Fompanies are deriving immense value from overhauling their supply chains. But big savings can also be achieved through partial solutions.
Over the years, Whirlpool Corp. has taken a relatively cautious approach to outsourcing. At a time when others are shifting the whole logistics function to a single third-party provider, Whirlpool continues to spread the business around.
The pieces, however, can be huge. The world's largest manufacturer of major appliances, Whirlpool leads the market in the United States and South America, and is among the top three producers in Europe. In addition, it is the largest western manufacturer in Asia, according to Steve Whalen, director of supply-chain operations.
Historically, the domestic freight and warehousing program has been divided into three parts, of which Ryder Logistics handles two: raw materials and components into assembly plants, and finished goods direct to the largest trading partners and regional distribution centers. Both areas are mostly served by common carriers.
A third program, known as Quality Express, includes the management of eight regional distribution centers and a network of approximately 60 cross-docks around the country. Primarily a channel for Whirlpool-branded appliances, Quality Express accounts for between 25,000 and 30,000 units a day - roughly 40 percent of the company's total U.S. volumes. It primarily uses a dedicated fleet, with some common carriers.
Up until two years ago, responsibilities for Quality Express were split between two parties. ERX, a joint venture of Elston- Richards Inc. and Mark VII, oversaw six of the regional DCs. The remaining two, in Atlanta and Orlando, were managed by Kenco Logistics Services (KLS). Transportation out of all eight regional locations was handled mostly by Whirlpool's private fleet.
As one part of an overall distribution strategy, Whirlpool set forth to transform its private fleet into a dedicated operation managed by an outsider. Gone was the willingness to bear the cost of maintenance, equipment financing, driver wages and insurance, in exchange for the security of in-house control. "Our bid included the desire to get trucks and trailers off our books," says Whalen.
The plan didn't stop with 450 tractors and 1,200 trailers. Whirlpool saw the chance for further economies by consolidating warehouse operations within the Quality Express network. That, too, went into the bid package that was distributed to a number of third parties.
The winner was Penske Logistics of Green Hills, Penn. Whalen says Whirlpool was attracted by Penske's up-to-date information systems, its potential for achieving better economies of scale, and competitive pricing. Most of all, Whirlpool was convinced that Penske could deliver the same level of control and more flexibility, minus the headaches caused by day-to-day management of a private fleet.
Many companies fear outsourcing because of the temporary chaos that results when operations are shifted from one party to another. Penske minimized the disruption by keeping much of the old network in place. It purchased ERX, manager of six of the regional DCs. The Atlanta and Orlando operations were subcontracted out to KLS, the incumbent in those cities. As a result, says Whalen, the basic workforce at the DCs and cross-docks remained the same, and the changeover occurred with a minimum of glitches.
One thing that did change was Whirlpool's logistics information systems. Prior to the new contract, the company had been developing software for hand-held personal data assistants, in order to collect electronic proofs of delivery and information on product damage. That technology, along with Whirlpool's existing warehouse management system, was handed over to Penske.
For its part, Penske contributed four systems to Quality Express: a logistics management system (LMS) to track shipments at the order level on a real-time basis, a route optimization system known as Route Assist, communications software from Qualcomm, and Penske's license for the use of a common-carrier optimization system from ITLS, part of i2 Technologies.
All of those elements were integrated into Whirlpool's new ERP system, acquired from SAP AG shortly before Penske was chosen to oversee Quality Express. Whalen says Penske helped Whirlpool to cope with the usual start-up problems arising from the massive ERP implementation.
The Penske contract brought Whirlpool early benefits in the form of greater flexibility. Up to 30 percent of its dedicated fleet is composed of interim equipment that can be adjusted for fluctuations in volume, says Ray Russell, Penske's vice president of operations.
A large amount of the product moving through Quality Express goes to home builders. The company also delivers directly to occupied homes. In both cases, drivers are frequently required to perform installations. Whalen says Whirlpool's customers, large and small, are becoming more demanding about on-time delivery and the quality of installation services.
Whirlpool's affinity for outsourcing doesn't stop at the U.S. border. Over the next two years, the company expects to get its third parties more heavily involved in international logistics, both for import/export and in-country operations. "It makes sense to leverage our relationships as much as possible," says Whalen.
In the meantime, Whirlpool is putting the finishing touches on information systems that control domestic distribution. According to Whalen, they don't yet provide the level of detail needed to operate at full efficiency-a goal that should be reached by the end of this year. At that point, he says, "we will have data we only dreamed about five years ago."
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