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It stands to reason that when you're shipping a huge amount of cargo from multiple sites in Asia into Europe for distribution to hundreds of stores, you want to contain ocean carriage charges as much as possible. Careful carrier and lane selection can help you with that, of course. But sometimes there's more at stake than simply cost reduction. You may import all year long, but when the vast bulk of your business - and transportation spend - is during the Christmas holidays, it's critical to have relations with carriers you can rely on at such an important time. Strategic allocation of your ocean transportation during the year can give you that guarantee that you will have the capacity you need at those crucial times and at a cost beneficial to you.
Primark is a clothes retail chain with some 235 stores in the United Kingdom, the Netherlands, Germany, Spain, Portugal and Belgium, as well as in Ireland, where it is headquartered. Much of its apparel, sourced from a number of places in Asia, is budget priced. Its line of apparel consists of simple designs and fabrics in the most popular sizes, which Primark purchases in huge bulks and varieties.
The chain first opened in 1969, but had spread to England within four years. Growth since then has been dramatic, with turnover estimated at about $4bn, says Martin White, the company's supply chain director. He figures that puts Primark among the top 200 retail companies in the world. And one that has a pretty hefty price tag associated with the transportation needed to supply stores in seven countries. At around 50,000 TEUs, yearly container volume is fairly substantial. Ocean freight alone costs the company more than $100m a year. So efficiencies are clearly desirable.
"We are a volume supply chain," he says, "so everything has to be low cost." As a part of achieving that, China, Vietnam, Bangladesh and India have been major suppliers of the items that find their way to Primark customers in Europe. "Our challenge is and always has been, how do we get the best cost, in this case, in freight? We ship FOB from our supplier to our distribution centers in Europe, and we match that with sensible transit times. But the volatility in ocean freight in the last three or four years has been absolutely crazy, and continues to be."
Nevertheless, the company's shipment volumes kept growing, and so did the complexity of Primark's sourcing process. The cost of labor in China was a major driver in the search for alternative sourcing. What had been attractive about procurement there changed as Chinese labor costs rose in the last few years. Enter Bangladesh and Vietnam, and then, India, as either alternative or additional sources of supply. Obviously, the multiple points of origin complicated not only sourcing but shipping and its cost. "So market rates for shipping were all over the place," White says.
And in a manner of speaking, so was cost-effectiveness. With such a substantial transportation cost outlay, Primark wanted a better deal. It was satisfied with its third-party logistics services provider, but the 3PL's tool was really only good for capturing carrier bids and making comparisons. It couldn't handle optimization scenarios, White says. "Have I optimized my freight rates from origin this week, this month, this year? It couldn't tell me that."
Then, in a bit of serendipity, White learned from an officer at Associated British Foods, Primark's parent company, about CombineNet, an advanced-sourcing solutions provider. "They were already using CombineNet on a trucking piece, and we said this could be quite useful for us and agreed a trial."
CombineNet's ASAP product - or Advanced Sourcing Application Platform - is a Software-as-a-Service solution that's utilized in several verticals, including consumer packaged goods, food and beverage, manufacturing, retail, automotive, and government, not to mention in transportation and logistics.
The previous system gathered quotes from the market, but couldn't handle the complex allocation to the carriers. "They realized they really couldn't tell the carriers how many TEUs they could commit in a week," says Jason Smith, director of professional services at CombineNet. In fact, Primark was already well into analysis with its old system and had finished round one of bidding when it learned of CombineNet, Smith says.
Primark's challenge was twofold, as Smith sees it. First, its allocation process was unsatisfactory in a number of ways, including instances when product was left dockside because it didn't have a carrier lined up. Second, it wanted to keep its carrier partners in sync with its needs so that when its peak shipping season arrived in August, there would be no issues with transportation. It was imperative that Primark be able to commit weekly business to carriers so the retailer could in return have a commitment from them during the run-up to the holiday shopping season.
In early 2011, Primark ran the solution in parallel with its previous methodology, including spreadsheets. White says he and his team devised some highly complex rules involving carriers and lanes. Scenarios that used to take a long time to answer were done in minutes.
"It enabled us to say, for instance, this is the carrier you should be able to give freight to from a given port and at such-and-such rates."
Were he to do it over, White says he would cut back on the rule-making. "We got carried away with the rules because the solution could take quite a few into account. So we learned to focus back on the three or four that really made a difference. It's not an operations tool but a procurement one."
In future, the two companies may develop their partnership even more, possibly even to include operations. Clearly, refinements to the bid-and-auction process will continue to be made each year, says Smith. CombineNet has already saved the retailer approximately two and a half percent of its transportation spend, about $2.5m, and it has gained tremendous visibility into its supply chain that it had not experienced before. But the parties will at least explore operations, White says. "That's our next challenge - to see how we can get real grip on that."
Keywords: Ocean Transportation, Transportation & Distribution, Third-Party Logistics, Global Logistics, Logistics, Transportation Management, Technology, reliable ocean transportation partners, allocating ocean carriage business, ocean transportation management
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