When $1.5 billion ceramics and refractory products maker Vesuvius received the results of a consultant's review of its company, there were two steps recommended specifically for the logistics organization: One, bring in a new logistics manager; and two, have that new manager hire a third-party logistics provider to manage the company's North American trucking operations.

At the time, Vesuvius was using a very decentralized logistics model where all carrier selections in the NAFTA region were made by shipping coordinators at its 12 production facilities. There was very little visibility into those selections and the decisions were often based on personal relationships rather than on a total cost analysis.

Scott Lesko came on board as logistics manager for the NAFTA region in its Pittsburgh headquarters in January 2007 and his priorities were very clear: Bring in a 3PL to manage the truckload and LTL carriers and contracting decisions with the goal of gaining increased visibility into the spend and reducing costs.

Lesko, who reports to the director of purchasing at Vesuvius, invited a group of 20 3PLs to review Vesuvius' business and provide a bid. "We were very open with our spend information and the priority from my boss was to find an incentive-focused 3PL that could drive cost savings for us in a gainsharing arrangement," Lesko says.

From the 20 originally invited, the list was narrowed to three providers: one very large, one midsized and a third smaller 3PL. Lesko says the team reviewing the final three bids decided "we didn't want to be a small fish in a big sea. We wanted to partner with a provider that gave us the impression they'd do anything to make it work."

The other major factor Vesuvius used to evaluate 3PLs was their technology offerings. Lesko knew that finding a 3PL with a strong transportation management system (TMS) behind it would provide spend visibility and reporting benefits that would further drive the cost reductions he was looking for. But at the same time, he knew that Vesuvius' 12 North American plants were all running slightly different setups of a JD Edwards production system so integrating a TMS system would take some customization—and again, it felt like a larger 3PL might not be patient enough to integrate its TMS for a customer of Vesuvius' size.

"When we were thinking about TMS, we didn't want a 3PL that would give us a square hole and tell us to shape our peg to fit it," Lesko says.

The 3PL that gave Vesuvius the right impression in these areas was the smallest of the final three: Logistics Management Solutions (LMS), a St. Louis-based 3PL with deep experience in managing trucking carriers. Vesuvius is unique in that about 40% of its truckload shipments move on flatbed to customers in the metals industry while 60% move in vans, says Lesko. So going with a 3PL focused solely on the metals industry would likely mean they would not have the container capacity Vesuvius required.

And while LMS won the contract in part because it offered the most flexibility in integrating its TMS to Vesuvius' back-end systems, it was certainly not plug-and-play. "We finalized the decision to go with LMS in February 2007 and spent the next two months in process design and TMS customization with them," Lesko recalls.

In addition, there were procedural changes to implement in-house to maximize the benefits of the TMS, mostly focused on how orders were entered and how shipping coordinators would enter shipping data.

Vesuvius took a phased approach with its TMS implementation, going live only at its two biggest production facilities at first. From there, bugs were identified and fixed and feedback was solicited from the shipping coordinators on how the processes could be streamlined. The final of its 12 North American facilities went live in December.

The improved spend visibility and data of the TMS uncovered some interesting factors in reducing costs. Lesko says in the past, Vesuvius ranked its top 20 LTL carriers mostly based on price and service level and shipping coordinators would hopefully move down the list in making carrier decisions. However, Lesko was pleasantly surprised to find that as the number of LTL carriers was reduced in an effort to gain more leverage, the service levels actually improved because the carriers realized they were getting more business from Vesuvius.

"We were becoming a more important customer for them," Lesko says. "Today we have three primary LTL carriers and our cost is down and service is up."

However, on the truckload side, the opposite was true to some extent. Vesuvius used the TMS system to identify truckload carriers with backhaul opportunities that matched their lanes so the number of truckload carriers overall increased, but costs went down because the rates on the backhaul lanes were very low.

"It's still the 80/20 rule for truckload where 80% of our shipments are carried by our preferred carriers, but that last 20% of shipments is being put out to the open market and LMS finds us carriers that might be looking for a backhaul in that lane which provides us with big savings opportunities," Lesko says. "All of which would have been difficult to see without the TMS and LMS help."

LMS and its TMS system also identify when a supplier may be selecting the freight on a shipment and using a nonpreferred carrier. When those shipments are identified, Lesko is notified and calls the supplier to discuss the decision and move the shipment to a preferred carrier whenever possible.

The resulting savings of all these efforts are shared with LMS under the gainshare agreement the two firms have in place, which motivates LMS to constantly review and analyze the logistics decisions with cost in mind.

The results have also won Lesko's organization praise from other internal groups impacted by the switch. Vesuvius' president of the NATFA region has praised the organization for achieving its savings targets. The finance organization prefers the single invoice to LMS rather than the many invoices to various carriers. Even the sales department has used the TMS to estimate freight costs on certain projects.

In fact, word even spread "across the pond" to Vesuvius' European operation, which is looking into Lesko's work to reduce costs and improve controls.