Having just enough inventory on hand to feed a hungry production line maximizes the need for on-time deliveries. It goes without saying that you can save a lot if you don't have to tie up valuable warehousing with supplies, but you can lose a bundle just as easily if you have to expedite inbound materiel at high cost because you didn't have what you need on hand.
Shelby Foam Systems knows something about achieving this delicate balance. Located in Shelby Michigan, the company is a division of Magna Seating, one of the word's largest manufacturers of seating systems for the global automotive industry. Magna supplies not just the seats but the entire seat assembly, including the support structures and sliding mechanisms, for cars, vans and trucks made by most major OEMs.
For its part, Shelby Foam Systems acquires the foam and Velcro used in seats, which it assembles and ships to its client, Magna Seating. The foam padding come from a plant in a remote corner of Arizona, the Velcro from a supplier in Georgia.
Like most manufacturers, Shelby was challenged to manage freight costs for the components shipped from across the country. Beyond that, occasional shortages in orders threatened line-side productivity. Its relationship with one of the larger carriers had not produced the savings nor the reliable tracking hoped for.
In February 2011, Shelby partnered with ICAT Logistics Inc. of Elkridge, Md., when it offered a way to stay on top of transportation costs and to monitor shipments of ordered materials. Shelby and its parent were interested in ICAT's LTL Optimizer, a software program that gives clients comparisons of different shipping rates. "ICAT gave us a clear road map of all the ways we could save business costs by using them as a logistics partner to get materials to our plant," said Aaron Pallas, materials manager at Shelby Foam Systems. ICAT assigned a specialist to handle the Shelby business, and to network with suppliers to more closely track potential shortages - and find ways to address them.
"Inbound for materials in a timely and efficient manner and control of what was shipped - that was the challenge," says Scott Gunaca, business development manager for ICAT Logistics. "Sometimes suppliers shipped shipped less than what was ordered, which could create line shortages. Our job was to clean that up for them."
Since starting with ICAT Logistics, Shelby has reduced its freight costs more than 35 percent, as of July 2012 - from $65 per $1,000 worth of component material shipped to $44 per $1,000.
That 35 percent translates into $105,000 in transportation cost savings over the first 15 months of working with ICAT, compared to charges resulting from working with the previous carrier. Recently, ICAT also negotiated with one of its partner carriers to discount Shelby's rate for one of their supplier lanes an additional 10 percent, representing a projected savings of another $20,000 for the next 12 months.
Because Shelby's shipments are often lightweight, and because they ship as bulk products that are measured in weight, the extra volume can incur additional charges. ICAT has helped Shelby strategize ways to reduce freight costs in this area as well.
"The delivery rate is wonderful," Pallas says. "And with the clout that it has - so many lanes going to a given place - it can get better rates."
Besides dramatically reducing costs, ICAT has successfully ensured there won't be any line shortages. ICAT's specialist keeps constant communication with Shelby's two largest suppliers, identifying the specific amount of materials that will be available to ship, and when those components are to be shipped. In the ongoing flux of supply and demand, when an emergency need arises that requires more than is available at line side, ICAT intercedes by expediting only what is needed - sometimes stopping shipments that are en route to expedite only the required number of pallets.
When Shelby discovers an urgent need for a certain material, even if it is on its way, ICAT has found a way to "selectively expedite" the portion of the shipment needed. This ability to waylay a shipment and have it sorted has saved the company thousands of dollars, according to Pallas. "They'll break up the shipment and just expedite the critical materials," he says.
Quite aside from expedited shipments shipments, routine inbound of foam padding that used to take six days from Arizona now arrives in four. Faster delivery of orders means less chance of complications that will interfere with production, Pallas says. Before ICAT assigned its expert to oversee freight and supply inventory, an employee at Shelby performed that service. Now, the materials coordinator's time is freed up for other assignments.
In addition to freight shortages, damaged items can be problematic. "When we've been unhappy with a certain carrier's services, ICAT has been instrumental in helping us get problems like damaged freight resolved. Recently, we've been working with ICAT to make sure our shipments arrive intact, after we had problems with heavy pallets being placed on top of ours. Because ICAT represents more than just one company, they have more clout in resolving issues like these," Pallas said.
The bottom line is that ICAT will have saved the seating manufacturer at least $160,000 in transportation costs in less than two and a half years. That kind of hands-on attention was missing with the previous carrier, Pallas says.
There were times when the materials coordinator would try to check the status of a shipment online, only to get a message that the previous carrier's web site was not currently tracking a shipment. "Now, if there is a problem, rather than having to dig into it ourselves, it's been taken care of by someone doing the legwork behind the scenes. We know that [the ICAT employee] will correct the situation, and we don't have to worry about it," Pallas said.
For his part, Gunaca thinks one of the biggest benefits ICAT brought was improved communications. He feels that has saved money in so many ways. Likening the big players in logistics services to the army or navy, Gunaca says ICAT is more like the special forces. "And if an error does occur, we can fly right in and take care of it."
Keywords: supply chain management, transportation management, 3PL, third party logistics, logistics management, logistics & supply chain, logistics services, sourcing solutions
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