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The question came out of the blue. Bill Pollard, vice president of customer service and transportation with Del Monte Foods Co., was on the phone with a representative of The Hub Group, one of his major transportation providers. In the course of a "normal, touch-base call," Pollard happened to ask whether Hub had done any continuous-loop routing, utilizing intermodal services, on behalf of its other customers. Thus began a major initiative, crafted by Hub exclusively for Del Monte.
Pollard was accustomed to sounding out his vendors for ideas on how to improve service and cut costs. "As part of our carrier strategy," he says, "we specifically state that we value the insights that our carrier partners can bring us. A lot of times they can see opportunities from their perspective that we might not be able to see."
Back in February 2008, Pollard was thinking about how he could better deploy Del Monte's extensive transportation network - with $3.2bn in net sales last year, the company is one of the nation's largest sellers of branded food products - to drive efficiencies in the supply chain. So he let the Hub Group take a look at the company's data.
A couple of weeks after that phone call, Hub came back with a proposal. It saw three or four opportunities to capture intermodal equipment in high-volume, closed loops, Pollard says. Based on how effectively Del Monte could turn the equipment, there was the potential for big savings.
Hub started with the simplest of the opportunities that it had identified. Del Monte has a pair of pet-food plants in eastern Pennsylvania and northern Alabama, with only partial overlap between products. The vendor proposed to set up a loop whereby canned pet food would move southbound over the rails, from the Pennsylvania plant to a Del Monte distribution center in Atlanta. Then the equipment, consisting of 53-foot containers, would travel empty to Alabama, where they would be reloaded with dry pet food destined for a regional DC that is attached to the Pennsylvania plant.
Hub's project manager visited each of the sites, working closely with Del Monte's manager for intermodal transportation. In the process, they were able to shift some of Del Monte's over-the-road business to cost-efficient rail. "Mode conversion was one of the things we talked about early on," says David Marsh, chief marketing officer of the Hub Group in Downers Grove, Ill.
In devising transportation strategy, Del Monte managers have four basic "levers" at their disposal: rate, utilization, miles and mode. The program with Hub Group is "a great example of our being able to pull that mode handle," Pollard says.
The first loop went live in August 2008. Hub subsequently implemented three additional ones, each involving two-way transport between Del Monte plants and DCs within the U.S.
Tight scheduling and coordination was necessary to make the system work, says Pollard. Intermodal has been criticized for lagging long-haul truck in terms of service quality, but that wasn't a problem in this instance. Hub told Del Monte how fast it needed to load and unload containers to make the system work. It keeps detailed data on the movement of trailers between rail ramps, reviewing the statistics in concert with Del Monte every two weeks. "They have continued to drive down the dwell times and increase the number of boxes each month," says Pollard.
In fact, Del Monte initially built too much slack into the program. Ramp-to-ramp times in the first loop proved "extremely consistent," Pollard says, and were only about half a day longer than truck. The company has since removed the extra day of transit from its planning process.
Closer to home, Del Monte got full cooperation from its own inventory planners, who were instructed to allow for more intermodal shipments. "I thought we'd get some pushback from them, but they were great," Pollard says, adding that the modal shift turned out to be "a non-issue."
Hub works directly with the railroads to ensure reliability from that end. Marsh says the rails have significantly increased their service levels in recent years. "They're continuing to invest billions in their infrastructure, and we're seeing the benefits of that." Hub also drew on its long-time status as a major customer of the railroads, booking significant amounts of dedicated intermodal equipment throughout the country.
The system works even with the complication of independent logistics service providers running some of Del Monte's DCs. "Even though it's the third-party's employees in the building, they're still managed by Del Monte managers and directors," Pollard says. "They are every bit as dedicated."
The biggest challenge lies in balancing equipment at points of origin and making sure that it flows smoothly. Marsh says Hub focuses on scheduling inbound appointments and getting all participants to work together. "In the early stages, it was a design issue," he says. "The implementation stage was far more of a coordination issue."
The program has resulted in a significant six-figure savings for Del Monte on an annual basis. The benefits start with the lower freight rate for most intermodal services over truck. Even on legs where the truck rate is less, Hub has been able to equalize the cost, he says. Further gains have come from reduced fuel consumption and better utilization of transportation assets.
The program has expanded beyond pet food to include canned fruit out of California and vegetables in the Midwest. Now, Pollard says, Del Monte is talking with Hub about adding some of its chilled products, which constitute a relatively small but growing portion of the company's overall business. The partners are meeting on a quarterly basis to discuss new opportunities, and have already identified a candidate for a fifth loop, which could commence this summer.
The two companies continue to work closely together. Says Marsh: "We've formed a joint team that has really knocked down any issues that have arisen, and made the whole program a success."
The Hub Group, www.hubgroup.com
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