As the largest food company in the U.S. and the second-largest in the world, Kraft Foods spends a lot on transportation and is always working to improve the efficiency of its transportation operations, which include a sizeable private fleet as well as a network of dedicated and common carriers.
One step Kraft took about two and a half years ago was to partner with Chainalytics for the purpose of benchmarking its transportation rates, says Michael Cole, director of transportation in North America. "We became a member of Chainalytics' Model-based Benchmarking Corsortium. When you become a member, you make your rates visible to Chainalytics on a confidential basis and it provides a benchmarking document that enables you to understand where you are among other members of the consortium in terms of the market."
Since 2003, the Chainalytics consortium has grown more than 1000 percent to include 78 members with over $14bn in transportation spend -- roughly 5 percent of the U.S. for-hire truckload market. Chainalytics uses an econometric modeling approach to transportation benchmarking, enabling consortium members to confidentially compare their unique transportation costs against the broader market, gain insight into the business practices that drive transportation costs, and evaluate the impact of alternative strategies such as deploying a dedicated fleet.
"We use it as a barometer on where we are relative to the industry," says Cole. "Our shipments are pretty service-sensitive, so we would expect to pay a slight premium for that relative to our peer group, but the benchmarking helps us make sure we are where we should be."
Pleased with the results of this effort, Kraft further engaged Chainalytics in the fourth quarter of 2008 to conduct a study to determine the optimal mix of its business between its private fleet, dedicated carriers and common carriers. "We learned that we clearly needed to change the mileage radius we were servicing with our private fleet, because it was too broad of a mileage band," says Cole. "The conclusion was that we needed to stay within a 275-mile to 300-mile radius for these shipments. Anything longer would probably mean that using our private fleet would be more costly than using a common carrier or dedicated fleet. We could see the specific dollar savings associated with that."
Chainalytics also recommended that Kraft lower the tractor/trailer ratio of its private fleet. "It turned out that we had too many trailers in our network to support the number of shipments that we were handling and we needed to reel that in," Cole says. Since receiving these recommendations, Kraft has taken out about 300 trailers, reducing its trailer/tractor ratio from around 3.75 to 3.
Another recommended strategy was to contract out fleet maintenance rather than keeping it in-house since that was not a core competence at Kraft. "We have done that at a number of our facilities," Cole says.
The next stage of Kraft's partnership with Chainalytics involved having the consulting firm do some network overlays with other retailers or non-competing manufacturers to look for areas where there were opportunities for each company to take out empty miles, Cole says. One example of collaboration that emerged from this analysis involved a large grocery retailer that Kraft serves. This company's biggest refrigerated carrier, Martin Transportation, was also a top-five refrigerated carrier for Kraft.
"Looking at our network and their network, we were able to put together some continuous moves that involved three origin and destination pairs," says Cole. "We were able to have a Martin truck essentially run in a continuous circle." The companies also convinced Martin to put lightweight equipment on that lane so they could haul more weight. "Martin has some equipment that actually allows us to haul 49,000-pound loads rather than the traditional 44,000 pounds," says Cole. "So we developed a continuous movement between both our networks and used lightweight equipment to get even more efficiencies on that lane."
Similar collaborations with several other retailers and CPG companies have been completed or are being evaluated. "If it happens that the other party also is a member of Chainalytics' benchmarking consortium, then all the transportation information needed to do the analysis already is within the Chainalytics database," says Cole. "They operate as a clean room so we can't see each others' rates and everyone signs a non-disclosure agreement, so there is a high level of comfort."
Taking out miles clearly results in monetary savings, but such arrangements also provide soft benefits, says Cole. "Whenever you do these lane matching events, especially with a retailer, there is a clear benefit to the relationship because it leads to other dialogs. We might be able to talk with them about redesigning their fuel surcharge program or designing a sustainability program. If they are not already actively involved with SmartWay, the EPA voluntary program to reduce emissions, we might help them get hooked up with that. Once you start having these kinds of conversations, they tend to lead to other things."
Cole describes Chainalytics as an "approachable" consultant that is "very good at talking the language of transportation." Perhaps most importantly, he says, they listen. "There are some consultants that might try to force you down a particular path, but that might not always be the best way to get to the end result. Everyone wants to drive productivity, but if a consultant's conclusions and recommendations are going to be very disruptive to the organization, then maybe there is a different way to get there and realize the same dollar savings."
Chainalytics is very open to discussing alternatives "without bullying you down one particular path," he says. "To my mind, that means they have a better chance of bringing the organization to the finish line and hitting the productivity targets, which is why you hired them in the first place."
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