Executive Briefings

Logistics Program Aims to Satisfy Both External and Internal Customers

Core goals are to reduce order-cycle time and make delivery more predictable.

A.W. Chesterton


Jan Hansen

Jan Hansen is director of logistics at A.W. Chesterton, Stoneham, Mass. Before joining Chesterton approximately two years ago, Hansen held a number of logistics and supply-chain management positions at W.R. Grace, where his work spanned both domestic and international units with products that ranged from construction goods to confections to books and office supplies. Earlier experience included stints at Montgomery Ward's paint division and Dawes Laboratories, which makes animal feed supplements. A.W. Chesterton is one of the world's largest manufacturers of industrial fluid sealing, hydraulic/pneumatic and maintenance products.


Q: You came to A.W. Chesterton around two years ago after extensive experience in managing supply-chain and logistics for various divisions of W.R. Grace and at other companies. What were the issues at Chesterton that challenged and interested you?
A: Chesterton was looking to reorganize its whole range of supply-chain activities. At that time the company had multiple divisions that were heavily autonomous in terms of supply-chain operations. The goal was to shift this silo or vertical approach to a horizontal approach. So instead of having multiple divisions dealing with multiple, similar providers of package freight, airfreight, truck freight, intermodal freight, and ocean freight - and all doing it differently - we wanted to get better control and to leverage our buying power, which meant reducing the number of parties we were dealing with.

In addition, we wanted to raise the level of all the things we measure, such as pieces per hour or pieces per person - to do absolutely everything we could to drive time and multiple handling out of the process. All this was to get to the very core issues, which were to improve customer service by reducing the total order-cycle time and making transportation of orders to the customer more predictable and reliable.

Q: What are some of the initiatives you undertook to achieve those goals?
A: In our North American LTL we basically went from 30 to four core carriers. We have negotiated specific service levels and rates with these carriers and now we are in the process of tying all that to our systems, so that a customer service person will be able to answer questions while the customer is on the phone. To me, this is an important issue that I pushed for. Rather than saying, 'thank you and I will call you back,' being able to immediately answer a question is a major sales tool and a major confidence builder for customers. Our customer service reps already can see a code that lets them know where the order is in-house, but this next step will enable them to know up front that, because of the size and destination of the order, it will go to this package carrier or this airfreight carrier or this LTL carrier. They will know that the transit time to Idaho or to Georgia or to Ontario is two days or three days. And because they have these negotiated rate calculations loaded, they can tell Mr. or Mrs. Customer what their costs will be. Giving the customer service representative the tools to communicate on the first call and answer questions about the status of an order, the anticipated transit time and the anticipated transportation cost is a powerful tool, both from a supply-chain perspective and as a marketing and sales tool.

We've done a similar thing with global airfreight. We supply dealerships in some 90 countries around the world, so we did what I call an airfreight weight/rate analysis for each country. This establishes different kilo breaks that determine whether something is shipped via a package carrier like a DHL or FedEx and the point at which it goes to a heavy-weight carrier. This varies by country - it could be 92 kilos in one country, 64 in another and 110 somewhere else. Again, the idea is to develop this electronically and to put the information in the hands of the customer service representatives, so when they are speaking to someone in India or South Africa or wherever, they can tell that person, while he is on the phone, what delivery method will be used.

And it will be the optimum one from a cost perspective for our customers and ourselves.
On less-than-containerload ocean freight, we again have reduced the number of forwarders we deal with. Different forwarders were being used for countries all over the world and we really wanted to leverage our volume by getting that number down to a few. Tangent to that, we have negotiated ahead of time for accessorial activities and charges so our costs in that area have improved. That has been a radical improvement.

Q: So is reliability of delivery more important than speed?
A: Yes, but you have to build confidence. You establish what the normal transit time and internal order-processing time is for different parts of the world, and then you tell your customers you will ship to their country every Thursday, say, and the normal order-cycle time in-house is two days. It doesn't take long for those folks to start making sure their orders hit here every Monday or Tuesday. You just have to come up with a well-constructed, well-communicated global plan that people can count on. There is always a speck of trepidation at the start, but once you do that they can plan better. When they can plan better we can take a step down, if you will, in speed of transportation or in mode. You go out with a plan, build confidence and always comply with your own plan - pretty soon then you can go out and work with a customer toward the deferred schedule because they know they will always get it. That's how you drive out costs.

There are only so many times you can bring in competitive carriers and pin their ears back to take out another one or two percent, because eventually some of them go out of business - Consolidated Freightways being a major example. When shippers drive companies out of business - and obviously there also are management issues - but when you do that, you're just shooting yourself in the foot. So coming up with solid, consistent, proactive plans that drive costs out because you the shipper or you the receiver are more efficient is the way to go. There are ways to save money other than just browbeating your carriers.

Q: Having worked in many different industries with products from confections to educational material to heavy bulk, do you find the core issues remain essentially the same or do they vary greatly by vertical?
A: There are core issues that are pretty much the same. Of course, every company has its different culture and sometimes culture is the hardest thing to deal with. But whether you are working with gumballs or a carload of limestone or school supplies like pencils and pens, the core issues have many similarities. The mode of transportation may differ, but you are still moving from A to B, you still have similar claim issues, inventory issues, demand issues, and issues about how you interface with procurement. These constitute a horizontal world with little mini-spikes depending upon whether something is friable, whether it is easily damaged, whether it is of high value - there's all those little nuances but the basics don't change.

Q: What types of technology are supporting your operations?
A: We are in the process of installing Kewill Clippership Integrate for packaging and we will tie it electronically to a freight payment company that we use that has all of our LTL North American rates in it. A couple of other software packages that we are adding on will give address verification and will interface with assorted and sundry carriers as far as transit-time applications. That's on the outgoing side. On the incoming side, we are doing in-house software creation that will move us away from merely reacting. We'll get to a place where, when a purchase order is generated, it will immediately create a record all the way through receiving, which will allow us to do a double check from the logistics end as to whether the proper carrier and mode have been chosen and whether the optimum freight level is being used. Also we will know the transit time and we will be able to anticipate from manufacturing what is happening in terms of that inbound shipment. There are several end results here. One is knowledge, but another is reduction of inventory. When you have greater predictablility of your inbound, you can cut days out of your supply chain because you don't have to have as much safety stock. You literally have visibility to know where you stand at any given day or hour, so we are driving toward that.

Also, tied to the inbound, are applications to deal with assorted and sundry Customs issues since we do import quite a bit. A lot of that record keeping has been done manually here, but we are tying this together with the same software we are developing to handle the general inbound and inventory reduction. That will allow us to deal with all kinds of compliance issues, which have a higher and higher priority since 9/11. Of course, we already do all of the various applicable reviews of status so that we are not buying from or shipping to the wrong countries, wrong people, wrong industries, etc. But this will give us greatly enhanced electronic control of that.

Q: Do you typically control your inbound transportation, or do suppliers handle that?
A: Quite candidly, that is in transition. Quite often purchasing people will buy on a delivered basis because, frankly, it is easier. Buying on a delivered basis is fine, but to do that effectively, you have to know the difference between an ex-works price of the product and a delivered price. That tells you how much transportation the supplier is building in and then you are in a position to determine whether you can do it better or not.

When I came here, there were many deliveries or many pre-pay and adds from the supplier standpoint, with no reconciliation. They might list $500 in freight without any way of knowing if that was good or bad. We are driving toward mandating all carriage on the inbound and being totally in control of that, and we're more than halfway there. Control in this case means that it goes to our contracted carrier or a carrier that we and the shipper have agreed on is best in that situation. It shouldn't be a turf issue. It should be what is best for both parties.

Q: Every company has felt the effects of the current economic slowdown. At Chesterton, is logistics helping the company get through this time?
A: Yes, certainly. When you manage the supply chain effectively you almost automatically drive out costs. For example, let's say a customer needs a thousand-pound order in Buffalo, N.Y., and they need it there tomorrow. Two years ago, somebody would have hired a company like Robert's Express to make an overnight delivery or would have flown it there at a cost of possibly $1200 to $1300. Today we have an LTL carrier that delivers next-day to Buffalo, every day. So in this particular situation, we have knocked out 75 percent to 80 percent of the transportation cost. And every customer-service person now knows how many days to Buffalo, to Chicago, to Dallas, to Denver, to Los Angeles and so on. We have negotiated all these particular service levels all over the country. In doing so, we drive out reactivity and drive down the type of service we have to pay for because we know, as a matter of course, day-in and day-out, service to Chicago is two days, to Houston three days and so on. That saves money.

Now to your macro question, by doing all of these things - and Chesterton is extremely active now and ex-tremely supportive in the whole supply chain area - we are both improving service and driving out costs. That obviously makes the company more competitive in today's overall financial environment.

Q: Do you ship out of one centralized warehouse?
A: We ship everything out of here [Stoneham, Mass.] We have a few very small satellite facilities that are really company-owned distributorships around the country that ship some things. We also have a warehouse in Antwerp, Belgium, that we feed from here. Some items there are replenished regularly but we don't carry all of our SKUs in that warehouse, so we supplement each container with cross-dock goods - material that will immediately be trucked to destination in Europe. Often, depending on our shipping schedule for particular countries, these orders are combined with material that is physically stored in warehouses in Europe. We try to take advantage of every consolidation opportunity along the way.

Q: What is the biggest challenge you are currently facing and that you expect to be facing in next 12 months?
A: Over the next year, since we do a lot of international shipping, our goal is to stay very much in tune with the new security issues. We will be very close with fewer and fewer forwarders and carriers. We are a 24/7 company, but we have found that if we align ourselves with too many carriers and forwarders, we can do things in hours but one of those other links may drop the ball and we will have shot ourselves in the foot again. So our goal is to improve our participative partner base so that we can rely on them for deliveries both inbound and outbound in today's security-conscious environment. Those are the macro issues because, again, if we have somebody break down and we're 400th in line for the next airplane because we are not a preferred partner, we have failed ourselves and the customer. We want to be important to a few suppliers as opposed to being just another number to a lot of suppliers.

Our biggest current job is compiling useable metrics and expanding the education base of all of our internal customers. By that I mean we want to bring customer service, production, sales and so on up to speed on the supply-chain activities needed to move things through faster and at optimum costs, but consistent with production schedules. I think for the past 50 - or maybe 150 years - logistics has suffered under the mantle of "do it cheaper no matter who it hurts," and our approach is quite the opposite. From an external standpoint, customer service comes first. From an internal standpoint, our internal customers come first, in terms of our working with them to end up with an optimum flow-through situation. We want to be fluid and adaptable, taking advantage of what is happening in the market without driving carriers out of business.

The main words to me are "predictability" and "high profile." I think it is very important to be high profile internally because everybody is not knowledgeable about the supply chain. It's important for people in manufacturing, customer service, quality, human resources, and so on, to know what the goals are and why. It is so refreshing and so positive when non-logisticians and non-supply-chain people come up to you and offer suggestions and offer commentary. My word of advice is not to sell short the knowledge in your internal customer base and not to just stay in a supply-chain world. Internally you need to understand every part of the company - from sales to quality to marketing to manufacturing - understand them and then come to consensus. If you are adaptable within, then driving further costs out becomes much easier and not confrontational.

I have had great success my entire life talking to people, giving them credit for their knowledge, then taking their ideas, tweaking them and combining them with what is best-in-class in each department. That way, you don't end up with just a stew, but with best in class for the corporation. In supply chain, you cannot get to best in class if you are not best in class with your internal customer interfaces.

A.W. Chesterton


Jan Hansen

Jan Hansen is director of logistics at A.W. Chesterton, Stoneham, Mass. Before joining Chesterton approximately two years ago, Hansen held a number of logistics and supply-chain management positions at W.R. Grace, where his work spanned both domestic and international units with products that ranged from construction goods to confections to books and office supplies. Earlier experience included stints at Montgomery Ward's paint division and Dawes Laboratories, which makes animal feed supplements. A.W. Chesterton is one of the world's largest manufacturers of industrial fluid sealing, hydraulic/pneumatic and maintenance products.


Q: You came to A.W. Chesterton around two years ago after extensive experience in managing supply-chain and logistics for various divisions of W.R. Grace and at other companies. What were the issues at Chesterton that challenged and interested you?
A: Chesterton was looking to reorganize its whole range of supply-chain activities. At that time the company had multiple divisions that were heavily autonomous in terms of supply-chain operations. The goal was to shift this silo or vertical approach to a horizontal approach. So instead of having multiple divisions dealing with multiple, similar providers of package freight, airfreight, truck freight, intermodal freight, and ocean freight - and all doing it differently - we wanted to get better control and to leverage our buying power, which meant reducing the number of parties we were dealing with.

In addition, we wanted to raise the level of all the things we measure, such as pieces per hour or pieces per person - to do absolutely everything we could to drive time and multiple handling out of the process. All this was to get to the very core issues, which were to improve customer service by reducing the total order-cycle time and making transportation of orders to the customer more predictable and reliable.

Q: What are some of the initiatives you undertook to achieve those goals?
A: In our North American LTL we basically went from 30 to four core carriers. We have negotiated specific service levels and rates with these carriers and now we are in the process of tying all that to our systems, so that a customer service person will be able to answer questions while the customer is on the phone. To me, this is an important issue that I pushed for. Rather than saying, 'thank you and I will call you back,' being able to immediately answer a question is a major sales tool and a major confidence builder for customers. Our customer service reps already can see a code that lets them know where the order is in-house, but this next step will enable them to know up front that, because of the size and destination of the order, it will go to this package carrier or this airfreight carrier or this LTL carrier. They will know that the transit time to Idaho or to Georgia or to Ontario is two days or three days. And because they have these negotiated rate calculations loaded, they can tell Mr. or Mrs. Customer what their costs will be. Giving the customer service representative the tools to communicate on the first call and answer questions about the status of an order, the anticipated transit time and the anticipated transportation cost is a powerful tool, both from a supply-chain perspective and as a marketing and sales tool.

We've done a similar thing with global airfreight. We supply dealerships in some 90 countries around the world, so we did what I call an airfreight weight/rate analysis for each country. This establishes different kilo breaks that determine whether something is shipped via a package carrier like a DHL or FedEx and the point at which it goes to a heavy-weight carrier. This varies by country - it could be 92 kilos in one country, 64 in another and 110 somewhere else. Again, the idea is to develop this electronically and to put the information in the hands of the customer service representatives, so when they are speaking to someone in India or South Africa or wherever, they can tell that person, while he is on the phone, what delivery method will be used.

And it will be the optimum one from a cost perspective for our customers and ourselves.
On less-than-containerload ocean freight, we again have reduced the number of forwarders we deal with. Different forwarders were being used for countries all over the world and we really wanted to leverage our volume by getting that number down to a few. Tangent to that, we have negotiated ahead of time for accessorial activities and charges so our costs in that area have improved. That has been a radical improvement.

Q: So is reliability of delivery more important than speed?
A: Yes, but you have to build confidence. You establish what the normal transit time and internal order-processing time is for different parts of the world, and then you tell your customers you will ship to their country every Thursday, say, and the normal order-cycle time in-house is two days. It doesn't take long for those folks to start making sure their orders hit here every Monday or Tuesday. You just have to come up with a well-constructed, well-communicated global plan that people can count on. There is always a speck of trepidation at the start, but once you do that they can plan better. When they can plan better we can take a step down, if you will, in speed of transportation or in mode. You go out with a plan, build confidence and always comply with your own plan - pretty soon then you can go out and work with a customer toward the deferred schedule because they know they will always get it. That's how you drive out costs.

There are only so many times you can bring in competitive carriers and pin their ears back to take out another one or two percent, because eventually some of them go out of business - Consolidated Freightways being a major example. When shippers drive companies out of business - and obviously there also are management issues - but when you do that, you're just shooting yourself in the foot. So coming up with solid, consistent, proactive plans that drive costs out because you the shipper or you the receiver are more efficient is the way to go. There are ways to save money other than just browbeating your carriers.

Q: Having worked in many different industries with products from confections to educational material to heavy bulk, do you find the core issues remain essentially the same or do they vary greatly by vertical?
A: There are core issues that are pretty much the same. Of course, every company has its different culture and sometimes culture is the hardest thing to deal with. But whether you are working with gumballs or a carload of limestone or school supplies like pencils and pens, the core issues have many similarities. The mode of transportation may differ, but you are still moving from A to B, you still have similar claim issues, inventory issues, demand issues, and issues about how you interface with procurement. These constitute a horizontal world with little mini-spikes depending upon whether something is friable, whether it is easily damaged, whether it is of high value - there's all those little nuances but the basics don't change.

Q: What types of technology are supporting your operations?
A: We are in the process of installing Kewill Clippership Integrate for packaging and we will tie it electronically to a freight payment company that we use that has all of our LTL North American rates in it. A couple of other software packages that we are adding on will give address verification and will interface with assorted and sundry carriers as far as transit-time applications. That's on the outgoing side. On the incoming side, we are doing in-house software creation that will move us away from merely reacting. We'll get to a place where, when a purchase order is generated, it will immediately create a record all the way through receiving, which will allow us to do a double check from the logistics end as to whether the proper carrier and mode have been chosen and whether the optimum freight level is being used. Also we will know the transit time and we will be able to anticipate from manufacturing what is happening in terms of that inbound shipment. There are several end results here. One is knowledge, but another is reduction of inventory. When you have greater predictablility of your inbound, you can cut days out of your supply chain because you don't have to have as much safety stock. You literally have visibility to know where you stand at any given day or hour, so we are driving toward that.

Also, tied to the inbound, are applications to deal with assorted and sundry Customs issues since we do import quite a bit. A lot of that record keeping has been done manually here, but we are tying this together with the same software we are developing to handle the general inbound and inventory reduction. That will allow us to deal with all kinds of compliance issues, which have a higher and higher priority since 9/11. Of course, we already do all of the various applicable reviews of status so that we are not buying from or shipping to the wrong countries, wrong people, wrong industries, etc. But this will give us greatly enhanced electronic control of that.

Q: Do you typically control your inbound transportation, or do suppliers handle that?
A: Quite candidly, that is in transition. Quite often purchasing people will buy on a delivered basis because, frankly, it is easier. Buying on a delivered basis is fine, but to do that effectively, you have to know the difference between an ex-works price of the product and a delivered price. That tells you how much transportation the supplier is building in and then you are in a position to determine whether you can do it better or not.

When I came here, there were many deliveries or many pre-pay and adds from the supplier standpoint, with no reconciliation. They might list $500 in freight without any way of knowing if that was good or bad. We are driving toward mandating all carriage on the inbound and being totally in control of that, and we're more than halfway there. Control in this case means that it goes to our contracted carrier or a carrier that we and the shipper have agreed on is best in that situation. It shouldn't be a turf issue. It should be what is best for both parties.

Q: Every company has felt the effects of the current economic slowdown. At Chesterton, is logistics helping the company get through this time?
A: Yes, certainly. When you manage the supply chain effectively you almost automatically drive out costs. For example, let's say a customer needs a thousand-pound order in Buffalo, N.Y., and they need it there tomorrow. Two years ago, somebody would have hired a company like Robert's Express to make an overnight delivery or would have flown it there at a cost of possibly $1200 to $1300. Today we have an LTL carrier that delivers next-day to Buffalo, every day. So in this particular situation, we have knocked out 75 percent to 80 percent of the transportation cost. And every customer-service person now knows how many days to Buffalo, to Chicago, to Dallas, to Denver, to Los Angeles and so on. We have negotiated all these particular service levels all over the country. In doing so, we drive out reactivity and drive down the type of service we have to pay for because we know, as a matter of course, day-in and day-out, service to Chicago is two days, to Houston three days and so on. That saves money.

Now to your macro question, by doing all of these things - and Chesterton is extremely active now and ex-tremely supportive in the whole supply chain area - we are both improving service and driving out costs. That obviously makes the company more competitive in today's overall financial environment.

Q: Do you ship out of one centralized warehouse?
A: We ship everything out of here [Stoneham, Mass.] We have a few very small satellite facilities that are really company-owned distributorships around the country that ship some things. We also have a warehouse in Antwerp, Belgium, that we feed from here. Some items there are replenished regularly but we don't carry all of our SKUs in that warehouse, so we supplement each container with cross-dock goods - material that will immediately be trucked to destination in Europe. Often, depending on our shipping schedule for particular countries, these orders are combined with material that is physically stored in warehouses in Europe. We try to take advantage of every consolidation opportunity along the way.

Q: What is the biggest challenge you are currently facing and that you expect to be facing in next 12 months?
A: Over the next year, since we do a lot of international shipping, our goal is to stay very much in tune with the new security issues. We will be very close with fewer and fewer forwarders and carriers. We are a 24/7 company, but we have found that if we align ourselves with too many carriers and forwarders, we can do things in hours but one of those other links may drop the ball and we will have shot ourselves in the foot again. So our goal is to improve our participative partner base so that we can rely on them for deliveries both inbound and outbound in today's security-conscious environment. Those are the macro issues because, again, if we have somebody break down and we're 400th in line for the next airplane because we are not a preferred partner, we have failed ourselves and the customer. We want to be important to a few suppliers as opposed to being just another number to a lot of suppliers.

Our biggest current job is compiling useable metrics and expanding the education base of all of our internal customers. By that I mean we want to bring customer service, production, sales and so on up to speed on the supply-chain activities needed to move things through faster and at optimum costs, but consistent with production schedules. I think for the past 50 - or maybe 150 years - logistics has suffered under the mantle of "do it cheaper no matter who it hurts," and our approach is quite the opposite. From an external standpoint, customer service comes first. From an internal standpoint, our internal customers come first, in terms of our working with them to end up with an optimum flow-through situation. We want to be fluid and adaptable, taking advantage of what is happening in the market without driving carriers out of business.

The main words to me are "predictability" and "high profile." I think it is very important to be high profile internally because everybody is not knowledgeable about the supply chain. It's important for people in manufacturing, customer service, quality, human resources, and so on, to know what the goals are and why. It is so refreshing and so positive when non-logisticians and non-supply-chain people come up to you and offer suggestions and offer commentary. My word of advice is not to sell short the knowledge in your internal customer base and not to just stay in a supply-chain world. Internally you need to understand every part of the company - from sales to quality to marketing to manufacturing - understand them and then come to consensus. If you are adaptable within, then driving further costs out becomes much easier and not confrontational.

I have had great success my entire life talking to people, giving them credit for their knowledge, then taking their ideas, tweaking them and combining them with what is best-in-class in each department. That way, you don't end up with just a stew, but with best in class for the corporation. In supply chain, you cannot get to best in class if you are not best in class with your internal customer interfaces.