Unilever HPC: From Nine Little Boxes to One Lean Machine
Web-based RFI, RFP and powerful analytic tools help Unilever HPC revamp its transport strategy.
Old habits die hard. In 1997, Lever Brothers, Chesebrough-Pond's, and Helene Curtis merged to form Unilever Home and Personal Care (HPC) North America. But in 2001, the $5- billion business unit was still tendering shipments of Wisk laundry detergent, Dove soap, Finesse hairspray and a host of other brands to three carrier bases, legacies of the three separate companies.
Furthermore, each organization negotiated transportation separately for three kinds of moves: from suppliers to plants, from plants to distribution centers, and from DCs to customers.
"We were literally buying our truckload services in nine little boxes," says Chuck Irwin, director of transportation for Unilever HPC North America. By relying on nine different carrier bases, "it was clear we were missing a wonderful opportunity to create value by leveraging scale," Irwin says.
While the company officially did business with 80 carriers, HPC was actually paying nearly 350 trucking firms. Too much of its freight moved at tariff rather than contract rates.
Today, HPC is in the midst of a transition to a base of just 25 carriers. The company is getting better service, with more shipments arriving on time. It also spends 10 percent less on truckload transportation. More important, Irwin says, HPC now has a carrier base that appears capable of providing best-in-class service as the company grows.
Highest Value Solution
To revamp its truckload strategy, HPC analyzed vast amounts of information about its own operations and on 100 carriers that wanted its business. The engine for assembling and analyzing the data came from New York-based Tigris Consulting.
At the outset, HPC's goal was not to deal with fewer trucking companies, but to figure out which mix of carriers would offer the best service at the best price.
"We were prepared to have the market tell us what the highest value solution was," even if that meant doing business with 300 carriers, Irwin says. As it turned out, though, "the highest value solution was a much smaller, tighter, leaner carrier base."
In September 2001, the HPC team began assembling data it needed to describe its current situation and define its needs. Some of that data was available in its Manugistics transportation management system. But because HPC hadn't purchased Manugistics' archival module, Irwin says, it lacked detailed records of transactions with carriers.
The team also soon realized that with 10,000 lanes in the transportation network, and 250,000 shipments per year, crunching all the necessary data was too large a task for HPC to manage on its own.
For several years, HPC's purchasing organization had been using web-based technology from Tigris to manage requests for information (RFIs) and requests for proposals (RFPs). "When it became clear we needed analytical and data management horsepower, we evaluated a few options. But our internal experience and success with Tigris quickly led us to select them" for the transportation project, Irwin says.
Tigris helps companies obtain value from data they can extract from their management systems or can obtain from trading partners, says Anshu Prasad, the company's director of consulting.
Bringing all that data together for analysis isn't easy, but it's important, he says. "In the supply chain, we need a basic business understanding of how these different pieces of data interlink, and provide a holistic view."
Using proprietary technology, Tigris helped HPC develop a pair of web-based tools for collecting and analyzing data from prospective carriers. The first is an electronic RFI, which solicits information about a carrier's capabilities but doesn't ask about pricing. The second is an online RFP, which carriers use to bid on portions of HPC's business.
HPC started with 1,200 prospective carriers. Using a simple questionnaire to assess their size and financial stability, it cut the list to 100 and invited them in November 2001 to respond to the RFI. About half of those carriers already did business with HPC.
Based on their responses, HPC chose 50 carriers to complete the electronic RFP. "That's where Tigris brought some sophisticated tools that differentiate them from the rest of the market," Irwin says.
One set of tools allowed "expressive bidding," in which carriers bid not just on lanes, but on bundles of lanes where they could offer particular value. They might have had especially strong assets in certain regions, or they might have seen opportunities to build continuous moves on certain lanes. By bidding on clusters of lanes, carriers could offer high levels of service as well as attractive prices.
HPC could press for better service "because for the first time we had carriers who were committed to doing certain volume levels of business with us and delivering 98-percent on time, plus or minus one hour," Irwin says.
In exchange, HPC was willing to commit to multi-year contracts with established carriers. New carriers who made the cut received one-year contracts, giving them a chance to prove the claims they made in the RFI and RFP, he says.
Once the RFP process was complete, HPC ran the data through a web-based optimization engine, also developed by Tigris, to determine which carrier should handle each lane. The technology allowed a team of stakeholders to create scenarios based on different sets of business constraints, and see what mix of carriers each produced.
For example, Irwin explains, a stakeholder might say, "I don't want to do more than $10 million in business with this carrier. Or I want to use this carrier out of one location, but don't want to use it out of another location."
All told, he says, "we must have walked through 100 scenarios before we were confident that we had some that were not only feasible but would actually create value for HPC, as well as long term business for the carriers."
The optimization engine allows stakeholders with different agendas to quickly evaluate numerous possible solutions, Prasad says. "They can come to agreements right away. Companies that don't have the number-crunching firepower to look at all the various options will never quiet all the different dissenting voices."
Once HPC chose the best solution, putting it in place was a major challenge. "Simply populating our Manugistics 5.4 system with all the right data was a major step—and that was executed flawlessly," Irwin says.
Even harder was moving established carriers to different lanes, bringing new carriers into the picture, and allowing them all to get up to speed.
The new regime began in June 2002. By September HPC had returned to its accustomed performance levels, and by November it had surpassed them. While approximately 90 percent of HPC's shipments used to reach customers on the requested date each week, that service rate now regularly exceeds 90 percent and has reached as high as 95 percent, Irwin says.
The new carrier base also responds better to fluctuations in demand. With frequent promotions for laundry detergent, soap, and other consumer goods, HPC's volumes are extremely volatile. Since the company reworked its transportation plan, "our flexibility, and our capacity flexibility in particular, has improved dramatically," Irwin says.
As it begins to enjoy the benefits of its truckload sourcing program, HPC has already embarked on a second round of carrier assignments. The company is building a new distribution network to replace the separate operations of Lever Brothers, Chesebrough-Ponds, and Helene Curtis. Last year, it opened two new distribution centers. As another three facilities come on line this year, HPC will need a new strategy for moving stock from plants to DCs and from DCs to customers.
HPC has invited 60 carriers, including its 25 incumbents, to go through another RFI/RFP process. By January, it expects to complete negotiations for contracts on all the new lanes, Irwin says.
Leveraging its Scale
Unilever HPC will also use the Tigris technology to reexamine lane assignments as current contracts expire, Irwin says. In addition, the technology could help it work more closely with its sister business unit, Unilever Best Foods. "We have not yet leveraged the scale of being Unilever North America," he says.
"We're still buying transportation services as HPC North America and they're buying transportation services as Unilever Best Foods. Amazingly, there's little overlap between those two carrier bases. So we're clearly missing an opportunity for synergy and value creation," Irwin notes.
Along with improving service, officials at HPC are glad that its holistic transportation strategy has also cut transportation costs by 10 percent. But that's the least important benefit, Irwin maintains.
"HPC's objective is to double the business in five years. As a big customer doing business with lots of very small carriers, there was absolutely no way those carriers could support doubling the growth," he says. "This new transportation strategy is all about getting a carrier base that is capable of delivering the highest, best-in-class service levels while growing with us."