The optimization of the logistics and the associated information flows is for big businesses an ‘afterthought’. We will travel to DSM in Sittard, the Netherlands with this provocative statement that was given to us from the domain of supply chain management. In the enormous office towers of the company, DSM Engineering Plastics (in short DEP) is located, amongst others. Former supply chain engineer and transport manager Jan Pedro Vis does not want to label the logistics of the producer of  high-quality plastics as a ‘afterthought’. “DSM is a life & material sciences company, we are not a logistics company. But that doesn’t mean that we consider transport to be of secondary importance. The actual physical delivery of our product depicts our business card to our customers.” The product itself, he shows, exists from small white granules of high-quality plastic. The granules, packed in octabins and bags which are being palletised, find their way to amongst others the automotive and the telecom sector and have numerous applications, ranging from a chain tensioner in a Porsche to an adapter cable of the iPhone. The producer of plastics is active in the whole world. Soon a new factory in Russia will be opened. In Europe the flow of goods, about 21.000 consignments annually, primarily travels from two production sites in Genk, Belgium and Emmen, the Netherlands across the continent, via road and intermodal transport. 

The flow of goods is becoming more and more complex. Managing carriers had to be done from the various production sites. The logistic operation even had basic flaws, but Vis doesn’t fuss about it. “Customers for instance were served on Mondays and Tuesdays with an equally large batch. That was not efficient and not very comfortable for the customer. Our goal was not only to realize efficiency savings, but to also improve the service to our customers. The most important thing in the transport process is to reduce the number of complaints of our customers.” According to Vis the company was on the verge of losing grip and overview of its consignments and its couriers. “Improvement of the logistic process will be mainly reached by a much better analysis of all information available around that process. The delivery window has a central place in our concept, a limited amount of time within which the customer will be serviced as well as the transport means. One possible solution in realising this concept was to make adjustments in our SAP system, but the investments were too costly and the whole route too time consuming. This process would have taken about half a year and we’re talking about a large amount of money. That is why we are working with a specialised Lead Logistics Provider (LLP).”

Jan Pedro Vis, former supply chain engineer and transport manager with DSM Engineering Plastics: “In 2008 our controllers were stuck with a lot of invoices that were incomplete or simply not correct. My estimation of this is about twenty percent of the invoices. We could not reduce that error margin within the SAP system, which could only relate kilos to the transport price per ton. We have now been able to reduce the error margin to less than half a percent.”

Since the beginning of 2010 we are using a new logistic structure. The transport management for the full European packed transport (annually 18.000 consignments) has been outsourced to IDS. This supply chain orchestrator, also called the Control Tower, centrally controls all transport activities. IDS doesn’t own their own materials (like trucks) and functions as a sparring partner to DEP. IDS closely cooperates with the carrier. The whole operational escort of the transport is handled by IDS. DEP orders are being sent by IDS through an ICT platform (Infodis) to the carriers. This transport management system (TMS) is the link between the DEP ERP system and the transport management systems of the carriers. DEP’s advantage is that it does not have to develop a transport system. The centralisation of the logistical operation also entails a workload reduction in DEP’s communication efforts. LLP is the single point of contact, DEP's staff is in this way relieved. It is a three year contract.

By contract, IDS offers the shipper an alternative carrier when the regular carrier is not available for whatever reason. “We set a 100 % reliability ourselves”, elucidates Vis. “It is a concrete part of the contract.” DEP will be able to stay in business because of that deal with the current group of fifteen carriers, but in this way the plastic producer can outsource the full transport management.

It is a matter of definition, confesses Vis, but according to the DSM terminology a 4PL is out of the question here. In that case DEP ought to outsource the contract management of their carriers. As far as negotiations of the fees and the carrier selection are concerned, this DSM division takes care of it herself. The reason for this is purely a matter of purchasing power. A company of the size of DSM is capable of achieving significant buying power. “Not only that”, complements Vis, “we strive for a good and stable relationship with our carriers. In the long term we also want be associated with them.”

Nowadays shippers expect their logistic service provider to have in-depth-knowledge of IT, mostly transparency. IDS is capable to offer that openness. The IT platform that IDS uses, offers accurate insight in the costs and performance of carriers. Various parameters can be viewed through one interface, the so-called performance & cost reporting dashboard. Both cost components, including freight fees, diesel surcharges and the German Maut toll system can be shown. Weekly reports of the costs (including unexpected costs and savings) are being produced as well as the delivery performance of the carriers. Monthly a management summary of the last subject is being published. There are also reports on the improvement progress actions that have been put in motion with the carriers. 

“I am weekly at the controls”, says Vis, “and so I do not have to take actions based on yesterday’s news.” Costs and performance are important KPI’s (Key Performance Indicators), but so are communication and reliability. “We can now proactively communicate to our customers that a consignment is too late. Of course, things do occasionally go wrong. Now we know exactly what the cause is."

In TMS all information is on the POD (Proof of Delivery, the marked international delivery note CMR) and incident reports (damage reports, complaint forms) are directly accessible. The latter documents can be uploaded to TMS. The carrier also confirms the actual loading and unloading information and at the same time measures how much is being loaded and unloaded, so, in short, whether performance goals are being met. Because of the transport management system it is possible to identify savings options and to quantify them.

DEP even wants to measure whether a carrier reports if the consignment will be unloaded later than the planned unloading date. At this moment the carrier often confirms this afterwards, so after the fact that the consignment has been delivered too late. Vis: “We do not accept that anymore.” The date and time at which the carrier to IDS reports that the consignment will be later than the initially planned delivery date, is therefore essential. IDS will integrate that information as from this month in the weekly and monthly performance reports that DEP receives from IDS. In May the LLP will integrate these data as well in the performance report that will be sent to the carriers.

DEP concluded, according to Vis, that the concept of the delivery window was the most useful one, but the final choice for IDS took a lot longer. “There are a lot of competitors who are very good in data analysis. To us it was important that we did not want a bulky service provider, but a candidate that was flexible enough to build the logistic solution around our process. Shippers usually have to adapt with large logistics service providers. We wanted to shape the payments and the cancellations of consignments to our own demands. IDS complied. "At the start around twenty companies joined in the tender that would lead to a choice for LLP. The tender was led by category manager road transport Han Koolen of DSM Corporate Sourcing. “We asked the participants to show us what they were able to do with a pile of data provided by us. IDS showed us a lot.”

The LLP solution is mainly suited for complex groupage and part load shipments. IDS choose the most efficient transport solution. Depending on the nature of the consignment (groupage, part load) and the desired urgency of the transport (regular or express consignment) the best qualified and cheapest carrier will then be selected. What mainly counts, emphasized by Vis, is flexibility. “Suppose a consignment finishes earlier than we’d planned. We can then choose intermodal transport. The transport can then take longer.” The partnership also wants to investigate how to calculate the optimum route, Vis announces. “We will be able to service our customers even more efficient.”

DEP saves on its Creditors Administration with an e-invoicing tool imbedded in TMS. Carriers no longer send their invoices, but receive automatic DEP reports, sent from TMS by IDS. It exactly states how much was transported and at which fees. The carrier does not even have to send an invoice anymore. DEP saves time in checking invoices. “In 2008 our controllers had a lot of invoices that were incomplete or simply not correct. My estimate is that this was about twenty percent of the invoices. We could not reduce that error margin with the SAP system, which could only relate kilos to the transport price per ton. The contracts with our carriers are too complex: it is about cargo meters, volume and min-max deals, and brackets with corresponding fees. We have been able to reduce the error margin to less than half a percent. It is important that we are able to see where things might go wrong. We can also check the transport costs per customer. That is valuable information for our sales department, who can then base their quotations on that information.”

The financial consolidation of consignments offers savings. In the chemical industry discount prices are also used, as said earlier. Carriers are getting paid on the basis of the amount of transported kilos. Consolidation then shows us that consignments of various tonnages with the same unload day and place are financially being settled as one consignment. It doesn’t matter to the carrier; he still runs his transport the same way. If IDS identifies consignments with various unloading en loading data, IDS will then shift these consignments, if possible, to the same unloading and loading date, in order to consolidate those financially.  

The granules, packed in octabins and bags that are being palletised, finds its way to the automotive and telecom sector amongst others and can be traced in several applications, from a chain tensioner in a Porsche to the adapter cable of the iPhone.

The advantage, in this case, is for the shipper and the carrier. The first one saves on its total costs in the supply chain, the latter finally has less loading times and has lower mileage. 

IDS receives a fee per consignment for the coordination of DEP transport. The company carries out a number of activities for that fee: proactive coordination of the consignments and discussing the performance of transport carriers with the aim of improving them. IDS maps these activities by means of reports of performance and costs. The collected data are being analysed to identify new performance enhancements and cost savings as well as to report to DEP. An additional advantage for DEP of a fee per consignment is that if the number of consignments increases or decreases, the total costs for these activities also increase or decrease. Some (indirect) fixed costs have been made directly variable in this way.  

The possibility that IDS detects opportunities but cannot practice them because of existing contracts with carriers, is only theoretical, according to Vis. “Practically this is not going to happen, because we are continously talking to each other. We also talk about new savings options then.” DEP takes the lead with options which are being detected by IDS, if those would be outside the contracts with carriers. There is a possibility that IDS will take on the (preparing) lead to discuss these options with the carriers. The final decision is in the hands of DEP. 

A ‘soft’ saving, still to be realised, is that the carrier plans its own loading window in the load dock planning tool in TMS through a web interface. This discharges the employees of the shipper in the distribution centre, so that they can deployed in a more efficient way. “This is definitely on our wish list in Emmen, where the loading times are always long because the warehouses on site are quite far from each other”, says Vis. 

More useful information from the IDS datawarehouse can be retrieved. All DEP consignments within Europe have been mapped. The performance of carriers can simply be determined in this way, or the top ten customers who, for some reason, are being serviced too late. DEP is able to adapt to improve the performance with these customers. The cause of the delayed delivery can then be traced. “Not only do we collect statistics of the carrier, but also on the delivery to the customer. We will definitely gain more insight into our flow of goods, but the biggest profit is the improved communication with our customers. This adds to the supply chain organization. It is clear that we have put the transport management at a distance and that we will lose knowledge of the logistical process. One shouldn’t be afraid of that. There is no reason to deter from this construction, simply because of a lot of advantages. And we have noted that this LLP has sufficient logistical in-house knowledge. They cannot be blamed for that either.” 

The cooperation with IDS has produced quantifiable results already. According to Vis the number of complaints has been reduced significantly to below the level of five complaints per a thousand consignments. Not least, it also saves DEP staff (full time equivalents). Vis has experienced it himself. “My job has been outsourced, but I still manage the contract with IDS.” Since October last year the Delft engineer is manager Customer Service & Sales Operations with this DSM department.