Lander's major retail customers, which include Wal-Mart Stores Inc., Family Dollar, Dollar Tree, Meijer and the like. "We have to maintain a certain level of inventory," Lister explains. "That's why we have four shipping facilities. They are strategically placed so that we can service Wal-Mart and others within their delivery windows."

Wal-Mart (www.walmart.com) gives Lander a seven-day window from order receipt to delivery, and it falls on Lister's shoulders to ensure his group gets its shipments prepared in a timely manner. Lander's core carriers for its Wal-Mart business are Jevic (www.jevic.com) and Roadway Express (www. roadway.com) for lessthantruckload (LTL). Lister also uses some truckload carriers for Wal-Mart, but most shipments to them are LTL.

"For truckload we deal with brokerages and capacity hasn't been an issue for us," notes Lister. "Replenishment to our other warehouses is pretty standard and regular, so carriers know when we need trucks and have been able to supply us with them." The company uses intermodal services to ship to Los Angeles from both Binghamton and Toronto.

One way Lister monitors carrier performance is through technology. "We have an enterprise resource planning (ERP) system and are EDI-connected with our warehouses," he says. "The carriers receive orders every day and when they ship, they send EDI confirmations back to us." The technology also permits the company to examine its forecasts and demands in order to determine inventory levels for a given section of the country and supply inventory as needed.

In dealing with its carriers, everything Lander does is by appointment. "Once carriers are given a shipment," notes Lister, "they are responsible to make the appointments and keep them. Companies like Wal-Mart will send chargebacks if delivery is late or early. If we get chargebacks, then the carrier is responsible, and so we send the chargebacks to them."

Lister's department staffing is very lean. "We manage by exception," he says, "because we can't manage every shipment. The key to success is choosing the right carriers to fit our requirements. We have a group of current core carriers but are constantly visited by others. We have a list of requirements they must meet. We strive to pick the right carriers and work to develop long-term relationships with them."

Based on the nature of the products being shipped and the promise of getting all the business, the LTL carriers who are being used by medical products manufacturer Respironics Inc. (www.respironics.com) need to meet the strict and unflinching requirements presented by David Zerishnek, the company's global logistics manager.

"We can't and don't want to run truckload," says Zerishnek. "The equipment we ship is something that can be fit 80 to 90 units to a pallet. The volume isn't there. We have a certain delivery time frame that we must make which helps our customers minimize their inventory. That's the major evaluation point that we use for our suppliers."

Respironics' products and programs serve sleep and respiratory markets — the company in fact got its start by aiding those who suffer with sleep apnea. The company manufactures the equipment and distributes its products in 132 countries.

Respironics has five manufacturing sites in the U.S. It also has facilities in Hong Kong and Shenzhen in China and Subic Bay in the Philippines that make components — injection molding and so forth — that are shipped to the U.S. for final assembly, testing and distribution. The company also manufactures smaller, more technical products in a facility in Ireland.

Zerishnek estimates that imports represent about 35% of its total, since most components and pieces still come from domestic U.S. suppliers or the company's own facilities.

Domestically, Respironics has one DC that covers the U.S. and also some shipments abroad. It has a distribution facility in the U.K. that handles European, Middle East and some of northern African (Mediterranean) countries. Respironics re-supplies the U.K. facility using container shipments from any one of its U.S. manufacturing sites.

For Asia, the company exports to its Subic Bay facility as well as to customers in Japan. In each instance — exporting to Europe or Asia — the company is finding good capacity in what amounts to backhauls for ocean carriers.

On an average day, Zerishnek estimates Respironics ships 500 pallet loads with somewhere between 6,000 and 7,000 packages. "It's not an exaggeration to say that about five years ago, we were using about 80 or 90 carriers," he explains. "Today we have three. Period."

With the company growing at an annual rate between 20 and 22%, it was necessary to get control of the expanding volumes while maintaining quality and insuring customer satisfaction. Rationalizing the number of carriers and monitoring their performance became critical to success.

To fill the need, Respironics divided the U.S. on a regional basis, creating three geographic areas. It then determined which providers could meet its needs, with an initial pool of five. When they were chosen, Zerishnek invited them all to a meeting.

"I put all of their numbers and prices in front of them and told them what tariff we were going to use," Zerishnek claims. "I told them what we were going to pay and explained that they would all charge based on the same tariff. More, Respironics was not going to pay fuel surcharges and was going to cap inside deliveries and lift gates."

Going a step further, the carriers would be expected to maintain 98% ontime delivery and have a 2% or less claims ratio. "We don't handle claims," says Zerishnek. "We don't give our products to carriers if they're broken. If it is broken, we expect a phone call from the carrier. We tell them what the product is worth and expect a check in 48 hours. We don't file claims." Respironics set up a standardized reporting system to which everyone agreed.

On the other side of the equation, those carriers who agreed with the terms would have all of the company's business in their regions. The carriers would also have all of Respironics' future business, a very attractive carrot given the company's growth rate at more than 20% a year. "We gave them an honest profit," notes Zerishnek, "and most of them received a higher minimum than what they had. Let's face it — I could buy a truck from anyone. What I am buying is performance."

FedEx Freight (www.fedex.com) covers the South, Southeast, upper Midwest and the West for Respironics. Since there has been a shift of some vendors from the Rustbelt to the South, Zerishnek estimates that FedEx Freight has roughly 40% of its overall spend, with the other two carriers — Dayton Freight Lines Inc. (www.daytonfreight.com) in the Midwest and A. Duie Pyle (www.aduiepyle.com) in the Northeast and East — having roughly 30% each.

"We started at 98% and on hindsight, that was probably low," notes Zerishnek. "But it made sense coming into the new contracts from where we were with the plethora of carriers. What's happened is that the bar has been raised. Right now our on-time outbound delivery is about 99.4%, and inbound is 99.2%. We're at the point where we're fighting for that extra two-tenths of a percent."

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