Tree of Life overhauls supply chain org, tools for improved product flow
By David Hannon -- Purchasing, 1/15/2009 2:00:00 AM
As a distributor of natural and organic foods, Tree of Life relies heavily on its sourcing and logistics operations to get products into its supply chain and out to its customers. And with 1,200 sales associates in the U.S. alone, the $1 billion U.S. subsidiary of Dutch food giant Royal Wessanen moves a lot of product through its distribution centers.
And about three years ago, members of the company's procurement and logistics teams took a step back to see how they could better align their respective organizations to improve the flow of product from its suppliers out to its customers. Chris Sieburg, vice president of transportation at Tree of Life in St. Augustine, Fla., says the first step to that process was to bring in an outside consultant and develop clear process maps of everything that was going on within the company's supply chain.
Within the procurement organization, the main change that was identified was splitting up the buyers' basic duties. At that time, the supply chain executives at Tree of Life decided that the traditional buyer job description at the company involved two key skillsets that may not have been complementary. First, the company needed buyers with "soft" skills such as negotiations and supplier relationship management. But they also needed staffers with harder, more data-driven skills to focus on inventory management.
"We realized that it was hard for one person to do both, so we split those roles up," Sieburg explains. Buyers were tested in various areas and assigned, based on their skills, to one or the other groups—commodity management or inventory management.
At the same time, the process mapping and organizational review showed that the regional structure of the purchasing organization was not completely efficient. In the prior model, buyers at the company's 10 distribution centers would source products from suppliers solely for that distribution center's region. So in effect, each of the company's 55 buyers was responsible for managing relationships with all 3,000 of the company's suppliers and many suppliers would have several buyers from Tree of Life placing orders simultaneously.
"So basically, our buyers in one DC had no idea what their peers at other locations were doing," Sieburg says.
In the new matrix national buying organization a buyer is responsible for managing relationships with select group of suppliers based on the suppliers' locations (rather than the buyer's location) and can leverage the entire company's spend with those suppliers for reduced costs and improved supplier relations. And it makes Sieburg's job as vice president of transportation a bit more manageable.
"Now if we have an issue with a specific supplier's deliveries we have a single point of contact internally to go to," he says. "We know who in our organization is responsible for the relationship with that supplier. So it simplified our internal communications and improved suppliers' compliance to our rules."
At the same time, having each buyer working with a group of suppliers in certain region helped identify opportunities for consolidation of shipments into full truckload shipments. In the prior method, Tree of Life had about 60–65% capacity on its typical multi-stop truckload routes, and now that's up to about 80–85%, according to Sieburg.
While the food products they buy mostly originate in overseas markets, typically, Tree of Life buyers source their food products from U.S.-based brokers primarily located on the West Coast or East Coast.
Even before the procurement realignment was underway, the company had also been working on a similar centralization of its transportation and logistics operations focused on gaining more visibility into its inbound and outbound logistics network. Rather than have buyers dictate the carriers and level of logistics service required, now the company has five transportation specialists and one manager make the carrier-based decisions on its 1,400 shipments each week with optimization and consolidation a top priority. Buyers, Sieburg says, tended to be too focused on faster service and inventory turns, often at the expense of higher freight costs because they did not review freight bills.
"Initially we copied the decisions/contracts that were developed locally via the buyers," he says. "But once we had a good understanding of the freight characteristics of a given DC, we rolled lanes out to the carriers that showed they had the best performance and rates."
The result was a decrease in total truckload and LTL carriers from more than 200 down to about 40, including 30 core carriers to which volumes are focused primarily. Tree of Life also has a small fleet that handles about 10% of its inbound freight.
But as much benefit as Tree of Life gained from these organizational and operational changes, there was more to the story than that. In 2006, the company purchased a software suite from JDA Software in Scottsdale, Ariz. including a warehouse replenishment tool and a transportation planning systems including an optimization engine.
JDA's Advanced Warehouse Replenishment (AWR) by ES3 lets buyers and inventory managers see inventory levels at various warehouses and decide when to order new product. The tool not only reduced inventory levels by 12% in its first eight months of use, but also improved fills rates and improved forecast accuracy.
The use of JDA's Transportation Planning system also helped produce significant savings in the company's LTL and truckload spend by identifying ways the company could consolidate its shipments into bigger loads. In fact, Sieburg estimates that up to 60% of the total savings seen in the transportation spend came from consolidation identified by the tool, and the other 40% came from leveraging volumes, carrier relations and performance improvements.
Sieburg says the use of a transportation planning system benefits a company like Tree of Life particularly because it has a high number of smaller shipments, some refrigerated, making it very difficult to consolidate loads by hand.
"If you're already shipping mostly truckloads then the savings you see from this kind of tool will be more limited and the ROI will take longer," he says.
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