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The global consumer-packaged-goods manufacturer Unilever has a long and well-established presence in Brazil, where four factories produce a variety of brand name home and personal care items under the corporate name Gessy Lever. For many years, a decentralized distribution system with numerous warehouse facilities served this market well. In 1997, however, Gessy Lever began to notice the impact of supply-chain improvements being adopted by its customers.
"Our key accounts were beginning to ask for different services and delivery alternatives," says Alejandre Eboli, solutions development manager. "For example, the French retailer Carrefour was starting to route all of its deliveries through a central warehouse, so that we delivered to the warehouse instead of to each of their stores. This meant that a good part of our volume that was positioned in cities far from our plants would now be moving to a single, different location and requiring specialized service."
Another example he cites is a local retail chain that began requiring Lever to re-palletize all the product it shipped. "And there were many other examples, such as customers wanting scheduled deliveries during specified windows, EDI transaction capability and so on."
In addition, customers were expressing dissatisfaction with Gessy Lever's order fulfillment rate. With Lever's 26 warehouses being stocked based on sales forecasts that often were at variance with actual sales, the company too often had product in the wrong place, Eboli says.
These issues, he says, "drove us to look for some new logistics models and different distribution solutions."
During this evaluation, one of the first decisions taken was to combine the previously separate distribution networks of Gessy Lever's two business units: home care products and personal care products. The two had been separated in the early 1990s, Eboli explains, because their product and business profiles were quite different, with home care having very high, fast-moving volume and personal care having low, slower-moving volume but with rapid growth. After separation, the two units had developed completely different distribution networks with separate DCs and management. Gessy Lever believed that by re-joining the two distribution efforts the company could gain efficiencies and improve service.
At approximately the same time, Gessy Lever decided to outsource its combined home and personal care (HPC) distribution in a project that would include a total network redesign. Its goal was a solution that would significantly improve operations in the short term while ensuring continuous improvement in coming years.
Exel Logistics was tapped as the outsource partner for this job after a selection process that involved several competing proposals. In its favor, Exel already had a longstanding relationship with Unilever in the U.S. and Europe and, more recently, in Mexico. It did not, however, have any operations in Brazil.
While this clearly created challenges, Exel saw a tremendous opportunity in an area the company had targeted for growth - southern South America. "We generally have our sights on Argentina, Brazil and Chile, and this gave us a really great entry into Brazil, which could be the jewel in the crown," says Joe Puelo, Exel's vice president, operations, Americas. "Brazil is by far and away the largest economy in South America and the largest consumer country, so this not only represented an opportunity with a big customer, it represented an opportunity with a big customer in a key marketplace."
Having no existing facilities or experience in Brazil added to the difficulties of start-up, however. "It is a long plane ride between Brazil and our base of operations [in Columbus, Ohio], so there were some difficulties just because of sheer distance," says Puelo.
"This not only represented an opportunity with a big customer, it represented an opportunity with a big customer in a key marketplace." - Joe Puelo of Excel
And in the beginning, language and cultural differences created some roadblocks. Both Eboli and Puelo recall a meeting early in the process in which the Brazilian team expressed "disappointment" with Exel's performance. "Here in Brazil, 'disappoint' is not such a hard word," says Eboli, but the Exel people took it to mean Unilever was not happy with the way things were going. "What they were really saying is that what we were doing was not exactly what they wanted," Puelo says. "There were a few instances like this but the Brazilians' English is very good and we pretty quickly worked out our communications issues."
Working out some of the commercial issues was more trying. In addition to having no practical experience in Brazil, "this was a very large and complex project," says Puelo. "What we were talking about was completely redesigning the network, combining two companies into a single supply chain, constructing a large facility with some features that I think are unique to the Brazilian marketplace, and bringing in a new system with new functionality to manage the whole thing."
The bottom line is that Exel had a lot to learn relative to the legal aspects of doing business in Brazil, he says. "The whole commercial and contractual issues were far more complicated than I think any of us would have initially suspected."
That's where the depth of the partnership came into play. "We really worked as a two-company team," says Eboli. "Exel provided a lot of expertise and really drove us, but the people at Gessy Lever helped a lot in providing local knowledge and information about the rules of the game here in Brazil. I think that one of the key learnings that we are taking from this process is that there is a kind of two-way knowledge growth that occurs. When we called on Exel to be our partner, we were looking for a lot of expertise, but we could never forget that there are a lot of local points and a lot of specifics on the Brazilian market that we had to add to Exel's knowledge. And this sharing of knowledge, I think, created the right kind of environment for sustainable long-term growth."
Puelo strongly agrees. "I've got to tell you, this got really difficult and we had some very tough times," he says. "But at no point in time did anybody from Exel ever have the slightest concern or suspicion that Unilever was absolutely and completely dedicated to both this project and to Exel as a partner. So even through the toughest of times we knew we had an honest-to-goodness partner and we continued to work in a team-based way to overcome every hurdle that came along, and sometimes it seemed like there was nothing but hurdles."
One illustration of both these points came during the designing and optimizing of network product flow. Exel initially failed to take into consideration customer preferences that were based on the peculiarities of certain tax laws. These laws make it advantageous for a customer in one Brazilian state to have the products it receives originate in another state. "Exel had done a great job but we had to ask them to go back and make changes to meet customer expectations due to these taxation issues," says Eboli.
The first phase of the project focuses on the central region of Brazil, an area that covers approximately 500 kilometers around Sao Paulo, Brazil's largest city. This region includes Gessy Lever's four plants and 80 percent of its sales volume.
At the heart of the central network is an 800,000-square-foot Master Logistics Center (MLC) in Louveira, located northwest of Sao Paulo and near the plants. Exel managed the site selection and acquisition for this facility through its real estate services group. The company also provided construction management services, leasing back the facility from the developer after construction was complete. The MLC began operating in October.
In addition, the network includes three merge- or cross-dock facilities (in Rio de Janeiro, Marilia and Curatiba), three integrated distribution centers and one regional distribution center, all of which will be managed by Exel.
Each facility plays a specific role in the network. The MLC receives slow-moving products from Gessy Lever's four plants, products manufactured by third parties, and all imported products. It also has the additional role of serving as the DC for Sao Paulo City.
Fast-moving products are forward deployed to the three merge-dock facilities direct from the plants, generally via full truckload shipments. Slow-moving SKUs are transferred overnight from the MLC only when an order requiring them is received. The merge-dock is designed to efficiently combine the fast- and slow-moving products into a single order for delivery.
The integrated distribution centers will distribute full, palletized truckloads of fast-moving product directly to customers. They also will replenish the MLC, the merge-docks and regional distribution centers outside the network.
Puelo declines to name the software being used to run the network, but says that it is RF-based and will manage activity at the MLC, the merge-docks "and the interaction of product flow in between." The MLC is not highly automated, however. "The profile of our operations does not require a lot of bells and whistles," says Eboli, noting that most movements are of full pallets. He adds, however, that Exel has introduced new processes inside the facility "that already have contributed a lot" to improving operations.
When the MLC opened, Gessy Lever closed its largest warehouse and five satellite warehouses. Other closings will occur as the new network continues to be implemented.
"The best feedback we have from the implementation that began Sept. 20 is that everything has continued to run OK," says Eboli. "This is very important because in addition to all the innovation we are bringing, the business must continue to run and we have to keep shipping." Full implementation is expected to be completed in December 2001.
It is too early to have any measurable results from the network redesign, but Eboli says he fully expects to realize stock reductions and improvements in order fulfillment. "By centralizing product at a single point close to our plants, close to our biggest consumption area of Sao Paulo and close to the merge-docks, our fulfillment rate will increase significantly, which addresses the most relevant feedback we were receiving from customers."
In addition, he says, "we already have in place a transportation strategy that uses a dedicated hauler to make runs between our plants and the MLC in a broken loop system, which is working very efficiently." A second hauler delivers to Sao Paulo City and that system also is working well, he adds.
From Exel's perspective, Puelo says there were many lessons that the company may apply to other accounts and other geographies. "I think we developed a pretty neat way of dealing with the issue of sourcing capital assets in Brazil that may have application in other parts of the world," he says. On the Gessy Lever project, he explains, Exel worked with a third-party financial organization to arrange funding for the purchase of capital assets in such a way that neither Exel nor Unilever had to declare those assets on their respective balance sheets. "The proof will be in the pudding, but we are working that angle right now" with another account, he says.
Exel also hopes to leverage its foothold in Brazil with other clients, most likely by applying a campus strategy that will enable similar manufacturers to share warehouse and transportation resources. "Through our increased presence in Brazil we are able to create opportunities for other manufacturers who want to penetrate this market," says Puelo. "Brazil represents a major opportunity for consumer products manufacturers."
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