Executive Briefings

Furniture Maker Haworth Changed Its Thinking To Shrink Inbound Transportation Costs

A conversation with Jeff Miller, purchasing manager for Haworth Inc., an office furniture manufacturer based in Holland, Mich.

Haworth is one of the top office furniture manufacturers in the U.S., providing a full range of desks, chairs, tables, partitions, lighting and storage systems that are customized for each customer. The company has won numerous design awards and was the first to introduce pre-wired cubicle partitions to the marketplace. Haworth operates in more than 120 countries and its products are distributed and serviced through 600 dealers worldwide. Recently the company launched an initiative to gain control and improve optimization of its inbound transportation. Jeff Miller, an 18-year Haworth veteran, was tapped to head this project in addition to his other responsibilities as purchasing manager.

Q: What was the primary driver behind Haworth's inbound transportation initiative?
Miller: When we first started looking at this around the fall of 2003, we were just trying to do a rate play around our inbound freight rates and negotiate better pricing. But one of the steps in our strategic sourcing process is to do some benchmarking and market research on how other companies are managing this area. We discovered that other companies like Deere and Caterpillar and Maytag were dynamically managing their inbound transportation and were using third parties to handle it. So we changed our focus from just getting rate quotes to looking for a third-party and we ultimately partnered with Supply Chain Solutions, which also is located here in Michigan, in Grand Rapids. So it turned out not to be a rate play at all. In fact, our freight rates are up and our fuel surcharges are up, but we are still saving money. We are getting the cost savings from better managing the inbound transportation, not from rate reductions.

Q: How were you managing your inbound before?
Miller: We were probably doing more than some companies. We did have a routing guide that suppliers were supposed to follow for freight that we were paying for-collect freight. If we had negotiated a rate with an LTL [less-than-truckload] carrier, for example, we would instruct them to use that carrier. If TL [truckload], we usually tried to negotiate the TL rate for them. But that was all we had. And there really had been no visibility to any of it.

So what was happening was that we had suppliers, which were located in the same city, sometimes right next door to each other, shipping LTL shipments on the same day to Haworth. Or they might even have a truckload shipment but with the truck only half full. What Supply Chain Solutions was able to do was to come in and get visibility to all of our incoming shipments. Basically, they pulled this information from our MRP run, which was our communications to our suppliers, telling them what they needed to deliver to us. Supply Chain Solutions took that same information and pulled it together so they could see the whole picture. Basically, what they have done is consolidate shipments and eliminate a lot of LTL.

We did have milk runs set up before, standing runs that went three times a week, but we didn't have a good way of monitoring that. And what we set up one week may not be right for the next week. What we have done with Supply Chain Solutions is much more dynamic. They can look at our entire picture and if there is nothing to pick up this week, there won't be a truck. Or they look at various suppliers in one lane and combine their shipments. Before, we were just not managing this very well at all. Now we are looking at all of those incoming shipments and optimizing that transportation.

Q: Did they also combine your shipments with shipments of other companies?
Miller: Yes. One of the first things that Supply Chain Solutions offered us on this project was an opportunity to combine our inbound freight with the inbound freight of Steelcase, which is another of their customers. Steelcase is the largest office furniture manufacturer in the world and it also is located in West Michigan. We often order or buy from the same suppliers or at least from suppliers in the same region. So what we were able to do was to use Supply Chain Solutions as a third-party to manage the combination of our freight with their freight to fill up the trailers coming into Michigan. This also gave us the opportunity to use the Steelcase truck fleet. Steelcase has a fleet of trucks that it uses to deliver furniture on the outbound, but it needs to then get these trucks back to Michigan. It does bring in its own inbound material on the backhaul, but the fleet was very under-utilized. So we said, "OK, put our freight on their truck."

This was a huge thing for both companies because we have always been competitors. When our upper management told us it was OK to do that, it sent a strong message to me and to others that we needed to change the way we think about our business. We went through some tough times after 9/11. The office furniture industry is down 40 percent to 50 percent from where it was in the 1998-1999 time period. A lot of plants have shut down and a lot of people have been let go. So we all are looking at our cost buckets and inbound is one where we saw we could save. But there is a lot of change management involved and this move with Steelcase was a signal that our management was ready to change.
We had a few meetings with Steelcase but Supply Chain Solutions has really handled this whole thing as an intermediary. There haven't been any issues that I know of. Basically, both companies decided that we were not differentiating our products on inbound transportation. Our customers don't care how we get our inbound material into our plants. Our product differentiation is primarily on design and service.

Steelcase is not the only example. Supply Chain Solutions combines our freight with that of other companies as well, where we use the same suppliers or suppliers in the same lane. If it is the same supplier the savings are greater because there is only one pickup, but we do it both ways.

Q: Do you use Supply Chain Solutions' transportation management software?
Miller: Yes. We do have a TMS from Manugistics that we use to manage our outbound transportation. We thought about using that for inbound and it would have been doable-the Manugistics system is very robust-but we just didn't want to distract from what we were doing on the outbound side, which represents a huge spend for us. Our outbound spend on transportation is five or six times our inbound spend. Our transportation folks are pretty focused on outbound and servicing our customer, so we decided to rely on the system Supply Chain Solutions had developed and was using.

We opened an Inbound Service Center that Supply Chain Solutions is managing for us. Before, several of our largest suppliers had warehouses throughout West Michigan where they would forward-position inventory that we would pick up on a daily basis. Now all of that has been consolidated into the ISC, which is also where we build truckloads for each of our plants. Instead of each of our plants receiving LTL shipments from each supplier, as was the case before, we now put those goods on one truck and bring it into the ISC, where it is cross-docked and combined into a truckload that goes out to each plant on a regular schedule. So there is quite a good savings by doing that.

We also use the inbound service center as an international de-consolidation point. So Supply Chain Solutions receives all of our international containers, breaks them down, stores the goods at the ISC and meters them out to the plants as needed, along with all the other material going through there. That's an important piece because our international spend is increasing every day and that volume is really growing. Haworth's supply chain is primarily in North America, but we are aggressively expanding that to low-cost regions of the world, starting in China and perhaps moving into Vietnam and India. So the supply chain is lengthening.

Q: Do you sequence parts into your plants?
Miller: That is something that is on our agenda, but we are not sequencing to the line now. We are just shipping to the plants as they need it. Before the plants may have had to receive larger quantities than they really needed so we are trying to just ship them what they need for that day's production. Sometimes it gets there a day before, but it still is a huge improvement over what we used to do.

Another thing we have tried to do is to separate the transportation price from the piece price. That was part of this initiative as well and we probably have a lot of opportunity there yet. It is not the easiest thing to do because when we want to separate out the freight cost from the piece price, we think the freight cost should be one thing and our supplier thinks it should be something else so there always is a negotiation that goes on and it's sometimes not easy. Supply Chain Solutions helps us with that because they have a really good understanding of what the freight costs should be.

Q: Do you negotiate with carriers or does SCS do that?
Miller: That is a joint effort right now. Our transportation group was not ready to let go of that, so SCS helps us identify carriers in specific lanes and negotiate rates. But we do the final negotiation and sign the contract. The agreement is with Haworth so we are still involved in that. However, we have changed carriers in different lanes based on information that we were able to get from SCS.

Q: Have you quantified any savings in a way that you can share?
Miller: In just the lanes where we are collaborating with Steelcase, we saved in excess of 30 percent on freight costs. We measure transportation costs in a number of ways-as a percent of net sales, as a percent of receipts, various different ways. You can't just look at one measurement because so many things go into it. But with the overall initiative, I would say the savings are in excess of $1m and we are continuing to realize savings.

Q: Are there other supply chain projects that you are working on?
Miller: We are in the process of developing a supplier portal. We have one now but it is not very sophisticated-once a day we post on our web site what we require from each supplier. We are going to replace that method with a more robust supplier portal that the Supply Chain Solutions' Technology Group is helping us with. They are going to run it and operate it as an application service provider.

We will use the portal to enable another initiative that we call e-kanban. Now, our kanban signals are generally faxed to the supplier by someone on the manufacturing floor. It is a very manual process and very difficult to manage through the whole system, especially accounts payable. With e-kanban, we will communicate that signal through our supplier portal. It will all be web-based rather than fax-based, plus we will give all the e-kanban release information to Supply Chain Solutions so they can also manage that transportation. When this information went out on fax, they had no visibility to it. So this will enable them to start managing transportation for all of our kanban parts.

Haworth is one of the top office furniture manufacturers in the U.S., providing a full range of desks, chairs, tables, partitions, lighting and storage systems that are customized for each customer. The company has won numerous design awards and was the first to introduce pre-wired cubicle partitions to the marketplace. Haworth operates in more than 120 countries and its products are distributed and serviced through 600 dealers worldwide. Recently the company launched an initiative to gain control and improve optimization of its inbound transportation. Jeff Miller, an 18-year Haworth veteran, was tapped to head this project in addition to his other responsibilities as purchasing manager.

Q: What was the primary driver behind Haworth's inbound transportation initiative?
Miller: When we first started looking at this around the fall of 2003, we were just trying to do a rate play around our inbound freight rates and negotiate better pricing. But one of the steps in our strategic sourcing process is to do some benchmarking and market research on how other companies are managing this area. We discovered that other companies like Deere and Caterpillar and Maytag were dynamically managing their inbound transportation and were using third parties to handle it. So we changed our focus from just getting rate quotes to looking for a third-party and we ultimately partnered with Supply Chain Solutions, which also is located here in Michigan, in Grand Rapids. So it turned out not to be a rate play at all. In fact, our freight rates are up and our fuel surcharges are up, but we are still saving money. We are getting the cost savings from better managing the inbound transportation, not from rate reductions.

Q: How were you managing your inbound before?
Miller: We were probably doing more than some companies. We did have a routing guide that suppliers were supposed to follow for freight that we were paying for-collect freight. If we had negotiated a rate with an LTL [less-than-truckload] carrier, for example, we would instruct them to use that carrier. If TL [truckload], we usually tried to negotiate the TL rate for them. But that was all we had. And there really had been no visibility to any of it.

So what was happening was that we had suppliers, which were located in the same city, sometimes right next door to each other, shipping LTL shipments on the same day to Haworth. Or they might even have a truckload shipment but with the truck only half full. What Supply Chain Solutions was able to do was to come in and get visibility to all of our incoming shipments. Basically, they pulled this information from our MRP run, which was our communications to our suppliers, telling them what they needed to deliver to us. Supply Chain Solutions took that same information and pulled it together so they could see the whole picture. Basically, what they have done is consolidate shipments and eliminate a lot of LTL.

We did have milk runs set up before, standing runs that went three times a week, but we didn't have a good way of monitoring that. And what we set up one week may not be right for the next week. What we have done with Supply Chain Solutions is much more dynamic. They can look at our entire picture and if there is nothing to pick up this week, there won't be a truck. Or they look at various suppliers in one lane and combine their shipments. Before, we were just not managing this very well at all. Now we are looking at all of those incoming shipments and optimizing that transportation.

Q: Did they also combine your shipments with shipments of other companies?
Miller: Yes. One of the first things that Supply Chain Solutions offered us on this project was an opportunity to combine our inbound freight with the inbound freight of Steelcase, which is another of their customers. Steelcase is the largest office furniture manufacturer in the world and it also is located in West Michigan. We often order or buy from the same suppliers or at least from suppliers in the same region. So what we were able to do was to use Supply Chain Solutions as a third-party to manage the combination of our freight with their freight to fill up the trailers coming into Michigan. This also gave us the opportunity to use the Steelcase truck fleet. Steelcase has a fleet of trucks that it uses to deliver furniture on the outbound, but it needs to then get these trucks back to Michigan. It does bring in its own inbound material on the backhaul, but the fleet was very under-utilized. So we said, "OK, put our freight on their truck."

This was a huge thing for both companies because we have always been competitors. When our upper management told us it was OK to do that, it sent a strong message to me and to others that we needed to change the way we think about our business. We went through some tough times after 9/11. The office furniture industry is down 40 percent to 50 percent from where it was in the 1998-1999 time period. A lot of plants have shut down and a lot of people have been let go. So we all are looking at our cost buckets and inbound is one where we saw we could save. But there is a lot of change management involved and this move with Steelcase was a signal that our management was ready to change.
We had a few meetings with Steelcase but Supply Chain Solutions has really handled this whole thing as an intermediary. There haven't been any issues that I know of. Basically, both companies decided that we were not differentiating our products on inbound transportation. Our customers don't care how we get our inbound material into our plants. Our product differentiation is primarily on design and service.

Steelcase is not the only example. Supply Chain Solutions combines our freight with that of other companies as well, where we use the same suppliers or suppliers in the same lane. If it is the same supplier the savings are greater because there is only one pickup, but we do it both ways.

Q: Do you use Supply Chain Solutions' transportation management software?
Miller: Yes. We do have a TMS from Manugistics that we use to manage our outbound transportation. We thought about using that for inbound and it would have been doable-the Manugistics system is very robust-but we just didn't want to distract from what we were doing on the outbound side, which represents a huge spend for us. Our outbound spend on transportation is five or six times our inbound spend. Our transportation folks are pretty focused on outbound and servicing our customer, so we decided to rely on the system Supply Chain Solutions had developed and was using.

We opened an Inbound Service Center that Supply Chain Solutions is managing for us. Before, several of our largest suppliers had warehouses throughout West Michigan where they would forward-position inventory that we would pick up on a daily basis. Now all of that has been consolidated into the ISC, which is also where we build truckloads for each of our plants. Instead of each of our plants receiving LTL shipments from each supplier, as was the case before, we now put those goods on one truck and bring it into the ISC, where it is cross-docked and combined into a truckload that goes out to each plant on a regular schedule. So there is quite a good savings by doing that.

We also use the inbound service center as an international de-consolidation point. So Supply Chain Solutions receives all of our international containers, breaks them down, stores the goods at the ISC and meters them out to the plants as needed, along with all the other material going through there. That's an important piece because our international spend is increasing every day and that volume is really growing. Haworth's supply chain is primarily in North America, but we are aggressively expanding that to low-cost regions of the world, starting in China and perhaps moving into Vietnam and India. So the supply chain is lengthening.

Q: Do you sequence parts into your plants?
Miller: That is something that is on our agenda, but we are not sequencing to the line now. We are just shipping to the plants as they need it. Before the plants may have had to receive larger quantities than they really needed so we are trying to just ship them what they need for that day's production. Sometimes it gets there a day before, but it still is a huge improvement over what we used to do.

Another thing we have tried to do is to separate the transportation price from the piece price. That was part of this initiative as well and we probably have a lot of opportunity there yet. It is not the easiest thing to do because when we want to separate out the freight cost from the piece price, we think the freight cost should be one thing and our supplier thinks it should be something else so there always is a negotiation that goes on and it's sometimes not easy. Supply Chain Solutions helps us with that because they have a really good understanding of what the freight costs should be.

Q: Do you negotiate with carriers or does SCS do that?
Miller: That is a joint effort right now. Our transportation group was not ready to let go of that, so SCS helps us identify carriers in specific lanes and negotiate rates. But we do the final negotiation and sign the contract. The agreement is with Haworth so we are still involved in that. However, we have changed carriers in different lanes based on information that we were able to get from SCS.

Q: Have you quantified any savings in a way that you can share?
Miller: In just the lanes where we are collaborating with Steelcase, we saved in excess of 30 percent on freight costs. We measure transportation costs in a number of ways-as a percent of net sales, as a percent of receipts, various different ways. You can't just look at one measurement because so many things go into it. But with the overall initiative, I would say the savings are in excess of $1m and we are continuing to realize savings.

Q: Are there other supply chain projects that you are working on?
Miller: We are in the process of developing a supplier portal. We have one now but it is not very sophisticated-once a day we post on our web site what we require from each supplier. We are going to replace that method with a more robust supplier portal that the Supply Chain Solutions' Technology Group is helping us with. They are going to run it and operate it as an application service provider.

We will use the portal to enable another initiative that we call e-kanban. Now, our kanban signals are generally faxed to the supplier by someone on the manufacturing floor. It is a very manual process and very difficult to manage through the whole system, especially accounts payable. With e-kanban, we will communicate that signal through our supplier portal. It will all be web-based rather than fax-based, plus we will give all the e-kanban release information to Supply Chain Solutions so they can also manage that transportation. When this information went out on fax, they had no visibility to it. So this will enable them to start managing transportation for all of our kanban parts.