Partner-Shipping: How to Reduce Logistics Costs Through Collaborative Distribution

The immense weight of Dal-Tile’s high quality ceramic tile and natural stone products led to a unique logistics challenge for the Dallas-headquartered manufacturer: Containerized shipments from its Mexico production site met weight capacity before utilizing each container’s actual space, leading to exorbitant shipping expenses. Sonney Jones, the company’s division director for Transportation, devised a plan to reduce these transportation costs.

“Typically in a 40-foot ocean container used in international trade, you have a 25-metric-ton weight limit,” Jones says. “Since our products are heavy, we weigh out by using only 30 percent of the container.”

Dal-Tile Corp., a subsidiary of Mohawk Industries, is the largest ceramic tile manufacturer in the United States and one of the largest in the world. It currently operates eight manufacturing facilities—seven in the U.S. and one in Mexico—and five regional distribution centers. Jones felt that if Dal-Tile could collaborate with another company whose products weighed much less but were bigger and bulkier, they could share containers with Dal-Tile’s products and absorb some of the cost. That way both companies could save money.

“I spun my wheels for six to eight weeks because I did not have a proof of concept; only a cost model that said we could save a lot of money if we did this,” Jones recalls.

He felt that if Dal-Tile put 200,000 pounds of product two pallets high on a box car that has a 210,000-pound capacity, there would still be seven or eight cubic feet throughout the car that was not used. Collaborating with a shipper that could utilize that space would lower the cost per unit for both parties.

Then a representative with Transplace, a North American non-asset-based third-party logistics (3PL) provider, called Jones, and the two began discussing the concept with a Transplace Mexico director.

“They started working and put together processes that were approved by both U.S. and Mexico Customs that allowed us to cross multiple shippers on the same conveyance,” Jones says.

Transplace eventually found a good match for Dal-Tile with General Electric and Whirlpool, since these companies use considerable box-car capacity to move product.

“Improving weight or cubic capacity utilization is a challenge many shippers face,” Jones says. “Partnering with like-minded businesses has allowed Dal-Tile to bring its shipments much closer to absolute capacity optimization and realize financial and environmental benefits without sacrificing service. Collaborative consolidation of Dal-Tile’s high-density freight with other shippers’ low-density freight onto the same vehicle has reduced the demand for transportation resources by 60 percent on applicable lanes, netting cost reductions of 10 to 25 percent while reducing our carbon footprint.”

Dal-Tile collaborated on about 4,000 loads with these companies last year, according to Jones. “We expect to double that this year,” he predicts.

NEW PARADIGM

In these lean times, when cost is a major concern to all companies, collaborative distribution is quickly becoming a new paradigm that’s saving businesses money. Not only are increasing numbers of companies agreeing to collaborate to work out efficiencies in supply-chain management, some are engaging competitors.

Consider Ocean Spray and Tropicana, companies that compete directly in the fruit juice business. To centralize its supply chain closer to clients and cut costs, Ocean Spray opened a new distribution center in Lakeland, Florida, that received products trucked from its manufacturing factory in New Jersey. This meant the company was returning empty trucks on the northbound leg.

But when Ocean Spray officials learned from its logistics partner, Wheels Clipper, that competitor Tropicana was paying to move 175 empty rail cars per week via the CSX railroad from New Jersey to Florida and delivering product on the northbound back-haul, Ocean Spray realized there could be some advantages to a collaborative transportation agreement.

“First, the two companies needed to work out several issues such as load planning to enable Ocean Spray to take advantage of the back haul,” says Jason Mathers, senior manager at the Environmental Defense Fund.

For example, each truckload shipment held 19 pallets of goods, but boxcars handle 38. The company had to take that into consideration in its order-fulfillment planning, as well as pallet size and configuration.

“But it made economic sense to them since it meant cheaper moves,” says Mathers, who leads EDF’s work to promote environmental best practices in supply-chain logistics.

FULL INTEGRATION

Although not a new concept, manufacturers and shippers are also realizing greater advantages by collaborating with 3PLs to run their warehouse and distribution center operations. That’s because 3PLs have widened their portfolio of offerings to be more competitive. Today, many 3PLs offer more than just the traditional freight brokerage, packaging, sorting and handling.

“There’s a growing willingness by clients to involve their 3PLs in making operational and strategic decisions,” comments John Langley, clinical professor of Supply-Chain Management, Penn State University. “One of the major things 3PLs are being asked to do today is to be the provider of technology-based services.”

This can include network design, information technology and warehouse-management software to optimize, configure and structure a supply chain that best serves the needs of the customer.

Collaboration arrangements also can be in the form of best placement for a distribution warehouse, which transportation companies to use and on what routes.

Consider Penske Logistics’ relationship with Whirlpool Corp., which earned the 3PL Whirlpool’s Finished Goods Warehousing Provider of the Year Award in October 2013 for boosting year-over-year productivity, cost savings, safety improvements and other innovations that benefit the appliance manufacturer’s supply-chain network.

Penske Logistics manages and optimizes a combined network of 10 major warehousing and distribution centers for Whirlpool across the United States. These facilities encompass approximately 9 million square feet of warehousing space and accommodate more than 43 million units of finished goods annually.

“Penske’s investment in a collaborative relationship and continuous-improvement culture continues to pay dividends for both Whirlpool and Penske,” says Dan Iddings, director of Distribution Operations for Whirlpool. “All of our Penske-managed sites have achieved excellent performance while providing top-level customer service.”