January 2006 | Case Studies | Casebook

Orange Seeks Agent

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Freed from its corporate parent, orange beverage maker Sunny Delight forms a 3PL partnership to juice up its supply chain.

For Sunny Delight employees, news in 2004 that parent company Procter & Gamble was spinning off the beverage maker came as a mixed blessing.

Once free from the conglomerate's web, Sunny Delight would have more control over its own destiny, but employees would have to work hard—and quickly—to recreate crucial operations P&G provided.

Perhaps no one faced a greater challenge than Jim Glendon, Sunny Delight's North American supply chain director, the person responsible for creating a logistics infrastructure from the ground up. "We had a company, but no systems," he recalls.

P&G gave Sunny Delight less than one year to learn to walk on its own. "We needed to develop our entire infrastructure—ordering, shipping, and billing, as well as our warehouse management systems, and transportation," says Glendon.

Facing a tall order with little time, Glendon sent out an SOS to Transplace, a Plano, Texas-based third-party logistics provider (3PL) experienced at helping businesses develop and deploy logistics infrastructures.

Sunny Delight was a prime example of a business standing at a crossroads, says Tom Sanderson, Transplace's president and CEO. "Sunny Delight needed to decide where to focus its energy and efforts as it took this standalone company forward," Sanderson says. "The company decided it needed to outsource logistics management."

A New Dawn

Private equity firm J.W. Childs Associates purchased Sunny Delight from P&G for an undisclosed price in August 2004. The new Sunny Delight Beverages Company, still based in P&G's hometown of Cincinnati, is a $600-million producer of juice-based drinks in North America and Western Europe, with more than 500 employees worldwide.

Sunny Delight was launched in Florida in 1965, during an era that witnessed the birth of the orange-flavored beverage fad—of which Sunny Delight and Tang are the major survivors.

The company currently makes and markets such brands as SunnyD Original, SunnyD Intense Sport, and SunnyD Baja, a new shelf-stable fruit beverage introduced last July. A European headquarters in Barcelona, Spain, oversees the company's operations in France, Spain, Portugal, and the United Kingdom.

Looking at his company under the light of new management, Glendon was generally pleased with what he saw.

"We were a company with an established brand," he says. "Most of the employees from headquarters and the plants came over to the new company."

Sunny Delight filled the P&G personnel loses with new hires, who generated a level of energy and diversity that provided a lively counterbalance to the seasoned experience of the company's veteran P&G employees.

With the one-year P&G deadline looming, Glendon had to get logistics operations into motion in a hurry. In early 2004, Sunny Delight sent out a request for proposal for a logistics outsourcing provider, and by July was evaluating final competitors.

Site Seeing

"A few of the final contenders visited our Atlanta site so they could understand what they were bidding on," recalls Glendon. "They toured the plant and went through all our systems and requirements."

Sunny Delight then received formal bids from the 3PLs, and selected Transplace in November 2004—only four months after P&G sold Sunny Delight to J.W. Childs.

The company chose Transplace because of its reputation for technical expertise and helping clients streamline operations and cut costs, Glendon says.

"Part of our strategy as a new company was to outsource wherever it made sense, whether it was IT, human resources, or transportation," he explains.

While Sunny Delight was looking forward to launching an efficient logistics infrastructure, Transplace was gratified to acquire such a large client.

"Procter & Gamble is widely regarded as one of the top companies in the world for supply chain management," says Sanderson. "I think the executives at Sunny Delight were wondering how they could on their own get the supply chain management value they had with P&G."

But that was an unrealistic goal. "Sunny Delight can replicate some of P&G's supply chain efficiencies," notes Sanderson. "It can acquire the technology, hire the people, and develop the processes—but it will never have P&G's size."

Size allows large companies to be more flexible and creative in organizing logistics by tapping opportunities in scheduling, consolidation, and related areas, says Sanderson. Companies of immense size also have greater bargaining leverage with carriers.

Suddenly finding itself without a lot of weight to throw around, Sunny Delight sought a partner that could help create a fresh logistics environment fined-tuned to meet its specific needs. Partnering with the right 3PL would let Sunny Delight "focus more on taking the company forward and managing the brand," says Sanderson.

Rolling Forward

Under the agreement, Transplace assumed transportation management responsibility, including freight payment services, for all Sunny Delight's prepaid truckload and less-than-truckload (LTL) shipments.

Transplace was also charged with providing the services and technologies required to arrange loading appointments for customer pickup shipments at each Sunny Delight plant.

Because Transplace had an established set of logistics management best practices, Sunny Delight asked the 3PL to enact monitoring and measuring processes for its transportation delivery network, and to provide logistics visibility and insight to corporate management.

As with any consumer packaged goods company, logistics plays a crucial role in Sunny Delight's operations. The company delivers to 1,457 separate addresses in North America alone, although some large customers such as Kroger operate multiple distribution centers.

Playing it Straight

Most importantly, the company needs to coordinate shipments into and out of its four production facilities, located in Atlanta; Dayton, N.J.; Sherman, Texas; and Anaheim, Calif.

"It is a straightforward distribution system—we have four plants, and they each make all the products," says Glendon. "We don't use outside storage for either materials or finished product."

The only exception is the Dayton plant, which produces the Sunny Delight pre-mix that is used both on-site and shipped via truck to the company's other three plants. "The inbound pre-mix shipments are small compared to the number of trucks we send outbound every day," says Glendon.

Not surprisingly, Sunny Delight goes through a lot of fruit juice, and juice shipments play a big role in the company's inbound logistics operations. "We use tanker trucks to transport most of our liquid ingredients," says Glendon. "We sometimes use rail for shipping high-fructose corn syrup."

Sunny Delight managers handle the company's inbound raw material and container shipments. On the outbound side, however, Transplace has almost total control.

"Transplace manages the process for bidding and awarding each of our shipping lanes," says Glendon. "And it manages the contracts with those carriers."

Specifically, Transplace schedules both for-hire and customer pickup loads at each Sunny Delight facility. The 3PL also handles all shipment tracking as well as the shipment status of each load.

Transplace performs other tasks such as consolidating LTL shipments, paying freight bills, and handling carrier claims, and manages pre-mix shipments destined to Sunny Delight's regional plants and Canadian partner.

As on the inbound side, most of the outbound traffic is carried by trucks. "We do, however, use intermodal to ship SunnyD Baja because we send it from plant to plant," says Glendon. "At this point we only produce SunnyD Baja at two of our sites, so we need to ship to the other two facilities to get it to customers."

Information at the Ready

Besides managing most of Sunny Delight's transportation operations, Transplace acts as the beverage maker's logistics information conduit, keeping company managers continually informed on the movement and status of critical shipments.

"To track shipments, our carriers send information back to Transplace and Transplace sends it to us, so we see it at essentially the same time," says Glendon. Information is sent via Electronic Data Interchange (EDI) using the EDI 214 format, or through the Internet using a web interface.

Transplace's software technology is all proprietary. "Developing our own application software is a significant competitive advantage because our customers don't have to wait for a packaged software provider to add functionality," Sanderson says.

The 3PL's main software is its Transportation Management System (TMS), which "manages transportation execution by turning customer orders into the right kind of shipment—specifying mode and carrier," explains Sanderson.

The software also tenders shipments, electronically communicates shipment information to trucking companies, pays transportation providers, and provides visibility. It is designed to interface with standard enterprise resource planning (ERP) systems and other widely used solutions.

When Sunny Delight named Transplace its logistics provider in November 2004, the beverage maker had only eight months to meet P&G's deadline for logistics separation. The partners worked furiously over the next several months to create an infrastructure.

"We actually had two systems transitions," says Glendon. Within four months, Transplace took control of Sunny Delight's outbound operations tied to P&G systems. Then, in April 2005, the 3PL switched Sunny Delight to its new ERP system, allowing the beverage maker to sever logistical ties with P&G a full four months before the deadline.

"That was a quick startup," says Sanderson. "Outsourcing partnerships often take considerably longer, but Sunny Delight was focused on hitting its time lines, making sure that systems integration work was done and people were onboard with the new processes."

The changeover was smooth, with no major operational hiccups, Glendon says. Sunny Delight and Transplace achieved all their major project goals on or before deadline. In fact, the partnership allowed Sunny Delight to gain back much of the logistics "weight" it lost when it split from P&G.

"P&G provided a central staff that developed systems, negotiated rates, and performed all the tasks Transplace does for us now," says Glendon. "Our delivery cost now is comparable to what it was under P&G."

A Delightful End

For Sunny Delight's customers, the transition from a P&G-managed logistics operation to a Transplace-run system has gone virtually unnoticed, says Glendon.

"Winn-Dixie, Costco, and Wal-Mart, for example, all see the same trucks show up from the same locations," he notes. "From their standpoint, not much has changed."

Careful planning was key to success, according to Glendon. "When selecting a 3PL, be clear on the scope of work you need, as well as your expected performance measures," he says.

As a result, Sunny Delight and Transplace were able to rapidly create a logistics infrastructure from scratch without drama or disaster. And that was indeed a delight for both companies.

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