NTE Builds Toshiba's Public-Private Partnership
Two electronic trading networks help Toshiba win prime-level service and attractive rates from contract carriers.
It was very congested in the yard," says Al Fitzpatrick, recalling the scene when he joined the Industrial Division of Toshiba International Corporation (TIC) in December 1998. Twenty-three carriers jostled for dock space at the production facility. And like the traffic, TIC's strategy for dealing with these trucking firms needed to be streamlined. "We had several different carrier agreements with no standardization," says Fitzpatrick, the division's director of customer service.
TIC's Industrial Division builds motors, drives, uninterruptible power supplies and other industrial equipment. It ships these products from its Main Finished Goods warehouse in Houston, and from a distribution center in Erlanger, Ky., to distributors, OEMs, and end users throughout the United States and overseas. Many of its customers require just-in-time deliveries. If a late shipment idles the engineers scheduled to install the incoming equipment, the customer may assess a penalty.
When Fitzpatrick joined TIC, one of his goals was to reduce the company's domestic freight costs. TIC also needed more of its shipments to arrive on time and undamaged. To help minimize breakage, it wanted more direct, point-to-point shipments and fewer stops at less-than-truckload (LTL) carriers' breakbulk centers.
With an eye on these goals, TIC initiated two new programs. It starting using performance scorecards to evaluate core carriers, eventually slashing its roster from 23 to six. It also started tendering loads electronically—to the open market as well as to its contract carriers—on a pair of web-based trading networks operated by NTE of Downer's Grove, Ill.
Thanks to these moves, Fitzpatrick says, TIC now pays less to move its freight, its core carriers provide top-notch service, and customers are much more likely to receive their goods unscathed and on time.
TIC spent about two years reducing its carrier base. It uses six criteria to evaluate performance: customer satisfaction (which counts triple); the number of damage claims and the on-time rate (each of which counts double); the quality of the billing process; the ease of the damage claim settlement process; and how well the carrier communicates with customers when shipments run late.
Every quarter "we have face-to-face meetings with each of the carriers, and we go over the report card with them," Fitzpatrick says. Carriers learn their own scores and also see how they rank against the other trucking firms. "If a carrier does not meet our performance standards, and is in last place for three consecutive quarters, we remove it from the core carrier list," he says.
To further press its search for better prices and service, in June 2000 TIC started testing the NTE Public Exchange, an electronic marketplace that allows shippers to bid out loads, and carriers to sell unused capacity on their trucks. For five weeks, TIC offered five to 10 percent of its outbound shipments on the exchange. "We saw great results as far as getting shipments to customers without damage, and there was a significant freight cost savings for us," Fitzpatrick says.
After the pilot, TIC started tendering about 30 percent of its shipments on the Public Exchange. Before long, though, company officials started talking with NTE about a new concept—building a private exchange that TIC could use to tender loads electronically to core carriers.
NTE has run its Public Exchange successfully since the mid-1990s. But the company now also offers a suite of web-based products that allow shippers to form private communities with carriers and suppliers. The main components of the suite are: NTE Trade, for doing business with contract carriers; NTE Manage, an online transportation management system; and NTE View, for doing business with suppliers.
The vendor shifted its focus to private networks because the spot transportation buys that shippers make on the Public Exchange satisfy just a small portion of their needs. The Exchange "represents somewhere less than 15 percent of someone's total transportation execution," says Jim Davidson, NTE president.
The private network TIC adopted, NTE Trade, allows shippers to automatically tender loads to core carriers, matching loads to capacity based on pre-defined business rules. One aim is to enforce the shipper's routing guide. Another is to replace phone calls and faxes with more efficient electronic communications.
Usually, a shipper uses NTE Trade to offer a load first to a core carrier. If the carrier doesn't accept by a certain time, the load can automatically move to the Public Exchange.
What's the Market Rate?
But TIC takes a different approach. If a load is headed more than 300 miles from its origin and weighs more than 1,000 pounds, NTE's system looks at the rate TIC has negotiated with its core carrier for that destination. It compares that figure with the going market rate for the same trip.
"If the market rate's going to beat our current discount, we say go ahead and post it on the Public Exchange, trying to get the better rate," Fitzpatrick says. "If it doesn't trade within two hours, then the business rules TIC has given to NTE dictate that the freight be taken off the Exchange and given to one of our core carriers."
Four of TIC's six core carriers have joined the Public Exchange, which means they can go to NTE's web site to view all approved shipments and bid on them from the start. This puts them head-to-head with competitors in lanes where they already have contracts with TIC. Do carriers resent this arrangement?
No, Fitzpatrick says; in fact, it works to their advantage. The Public Exchange "gives them visibility not just to our shipments, but also to companies in our area that are going to the same location. They have an opportunity to put more on one truck," making the run more profitable. Thus, the carrier can offer TIC a lower rate than the one specified in the contract for that lane.
As core carriers accept freight through NTE Trade throughout the day, they receive details about the shipments accumulating in their trailers at TIC's facility. This helps them improve their advance planning.
When TIC tenders loads to core carriers via the private exchange, they receive the information by e-mail or fax. NTE also supports communication via electronic data interchange (EDI) and Extensible Markup Language (XML), but TIC's core carriers have opted not to use those formats, says Fitzpatrick.
Giving more of its business to fewer carriers, and using the public and private exchanges to help carriers put more freight on their trucks, has won TIC better service. "We're considered their top tier customer, so they pay a lot of attention to our freight through the whole transit process," Fitzpatrick says. Carriers always warn TIC in advance when a shipment will miss its delivery target. Also, "we have far fewer damaged freight claims to process."
Turning to Inbound
Now that it has removed many bottlenecks from its outbound freight procedures, TIC is turning its attention to the inbound side. The company is investigating the possible benefits of NTE View, the module for managing transactions with suppliers, Fitzpatrick says. If implemented, the system could give TIC a better picture of which materials suppliers are preparing to ship. This will promote consolidation.
"The idea is to have multiple pickups and save money with a full truckload coming in, instead of having three or four trucks from each vendor come in separately," he says.
NTE has already used NTE View to build a private community for Target Corp., which uses it to manage shipments to 1,400 Target, Marshall Field's, and Mervyn's retail stores. The system replaces labor-intensive and error-prone phone and fax communications with electronic messaging, says John Murphy, vice president of marketing and product strategy at NTE.
It uses pre-determined business rules to deal with exceptions—such as when a vendor receives a purchase order for 10,000 of an item but can immediately ship only 8,000. It generates routing instructions and can also change the routes as opportunities arise to consolidate loads.
By providing greater visibility into the supply chain, the electronic community allows Target to do better planning, Murphy says. "That has worked into compliance on the routing guides. It has worked into better opportunities for consolidation. And it has given them much better data with which to interact internally."
TIC hopes for similar benefits from the system, particularly access to historical data that will allow it to evaluate each vendor's performance, Fitzpatrick says. "Are they short-shipping us? Are they on time with the lead time we're giving them to manufacture the raw material?" Such information will help TIC improve service levels to customers, he says.
And it will further simplify the cumbersome process of dealing with vendors and service providers.