Masao Nishi, vice president of supply chain management at Sysco, says the company decided to centralize this function in Houston to take costs out of the business and to allow Sysco to leverage its considerable volume. "There were clearly economies to be gained by managing this in a centralized fashion rather than separately at 70 different business units," he says.
There also were challenges to overcome. "Telling each operating company that some of its responsibilities would be moved to a corporate office took some getting used to," Nishi says. "Some thought we were trying to fix something that was not broken, and the fact is the system was working just fine. Each operating company had an experienced logistics manager who knew Sysco, knew the carriers and got good rates and service, but overall it was a classic case of sub-optimization. We had 70 operating companies, each with optimized logistics, but we were missing the broad-picture opportunities that could be available to the business as a whole."
The project took about three years and is now mostly complete, Nishi reports. The first year was spent in planning and the following two years in bringing each operating unit into the centralized operation. "At first we moved the operating companies one at a time, with six weeks between each move," says Nishi. "Toward the end, we were bringing in two companies per week."
Sysco has realized many benefits from this consolidation, including a reduction in its carrier base. "By aggregating volume among fewer carriers, we are able to work more closely with our carriers and manage that whole side of the business better," Nishi says. The carriers also benefit from dealing with only one buyer and by getting a picture of Sysco's entire network. "In some cases it turned out that the business they were handling for Sysco was okay from their perspective, but that they really would rather have a different piece of the business, so it was a win/win situation. If the carriers get to do what is better for them, we also get what is better for us in terms of service and rates," he says.
Before the change, Sysco had well over 1000 carriers and is now at around 350. "That number will probably go down a little more but not a lot," says Nishi. "We move a lot of refrigerated and frozen products, which means dealing with a lot of smaller and mid-sized carriers, so we will always have quite a few."
Sysco also has realized savings through cross-docking. "Now that we can aggregate volume, we can take full truckloads from a supplier, bring them to a cross-dock, mix the freight and take full truckloads out to an operating company," rather than sending smaller shipments to the operating units, he says.
Centralization also has enabled Sysco to increase the percentage of inbound freight that it controls from around 51 percent to 56 percent. "We don't pick up unless it is good for us, but we want to increase that percentage as much as we can," says Nishi. "Every time we control the freight, we save money," he says, noting that the new structure has enabled the company to increase its savings in this area by 15 cents per case.
