July 2005 | Case Studies | Casebook

Diving Into Pool Distribution

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By moving from piecemeal to pool distribution, perishable foods provider Chef Solutions cuts costs and boosts customer satisfaction.

When your company's name is Chef Solutions, you better be sure your customers are fully satisfied with your products and services. That's why Timothy Egan, Chef Solutions' integrated logistics director, undertook the arduous task of redesigning a key part of the Schaumburg, Ill.-based firm's distribution network.

"We aimed to turn an undisciplined process into a disciplined one in order to better serve our customers," he says.

It's no exaggeration to say Chef Solutions' business is highly perishable. That's because the company is a leading provider of freshly prepared foods and specialty bakery products to the retail and food service industries.

Operating under the Orval Kent Foods, Pennant Foods, and I&K Distributors banners, the company manufactures and distributes fresh-cut fruit, refrigerated mashed potatoes, and deli-style salads and side dishes. It also specializes in puff pastries, frozen dough, cookies, croissants, cinnamon rolls, muffins, danishes, and bakery ingredients under private-label contract and numerous branded entities.

The company operates 12 facilities in North America with nearly 2,500 employees. Annual revenue is roughly $600 million, while logistics and freight expenses total approximately $30 million.

For Chef Solutions, the distribution revamp was as much a matter of survival as simply improving efficiency. The company had recently experienced a serious business downturn, and it needed to find a way to cut costs and better serve customers, which include Sam's Club, Red Lobster, Boston Markets, and Dunkin' Donuts, as well as thousands of small restaurants, delicatessens, and grocery stores.

A 911 Call

Like many other transportation-dependent businesses, Chef Solutions was hit hard by the terror attacks of Sept. 11, 2001. At the time, Germany's Lufthansa owned the company. The air carrier had invested in Chef Solutions as an earthbound counterpart to its LSG Sky Chefs airline catering business.

Lufthansa's investment clicked, at least for a while. But Sept. 11 changed everything. "It gravely impacted many businesses, along with the airline catering business," says Egan. "So, in late 2003, Lufthansa put our company on the sales block."

Questor Partner Funds, a subsidiary of Questor Management Company, acquired Chef Solutions in June 2004. A turnaround specialist based in Southfield, Mich., Questor Management invests in troubled or underperforming companies. Chef Solutions' new ownership demanded new attitudes and ideas.

Cracking at the Seams

One idea that quickly gained traction was overhauling the food provider's distribution system, which was beginning to crack at the seams after being built up piecemeal over the past 50 years.

To analyze distribution operations and propose improvements, Chef Solutions turned to Lanter Distributing, the transportation services division of Ozburn-Hessey Logistics, a Nashville, Tenn.-based third-party logistics provider. "We had a joint meeting," says Egan. "I presented the issues I needed help with, and they presented their ideas for solutions."

After examining best practices at other major food distributors, Lanter's recommendation was to transition suitable segments of Chef Solutions' logistics infrastructure to a pool distribution model.

An increasingly popular concept in this era of rising shipping costs, pool distribution allows businesses to trim transportation expenses by consolidating their less-than-truckload (LTL) shipments with other companies' compatible freight headed in the same general geographic direction. Lanter offers pool distribution services, as well as LTL, truckload (TL), warehousing, and consolidation support.

Lanter's specialty in temperature-controlled food distribution to grocery customers was of particular importance to Chef Solutions. "That experience is crucial when you work with perishable food products," says Egan.

Formulating a Plan

Transforming key portions of Chef Solutions' complex, time-sensitive, and widely dispersed shipping network into a pool distribution model required careful planning. Chef Solutions operates one dozen North American production facilities, separated by both location and function. A Thorofare, N.J., plant, for example, specializes in bread and puff pastries. A Linares, Mexico, facility handles fruit products. And plants in Rochester, N.Y., and Dalton, Ga., produce cake and donut dry mixes.

Matching the company's sites and products with suitable carriers and routes took months of analysis and negotiation.

Chef Solutions also maintains relationships with vendors worldwide that ship to its various facilities.

"We have niche suppliers in Europe, for example, that supply virgin olive oil out of Italy for certain recipes," says Egan. "Depending on the seasonality of fruit and certain vegetables, we'll buy at the peak of the season at various places around the world—from as far away as Australia and South America." Egan estimates that 1,000 different vendors supply the firm.

Chef Solutions takes pride in its commitment to fresh, high-grade ingredients. "We don't shop price, we shop quality," Egan says.

The company also applies a rigorous quality standard to its finished products. That's why, as Chef Solutions launched its quest to improve distribution efficiency and cut costs, it was determined not to sacrifice handling standards.

Lanter's final plan was carefully designed to give Chef Solutions the savings it needed without adversely affecting quality.

"We deliver the product to Lanter and they unload our trucks, marry our freight with other trucks' freight, and make final deliveries to customers," Egan explains. Lanter operates seven distribution centers, located in Chicago, St. Louis, Kansas City, Memphis, Nashville, Knoxville, and Atlanta.

One key advantage for Chef Solutions is that it can now send small shipments to customers more quickly and cost-effectively. Once Chef Solutions delivers its product, Lanter consolidates freight from various shippers and coordinates schedules.

"With a full truckload of 10 or 12 shippers' freight, Lanter makes one delivery, as opposed to each shipper sending their own truck," explains Egan.

Orval Kent Foods was the first Chef Solutions division to utilize pool distribution, starting in late 2003. The decision to begin with Orval Kent—which specializes in refrigerated prepared foods—was made because of the unit's frequent need for LTL shipments.

"The average Orval Kent order size is small—88 percent of orders weigh less than 10,000 pounds," says Egan. Because a full truckload carries 43,000 pounds, the division only rarely requires the use of a complete truck. "Nearly 74 percent of orders weigh less than 5,000 pounds, which is a great opportunity for pool distribution," adds Egan.

The decision to move a shipment via pool distribution is usually made based on weight. "Generally, our default cutoff is about 7,500 pounds. At that size, it is advantageous from a service and cost standpoint to give the shipment to a pool distributor," Egan says.

The Tricky Part

The next Chef Solutions business unit to switch to pool distribution will be Pennant Foods, the company's frozen food division. Moving frozen products via pool distribution can be tricky, admits Egan.

"Frozen providers are less common across the United States than refrigerated providers," he explains.

Yet he's confident that Lanter will be able to find enough compatible shippers to accommodate Pennant's needs. The saving grace is that delivery time frames for frozen foods aren't as short as refrigerated products. Egan expects to begin shifting Pennant over to pool distribution during this year's fourth quarter.

Pool distribution directly benefits Chef Solutions by cutting costs and speeding shipments. But the company's customers also profit from the system, particularly those that need to place small, specialized orders.

"Many competitors treat small orders as second-class citizens," says Egan. "Our pool distribution network has great velocity. Our service now is almost as fast for a 2,000-pound shipment as it is for a 40,000-pound shipment."

Pool distribution forced Chef Solutions to create defined ordering, shipping, and delivery schedules for its customers, providing the mechanism that allows it to give small orders first-class treatment.

"Before, a customer had an explicit license to call us anytime and ask us to deliver 5,000 pounds of coleslaw anywhere in the United States, any day of the week," says Egan. "The demand fluctuations were incredible."

Pool distribution brought order to a disorganized system for Chef Solutions. But the company had to work hard to convince customers that a structured ordering and delivery system would work to their advantage.

"Customers were initially concerned that we were taking away their flexibility," Egan says. "I spent a lot of time convincing customers that we were actually maximizing flexibility by putting some rules in place." Essentially, says Egan, pool distribution provides a "taxicab service for a public transportation price."

By utilizing pool distribution, Chef Solutions has been able to avoid the high costs of multiple stop TL, and the inconsistency of irregular route LTL deliveries. The new model has improved its operational effectiveness and customer service.

"Currently, our pool distribution penetration rate is about 80 percent," says Egan. "The other 20 percent of orders are delivered right off the line haul truck, either as a stop-off or as a direct, full truckload."

Overall, pool distribution has enabled Chef Solutions to whittle the number of outbound carriers it uses to about 70—a 70-percent reduction from its previous carrier base. That's still a large number of companies to schedule and coordinate, but is a big improvement over its Lufthansa days.

Most importantly, pool distribution has provided a measurable return on investment. "We are realizing a 5-percent to 7-percent reduction on delivery costs," he notes. Egan hasn't yet found any significant downsides to utilizing pool distribution.

"It's a win for a manufacturer/shipper such as Chef Solutions, because we're able to participate in something that's bigger than our enterprise," he says. "The whole advantage of pool distribution is that it mixes my freight with other shippers' freight."

Change is Good

For Chef Solutions, the toughest part of restructuring its distribution system was dealing with the risks associated with change.

"This process was perceived as, 'Holy cow, you're blowing up the logistics model!'" Egan says. "People are afraid of change, even if it's for a mutual good."

The other big hurdle was convincing internal managers and external business partners that the changeover would bring benefits to everyone.

"It's important to meet with key customers, key carriers, and your colleagues inside the company's supply chain," says Egan. "Doing so helps ensure a successful outcome."

Most importantly, however, is the bottom line. "Without pool distribution, we would be spending more money and getting an inferior result," says Egan. "Pool distribution changed our whole way of conducting business."

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