While manufacturers are often keen to stress their ability to monitor their supply chains and logistics to achieve the best cost and efficiency, many tend to leave much of the execution and administration of this to third-party logistics providers, from carrier management, warehousing and freight purchasing to transport management systems (TMS). To run such functions in house, the advantages of greater control and reducing third-party administrative costs must balance the need to command competitive rates and achieve quality logistics management capabilities and geographic reach.
One tier supplier that has successfully expanded its in-house logistics services is Meritor, based in Troy, Michigan, about 20 miles (30km) from Detroit. The company’s corporate logistics team integrates a range of services for production parts and aftermarket logistics that might otherwise be outsourced to 3PLs, including warehousing, network and transport management. The capabilities employed by the company’s corporate logistics team, particularly an extensive, Oraclebased TMS, are also integrated with an in-house 3PL, Meritor Logistics, which serves Meritor’s service parts logistics as well as other companies.
Along with integration, Meritor still uses at least one external 3PL to gain scale for its transport purchasing, while of course carriers do the physical transport. But thanks to its in-house data and monitoring capabilities, Meritor is largely able to reduce logistics costs and maintain freight rates. It is not that the company is free from 3PLs and logistics providers, but rather, as John Hite, director of commercial vehicle systems, logistics and packaging puts it, the supplier is less dependent on them.
Production and logistics network
Meritor has focused exclusively on the commercial vehicle market since it divested its light vehicle systems business in late 2010. Its main product groups are axles, brakes, safety drivelines, and suspensions.
The supplier operates ten manufacturing plants in North America, most of which are located in the south of the US. Its plants include three in North Carolina, two in Kentucky and two in South Carolina, and one each in Ohio, Tennessee, and Monterrey, Mexico. Its North American joint venture company, Meritor WABCO, also based in Troy, supplies commercial vehicles with braking systems and controls as well as safety systems. The company also has plants in global locations including Europe, Brazil and China (where it operates via its Xuzhou Meritor Axle joint venture).
According to Hite, Meritor’s logistics functions have developed a range of services customised to the group, including maintaining state-of-the-art warehousing facilities.
“Meritor’s lean production system is an integral part of our philosophy of continuous improvement that yields a number of benefits,” says Hite. “We continue to invest considerably in order to fully modernise our facilities with the objective of meeting logistics challenges well into the future.”
Meritor purchases 88% of the materials for its North American plants either from domestic vendors or from TIER ONE MERITOR The right pick and mix Anthony Coia finds out how tier one commercial vehicle supplier Meritor uses IT to balance third-party costs and maintain freight rates via its in-house logistics division OCTOBER-DECEMBER12 57 foreign vendors with North American distribution locations; 12% come directly from overseas vendors. The company moves this freight through a network of consolidation and deconsolidation warehouses in Louisville, Kentucky; Denver, Colorado; Norfolk, Virginia; Los Angeles, California; Salt Lake City, Utah; Savannah, Georgia and Detroit.
The purpose of its consolidation points is to enable Meritor to carry more miles on a truckload. The expansion of such centres is among the fastest growing features of the inbound logistics network. In February, it launched the Louisville consolidation centre to process southbound shipments to its plant in Mexico, which Hite says reduced costs and transit times for shipments from the mid-west and north-east. “The Louisville consolidation point has saved us one day in transit time, on average, for our LTL [less-than-truckload] shipments and has reduced our costs,” Hite explains.
Indeed, as vendors move to Mexico or overseas, Meritor’s objectives are to reduce its freight costs and transit time. “Our approach is to examine sourcing changes in concert with the procurement team in order to identify the freight impact,” explains Hite.
Network optimisation as described above is one approach, as are more straightforward methods such as mandating fuel surcharges for all carriers to hedge against oil price changes.
Meritor is also interested in using more intermodal transport, although rail is currently limited to some raw material. “In the past, time pressures prevented us from using intermodal transport. Rail can take double or triple the transport time, which causes us to lose some flexibility,” says Hite.
Besides delivery times, Meritor has also tended to see higher inventory and freight costs when using rail, according to Tom Heersma, general manager, global supply chain management. “Another problem with rail is its inability to react nimbly to forecasting changes such as when a customer changes the part number,” he says.
Monitoring costs with a TMS
Meritor’s inbound logistics management has been pushing to drive down costs, gain more central control over material movements and reduce emissions in the supply chain, according to Hite. At the heart of its efforts to reduce logistics cost and increase visibility has been Meritor’s Oracle TMS, which was initially rolled out four years ago in North America. The company has since implemented the system in Europe, and is currently rolling it out globally. Eventually, Meritor’s corporate logistics team will be able to monitor shipments around the world from Troy.
Meritor combines extensive pricing visibility from its TMS with the use of a 3PL for purchasing transport services through a yearly bid. The provider, which purchases transport on behalf of a large range of customers, has a greater ability to obtain economies of scale in purchasing than would Meritor alone.
“We utilise one 3PL in-house for purchasing transportation services through a yearly bid,” says Hite. “Then Meritor chooses the carrier. The 3PL has 20 times more freight spend than does Meritor, thus providing us with less exposure.”
Even though Meritor uses the 3PL for transport purchasing, it determines freight rates from its headquarters, as the TMS calculates freight rates throughout North America. Together with an analysis of safety and quality measurements for potential carriers, Meritor’s corporate logistics team chooses the carriers and negotiates the contract terms. “We are less dependent on the 3PL. Meritor spends on Meritor,” declares Hite.
The TMS also allows the logistics division to manage the freight for the majority of its facilities and control its daily shipments. It acts as a central database for all logistics-related information and communication between the company and its freight providers. The North American facilities receive approximately 400 shipments daily and Meritor plans and enters all shipments through the system, which also allows it to better consolidate shipments.
“Everything that is in the freight company’s computer is in Meritor’s computer. Thus, the user does not need to go to the freight company’s website,” Hite adds.
Information is sent using electronic data interchange (EDI), allowing Meritor to track pickups and deliveries. “Thus, when discussing issues with the supplier, we have as much information as does the supplier,” says Hite. “Instead of making a telephone call, we issue electronic instructions. In addition to transportation improvements, there is no more guesswork as to which parts to pick.”
Hite says that the elimination of Meritor’s light vehicle supply business unit reduced its freight volume, which could have led to higher freight rates per shipment if not for the tools of the TMS. “Our TMS has made us a more carrier-friendly shipper, which has enabled us to maintain and improve our pricing even with reduced shipping volumes,” he says.
The system has also dramatically improved the company’s premium freight and spot-move procurement. “Less than four years ago we could not obtain the best price for expedited moves. Today, we receive 100 quotes in 30 minutes. Thus, we are avoiding costs,” he points out.
Part of the reason for the effectiveness of the TMS with premium freight is that it functions as a kind of stopgap for when such services are ordered. Heersma says that the TMS determines whether each shipment should move as groundexpedited freight or as air freight. “Air freight is a last resort,” he points out.
Gimm adds that Meritor’s expedite authorisation programme helps to reduce premium freight costs. “Our Supply Chain Group analyses any premium mode,” he says.
Another feature that is currently being developed will be the ability to provide electronic self-billing within 12 months. “Administratively, no labour will be required,” he says.
According to Heersma, Meritor will add more details to the TMS database over the next three years, including part number details and piece-price cost. “With our in-house 3PL, Meritor has the proper data and tools with which to manage its own destiny,” he says.
The corporate logistics team is also responsible for aftermarket logistics. According to Hite, Meritor is even able to combine inbound and aftermarket logistics systems. Meritor Logistics, the in-house 3PL, operates under the same TMS umbrella as the corporate logistics system.
For its aftermarket network, Meritor operates seven aftermarket distribution centres, including its headquarter facility of 440,000 square feet (41,000 square metres) in Florence, Kentucky, which links to its global network through other centres in the Americas, Europe, Australia, and the Asia Pacific region. Other North American locations are in Plainfield, Indiana and Brampton, Ontario. It also uses a network of crossdock points throughout North America.
Outside of North America, Meritor distributes its aftermarket parts from Sao Paulo, Brazil; Singapore; Zurich, Switzerland; and Melbourne, Australia.
The services provided by Meritor Logistics to other companies include warehousing, distribution, packaging, kitting, line sequencing, materials management and transport management (using the TMS).
Global transport management
Meritor is also in the process of implementing its TMS in the Asia Pacific region, where it currently has a regional consolidation centre in Jurong Town, Singapore. The system is expected to be in place by next year. Meritor is currently using the TMS for ocean shipments to Asia, however the company is setting up an intra-Asia network which it expects to be in place within two years.
“We have also expanded our use of EDI transmissions to our TMS for the combining, tracking and tracing of shipments online. The EDI system provides us with alerts for daily shipments as well as a scorecard with which to measure carrier and supplier performance,” says Hite.
Before its TMS was in place, Meritor used paper routing instructions that made the process considerably slower. Another disadvantage was that if a vendor didn’t have paper routing instructions, it could use any type of subcontractor that was not an approved carrier, which could create a number of problems involving quality and safety, for example.
Meritor’s TMS has enabled it to enforce its use of contracted carriers as well as limit the size of its carrier base, preventing the use of those unauthorised by the corporate logistics group. The TMS has limited even further Meritor’s use of 3PLs in other regions, according to Hite.
“Prior to implementing our TMS, Meritor also needed the services of a 3PL on each continent. Eventually, we will be able to see it all in Troy, including daily freight spend transactions,” he says. However, Hite notes that while Meritor will have global rate visibility, logistics decisions on carriers and service will still be decided on a regional basis.
With its varied logistics channels that include inbound production and aftermarket distribution, Meritor offers a broad spectrum of services in the commercial vehicle realm. Its provision of logistics services in-house is tightly linked to its information technology system – particularly its TMS. As Meritor expands its global network in places such as the Asia Pacific region and South America, its goal of having more centralised control and monitoring for logistics should lead to improved efficiency across the supply chain for both its manufacturing processes and aftermarket distribution.