Ace Hardware leverages software for inbound optimization
David Hannon -- Purchasing, 7/13/2006 2:00:00 AM
Like a lot of retailers, Ace Hardware's logistics organization uses a private fleet of trucks to ship from its distribution centers to stores, and had good visibility into those shipments. But the inbound network from suppliers to DCs left a lot of "opportunity," says Brian Cronenwett, director of supply chain logistics at Ace in Oak Brook, Ill.
The biggest problem on the inbound shipments was not the length of the leadtimes from suppliers, but the variability of leadtimes, which made planning and optimization near impossible. "We have a good replenishment software package that helps avoid conflicts," Cronenwett says. "But when it sees lack of consistency in inbound leadtimes, it would crank up the safety stock. So one day you wake up and realize you have way too much 'stuff' in your inventory."
But sometimes bigger problems are easier to fix than smaller ones. How so? Because the benefits of reduced inventories were obvious to Ace's senior executives, the reduction of leadtime variability from suppliers became a major priority companywide, which gave the logistics organization a lot more leverage.
The goals of the project were clear: improve inventory turns, reduce leadtimes and variability. All of which would reduce inventory and safety stock and allow Ace to grow its business without having to find bigger DCs.
The inbound supply chain involves some ocean shipments from supplies in Asia (more so every year) and 2,500 domestic suppliers shipping to Ace DCs by truckload or LTL. Ace also owns two paint plants in the U.S. In terms of priority, the ocean shipments actually had acceptable visibility through Ace's third-party logistics provider. Once those shipments hit U.S. ground (mostly through the port of Seattle), they're treated like domestic shipments, Cronenwett says.
Some of the inbound freight comes to DCs via backhauls on Ace's private fleet trucks after they drop off at stores. But the vast majority comes by truckload or less-than-truckload from domestic suppliers' warehouses.
"The majority of our inbound freight is freight collect, but since we were not managing the shipments electronically, we provided a printed routing guide and that did not help consolidate two vendors' shipments," Cronenwett says. "We needed a Web-based system to let vendors indicate when they were ready to ship."
And Ace wanted to consolidate more of its LTL shipments and do a better job of matching up empty private fleet vehicles with backhaul opportunities.
When Cronenwett and his team began looking into transportation management systems that could address these priorities, the on-demand model was appealing for several reasons. First, it would not require a capital appropriations request; secondly, Ace's suppliers ranged from large manufacturers to smaller, less tech-savvy firms and the ease of a Web-based tool would let all suppliers get up and running quickly.
Ace contracted with TMS provider LeanLogistics in December and was processing purchase orders on the system by March.
The primary target at that point was all suppliers that shipped via truckload. The 100 biggest truckload shippers accounted for 94% of the truckload spend, a good early bang-for-the-buck win. Suppliers were typically trained on the system via webinar and can be up and running in an hour. "We fully expect it will be paid back with an ROI that is off the charts," says Cronenwett. "Next, we'll go after the LTL which is more complex, but offers consolidation opportunities."
Ace is carefully tracking metrics before and after the TMS implementation to document the value it brings. The two most important metrics tracked include reduction in overall transportation spending and overall inventory reduction. But it's not as easy as it may seem to get an apples-to-apples comparison. Cronenwett is taking samples of suppliers and studying the historic inbound freight-to-invoice ratio and tracking that before and after TMS.
"But right now there are lot of variable factors like fuel surcharges rising that make it difficult to compare last year to this year," he says. "Also, we're moving more suppliers to freight-collect terms and for some of our commodity items we're seeing price increases.."
Costs will also be reduced as more optimized shipping patterns emerge and carriers that are looking for business in certain lanes are more easily identified.
Ace knows its carrying cost and days of inventory for every supplier, as well as the average leadtime, to the day, from a supplier to its DCs.
"Our replenishment software will respond to those reduced leadtimes and expect our safety stock at our DCs to drop dramatically in the next couple of months."
The improved logistics data and visibility will likely shape Ace's global sourcing strategy. Deciding whether to source domestically or overseas becomes a much more calculated choice with accurate domestic freight costs and leadtimes.
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