Rare is the company these days that tries to go it alone. Global supply chains are simply too complex, with too many shipments to manage, and too much data to keep track of. This is especially true at multi-billion dollar manufacturers like Goodyear Tire and Rubber Company (Akron, Ohio).
"You just can't pay too much attention to details in this business, especially in the supply chain. There are just too many active parts moving at the same time," says Ted Augustine, who oversees logistics and product supply for Goodyear's North American Tire division. The business unit posted almost $7.9 billion in sales last year.
Goodyear's North American tire business began to outsource some activity within its distribution network in the mid 1990s. But it wasn't until 2002 that the company began to shift from a tactical relationship with a number of outside logistics service suppliers to a more strategic arrangement with a single partner that went beyond the traditional roles of warehousing and managing transportation.
Starting in 2002 the organization fielded a series of requests for information and quotes from logistics service providers, and managers completed a thorough investigation of potential partners. Their objective was to narrow down the number of service providers and reduce the number of company-run locations. At that time Goodyear had a segmented and "siloed" supply chain structure, with logistics responsibilities spread across various functions from manufacturing to production planning. Of its 22 logistics centers, five different third-party providers managed 11, and Goodyear managers ran the other 11. In the fall of 2003 they made the decision to go with Exel plc.
"We'd been seeing a lot of those disconnects, but a lot of it was organizational, and the problems weren't really addressed until they went under a whole supply-chain organization," says Franklin Littleton, who is responsible for Exel's automotive business in Canada, the United States and Mexico. Based in Atlanta, he is also the global account manager for Goodyear. [Note: Deutsche Post World Net acquired Exel in December 2005. Deutsche Post has announced that it will integrate the London-based organization with DHL Logistics. The new businesses will be known as Exel (contract logistics in the U.S. and Canada), DHL Exel Supply Chain (contract logistics in the rest of the world) and DHL Global Forwarding.]
Over a 90-day period Goodyear transitioned from five logistics providers to one, closed two company-operated facilities, and turned four more operations over to Exel. All without a ripple in service levels. Today the company has 17 logistics centers. Exel manages 15 of them. Goodyear manages the other two, which are connected to its manufacturing plants.
"What did that do for Goodyear? I didn't have to manage five different relationships. I didn't have to have staff to manage five different relationships or drive consistency from location to location. Now I have one provider instead of five," says Augustine. It resulted in a tremendous cost savings as well.
In addition to the project management skills necessary to pull off such a rapid transition, and experience in a variety of industries against which Goodyear could benchmark, Augustine says Exel's commitment to develop its management team made the organization stand out.
"All of the providers we talked to—the head guys from the 3PLs— know how to talk the talk. They can strategize with the best of us," he says. "Getting that strategy down to the lowest level of execution really requires a highly honed and focused and dedicated middle-management group." This commitment to develop future managers means that each location operated by Excel has several general managers in training all of the time.
"We'd put a lot of money into training; we put bench management in place to show that we were investing in the relationship and were looking to grow," says Littleton. "We were trying to bring in people for one position who were capable of going up a couple more positions."
In addition to managing Goodyear's logistics centers, which handle tires for both OEMs and the automotive aftermarket, Exel runs a fleet of dedicated trucks that deliver product to dealers. Exel people located at Goodyear's headquarters in Akron also manage a load-planning center where they oversee the electronic load tendering with carriers for all of Goodyear's less-than-truckload and full truckload shipping activity.
Another analytical group assists with strategic projects, helping Goodyear develop a so-called "orderto-cash supply chain" that connects the entire material and information flow from forecasting and order entry to accounts receivable. This team helps with network optimization, identifies opportunities for efficiency and cost improvement, defines new material handling processes and works to implement those processes. One project this group worked on was the development of a more effective stocking strategy.
"We found out that we were trying to store all products of all lines in all locations and it was costing us a lot of money because we didn't have critical mass on the slower moving product," says Augustine.
Exel's analytical team ran several models to see what would happen to customer service if Goodyear's Memphis, Tenn., facility became the central stocking location for slower-moving inventory. The numbers made sense, so that's what they did.
"We only had to have safety stock for those products in one location," Augustine confirms. "It improved our ability to forecast those items. It gave us a better opportunity to serve our customers on a complete order basis. It freed up space in the other stocking locations for more A and B product, which gave us higher service levels in the marketplace."
One of the key performance indicators (KPIs) that the companies use to measure how well they are doing is "on time and full." Essentially a fillrate measure, it's a good indicator of overall supply chain performance. Were orders taken, shipped and delivered when they were supposed to be? Were the right tires there? Was the order shipped complete? Other important performance measures include ontime receiving, ontime shipments and inventory accuracy.
"We always have those guideposts for the relationship, how we're working together and how we're performing," says Exel's Littleton.
Organizational representatives at various levels from both companies get together every month and every quarter to review the metrics for each location and for each of the business activities that Exel manages. One current area of focus is in-transit days; by reducing intransit safety stocks they hope to lower overall inventory levels.
"We will look at the KPIs across the business, not only the individual locations, but how they're trending across the business, whether we are achieving the goals, and talk about corrective action plans," says Littleton. They also have quarterly strategic meetings to review more long-term issues. In August, when both organizations are budgeting for the coming year, managers review the relevance of the current measures and set annual goals.
The outsourcing arrangement has paid off for Goodyear. In 2001, Augustine reports, Goodyear's logistics cost per unit shipped was slightly above the tire industry average (+1.5%), according to an industry benchmarking study conducted every three years. The study factors in the cost of warehousing, administration, transportation and related costs. In 2004, the company's logistics costs were 27% below the industry average. Not only have costs improved, Goodyear has improved service levels as well, he says.
Several cultural and more tangible factors have been key to this success. Honesty has been crucial.
"When we screw up, we tell them we screwed up. When they screw up, they tell us what happened," Augustine says. Managers and organizations spend too much time covering up screw ups, which only fester into bigger problems that surface later on.
"We're moving 100 million tires per year. With that much activity there's going to be some things that are disappointing. Conveying this information, along with an action plan to ensure that it doesn't happen again, is what builds relationships," says Augustine. He goes on, speaking specifically about Goodyear's relationship with Exel, "It's more than just numbers on a page. We feel that we have developed a trustworthy and honest working relationship with a good team of people."
Littleton cites several other factors for the success of the relationship. Both companies, he says, share a people orientation. Managers strive to treat associates openly and fairly. In addition, both companies are very focused on making sure customers are treated well. On a more operational level, he says they've found that it's important to have individual managerial relationships at multiple levels.
"The more interaction you get, and the more you understand each other's business, the easier it is to make these relationships work because it doesn't hinge on one particular person," says Littleton. Such relationships are all about communication. The more communication, the higher the likelihood of success.
"We have talked very openly about our mutual goals and how we can achieve those goals. It could be expanding the scope of services we have with Goodyear," says Littleton. "Goodyear has obviously talked about cost reduction and service improvement. We've had a pretty open discussion about what our mutual interests are, and really sat down with action plans to achieve those. The more open the communication can be, the better off you are."