International Truck Integrates Inbound
An integrated inbound logistics program helps International Truck streamline its supply base by bringing many supply chains into one. Result? World-class trucks and engines produced at competitive prices.
Not too long ago, International Truck and Engine Corporation, Warrenville, Ill., operated two truck manufacturing plants—in Springfield, Ohio, and Chatham, Ontario. "Then, through acquisition and greenfield construction, the map started to change," explains Tom Erickson, International's director of logistics.
In a fairly short time, the company acquired a bus company in Conway, Ark., and a truck manufacturing company in Garland, Texas, and built new plants in Tulsa and Monterey, Mexico.
In 2001, consulting firm Accenture talked with International about managing its inbound logistics as a whole, rather than having each individual plant manage its own inbound flow. Accenture also presented the case for establishing a relationship with a lead logistics provider (LLP) to manage inbound logistics, including suppliers, carriers, and logistics providers.
"We knew this was a good idea, but the money available to invest in that type of activity was on hold," Erickson recalls, so the recommendation was tabled for awhile.
In mid-2001, International entered into a joint venture with Ford Motor Co., under which it would build Ford's medium-duty product in Monterey.
"Ford had already put in Penske Logistics as its lead logistics provider," Erickson says. "As a result, in 2002, we began conversations with Penske," exploring how the two companies could work together to implement the LLP concept for International's manufacturing plants in the Southwest Corridor.
"Our supply base is heavily set in a 10-state area in the Midwest," Erickson notes. "We selected the Southwest Corridor because that was the longest supply chain, and we had the most opportunity to benefit our plants in the Southwest."
International put together a high-level business case that forecasted a 10- to 11-percent improvement on inbound freight managed under the new model. An added benefit was the opportunity this new method would provide for integrating management of the supply base.
While the project team was developing the LLP project plans, International tapped Penske to take over management of warehouses based in Garland, Texas, and near Monterey, Mexico.
This transition was managed by a separate project team, with the Garland operation launched in late 2001, and the Monterey operation transitioned to Penske in April 2002.
While this initiative added a layer of complexity to the LLP project's implementation, it also enabled Penske to deepen its understanding of International's freight and requirements.
LLP Leverages Existing Network
To implement the LLP concept, International put together a small core project team that was headed by logistics manager Kathy Ernst. The team also included International's supply chain (or materials) managers at its southwestern plants, representatives from IT, and members of Penske's team, including staff from its engineering group in Cleveland. Erickson acted as project champion.
"My role was primarily to support the project team, break down barriers, and ensure that we had executive support," he says.
After analyzing International's data, Penske developed a network model that leveraged the infrastructure and systems it used to support Ford operations. After a few modifications, the final design included three crossdock operations—called Origin-Destination Centers, or ODCs, by Penske—with one each located in Romulus, Mich.; Dayton, Ohio; and Memphis, Tenn.
Penske then prepared a network analysis and feasibility study, and gathered a significant amount of information from hundreds of International's parts suppliers. This required significant work.
"There's a lot of variability in the data, including how the parts are shipped and packed," Erickson notes. For the implementation plan, Penske developed a plan for moving each part through International's supply chain.
The ODCs were launched one at a time, starting with the Romulus operation in February 2003. Then Dayton and Memphis were launched, with implementation completed in May 2003. In-plant transportation personnel who had previously handled the inbound operation for International moved over to Penske, which eased the transition.
Before an ODC was opened, International and Penske brought in suppliers for training, hosting 500 suppliers in all.
"We brought the suppliers in, explained the changes to them, and gave them information on how the process would work," Erickson says.
The project team got complete support in this effort from International's purchasing organization, "which made it clear to the suppliers that this training was not an option—it was a requirement," he explains.
Today, Penske manages the inbound transportation, sets up routes, and manages International's suppliers, too.
"We send Penske our 830 EDI broadcast every week, and they dynamically route the freight and instruct the suppliers when and how to ship," says Erickson. This new model replaces International's static ZIP code routing guide, and instituted a far more disciplined approach to shipping frequency and schedule adherence.
"We now have visibility throughout the supply chain—visibility of what the supplier shipped, and whether the supplier shipped on time," Erickson says. As a result, planners in the plants now know what material is on its way, and when it is expected to arrive.
The project has reaped the anticipated savings. In addition, Erickson says, "the communication we've established with our materials people in the plant, our supply managers and their organizations, has been a real benefit."
The project has also enhanced the International purchasing organization's understanding of supplier issues.
The project has been such a success, in fact, that International is implementing the lead logistics provider concept in its two remaining truck manufacturing plants. Springfield is due to launch at the end of January, and the Chatham facility in March.
Secrets to Success
The change has not been without its challenges, of course. "We've had some bumpy roads, and haven't always had a clear agreement on the approach," Erickson says. "But we've got a good working relationship with Penske, and that helps."
Much of the change effort's success can be attributed to the integration of the two companies. "Tom treats us as part of his staff," notes Ed Cumbo, Penske's senior vice president of automotive. "We're one organization, with one set of goals. This makes things go much more smoothly, both internally and externally."
Another critical success factor, according to Cumbo, was thorough and ongoing communication. "We've learned that communication is everything," he says. "We needed to communicate with all the stakeholders within International what was going to happen, and why. We also had to explain the changes to other stakeholders, such as those within partner alliances—suppliers, 3PLs, truckload and LTL providers.
"Sometimes change is not welcomed. But if you can explain in detail to all the individuals involved in the transition what's going on, when, and why, the transition will be smoother," Cumbo notes.
Part of this communication involves "demonstrating the value proposition throughout the entire process," he says. This includes explaining to the plants—the end customers—and to stakeholders the value of the solution, which includes streamlining inbound materials flow, reducing costs, and gaining additional business, Cumbo says.