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Navistar's ambitious plans to expand in the market were threatened by its highly compartmentalized logistics operations. With a shared approach to cost and profits, Menlo Worldwide Logistics is fixing that, and saving the manufacturer a bundle.
Officials running a $15bn company that's more than 100 years old could be tempted to think that all the expertise they might ever need should reside right inside their enterprise. In essence, outside help need not apply. Fortunately for Navistar International Corporation, executives were broad-minded enough to avoid that pitfall when they discovered some shortcomings. Some 20 years after Navistar emerged from the International Harvester Company, officials looked around and saw redundancies and siloed logistics programs. And they reached out.
Navistar brought in Menlo Worldwide Logistics after a selection process that winnowed out eight other suitors. The task before Menlo is no small thing: It's charged with helping to chop overall logistics spend by 25 percent in five years. Prospects are indeed bright, says Neal Cunningham, Navistar's manager of supply chain engineering. The relationship got under way in 2008. Target date is 2013, and savings amount to 11 percent already. In Cunningham's view, the so-called Strategic Collaboration Model that his company and Menlo devised is definitely working.
That model mandates a strategic, higher-level relationship to bring the two companies together to achieve extraordinary levels of collaboration and change, Cunningham says. It means instituting and embedding into the management culture lean principles and processes for continuous performance improvement and efficiency gains. Under the model, Navistar should improve its integration with business partners (existing and new suppliers, joint ventures, acquisitions) to reduce waste and total landed-cost (and those of its partners) and develop more collaborative functional business processes that drive value.
Creation of the model itself was preceded by the realization that Navistar's expertise was not in logistics. "Our strength is in making stuff," Cunningham says. And that it does. Navistar is a holding company that owns the manufacturer of the International brand of commercial trucks, MaxxForce diesel engines, IC Bus school and commercial buses, and Workhorse chassis for motor homes and step vans. It's also a private-label designer and maker of diesel engines for the pickup truck, van and SUV markets. The Monaco RV division is another one of its business units. And it provides truck and diesel parts and service. In addition, it has a network of approximately 1,000 dealers in North America and Brazil, and more than 60 dealers in 90 countries.
It goes without saying that logistics is a major concern for Navistar, and the situation that Menlo stepped into was complex. Traditionally the company was focused on North America, and its logistics divisions operated independently.
The innovation brought to the relationship between Menlo and Navistar was in gainsharing, says Cunningham and Jeff Rivera, director of operations for Menlo. The Strategic Collaboration Model requires adoption of a shared strategy with shared rewards driven by clear, common objectives. Within that framework the duo combined the industry and domain expertise of the in-house logistics department with the outside knowledge and "inter-discipline best practice experience" of a logistics services specialist.
Sounds great. So what happened? Five areas saw major changes. In engineering, total landed-cost models were formed and an engineering simulation suite was installed. In procurement, a core carrier program was launched; operations saw an enterprise-wide transportation management system launched, and metrics and balanced scorecards were rolled out, training of employees is ongoing, knowledge transfer is progressing, and there is a clear alignment to strategic goals; finally, program governance and stakeholder alignment is in place, standard templates have been created, 10-plus kaizen events have been conducted, and a visual lean war room has been utilized.
More specifically, the 19 or more projects that have been launched are expected to yield validated annual cost savings in the millions of dollars. They've already generated a 5-percent reduction in annual logistics expenses, meaning the goal of a 25-percent cut in logistics spend by 2013 is well within reach. In addition, the team has built "foundational logistics capabilities" in the areas of network analysis and planning, sourcing and contract management, network execution, performance compliance and monitoring, and infrastructure.
Look at how Navistar used to do things before Menlo entered the picture. It operated its supply chain across three siloed business units - truck, engine and parts - working with any number of carriers and third-party logistics providers depending on the scope of services required. In analyzing its total logistics spend in LTL, truckload, parcel, 3PL and other areas, Navistar found its internal logistics capabilities were unable to support corporate goals.
Navistar had no global visibility into inventory at rest or in motion, it lacked effective metrics to measure supply chain performance, and it had no systems and processes to identify failure points throughout its extended supply chain.
All this when the company's business strategy called for market expansion and enhanced product value and customer satisfaction. Once Navistar decided to go outside, in the second quarter of 2008, it issued a RFI to a number of providers.
Under the Strategic Collaboration Model, some Menlo team members worked at Navistar and vice versa. Short-term solutions were immediately applied to some obvious weaknesses. Such "quick wins" broke down internal barriers within Navistar and provided incentive for additional collaboration and goal achievement.
In addition to contending with a lack of speed, flexibility and cost competitiveness in the market, Navistar did not have a strategy to integrate and optimize the use of its logistics partners, Cunningham says. As an example, if a supplier approached Navistar with a suggestion about reducing its costs - savings that could be passed on to Navistar - there was no internal process to manage and implement that change.
Navistar clearly had to reveal its vulnerabilities and remain open throughout the multi-year transformation process. However, by swapping employees, Navistar could position itself in the thick of the process. "This is a truly unique dynamic and one that's paramount to our model succeeding," Rivera says. "Our groups are so closely tied into each other that those exposed to it are surprised when they can't distinguish a Navistar employee from a Menlo employee. It's a powerful way to introduce new tools and expertise - the team is seamless."
The one-for-all and all-for-one approach is quite an incentive for the 3PL, Rivera says. Menlo is paid only if its client realizes real, bottom-line savings. Moreover, Menlo recovers its own substantial operating costs if Navistar obtains savings and profit. Savings, incidentally are validated by a jointly operated finance team.
The future is not uncertain, in the partners' view. When you have skin in the game, you work to make the initiative succeed.
Menlo Worldwide Logistics, www.con-way.com/en/logistics
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