3PL Partnership Provides The Total Package
Intertape Polymer Group's transportation strategy was getting a bum wrap, until an outsourcing partnership enabled greater inventory control and profit margins that stick.
Finding the right logistics strategy to manage a diverse product line was a sticking point for packaging manufacturer Intertape Polymer Group. But thanks to an optimized transportation network courtesy of third-party logistics (3PL) provider Transplace, the company is on a roll.
Headquartered in St. Laurent, Quebec, Intertape Polymer Group (IPG) is a packaging manufacturer with locations throughout the United States and Canada, and additional facilities in Portugal and Germany. IPG provides packaging solutions for industries such as automotive, e-commerce retail, food processing, electronics, and pharmaceuticals. To serve these diverse sectors, the company develops and manufactures specialized polyolefin, plastic, and paper-based packaging products, as well as complementary packaging systems for industrial and retail use.
"We deal with many different product lines that are extremely price sensitive," says Joe Tocci, IPG's senior vice president of supply chain and consumer sales. "They are split between value-added and utility grade products, so the emphasis is always on margin."
Tocci cites stretch wrap for pallets as one example of the margin challenge: "This type of commodity item provides very thin margins, and it is easy to experience profit margin bleed if your supply chain network is not optimized," he says.
Knowing that its customer footprint was extremely broad, and that optimized transportation would be a major factor in keeping margins thin but profitable, IPG decided in 2005 that outsourcing transportation was a better alternative than trying to manage it with internal resources.
"IPG was already outsourcing transportation operations when I joined the company, but they were still eroding profit margin targets," says Tocci.
IPG spent one year exploring its transportation issues to better understand where and how it was losing profit momentum on margins. "We tried many strategies," Tocci recalls. "We revisited rate negotiations to see if we had done them as well as we could have. We identified key metrics that we needed to measure to gauge the effectiveness of our transportation, and its ability to favorably contribute to our products' profit margins."
Developing a Fresh Approach
Despite those efforts, Tocci and his staff were unable to drill down deeply enough into the issues that were preventing them from controlling transportation costs. "Our transportation provider met with us quarterly to review where we were realizing savings and preserving our margins by managing transportation," says Tocci. "But somehow the results we saw in those presentations were not reflected in our bottom line."
Frustrated with in-house transportation results, Tocci and his staff issued a request for proposal to five 3PLs. "We gave each bidder three months worth of shipment data, then asked what this data would look like if they were running our transportation operations," says Tocci. "Four of the bidders came back with essentially the same results we had been getting—but one 3PL didn't."
That 3PL was Transplace, a Frisco, Texas-based logistics and technology solutions provider offering transportation management, international logistics, freight brokerage, and intermodal services. The company suggested IPG take a fresh approach.
"Transplace based its transportation analysis and simulated results on a total assessment of our supply chain network," says Tocci. "They helped us realize that optimizing transportation and logistics wasn't just about taking raw cost out of transportation. They also demonstrated flaws in our business rules. Based on these factors, we decided to outsource transportation to Transplace."
Transplace went to work, analyzing several IPG customers that received product deliveries three to four times a week.
"Transplace asked whether it was important to make these frequent deliveries—or whether the multiple weekly deliveries were an ingrained problem in our order process," Tocci recalls. "We asked our customers their opinion, and they favored reducing the number of deliveries per week.
"There's a cost to us and to our customers for handling multiple deliveries," he adds. "We knew that reducing the number of trips would contribute toward reducing overall transportation spend."
Companies such as IPG, which manage a broad variety of products and markets, face special challenges.
"IPG's products, order sizes, and manufacturing and distribution strategy historically do not make it a candidate for anything but less-than-truckload (LTL) shipping," says Matthew Menner, senior vice president of strategy at Transplace. "Manufacturing facilities do not tend to be sited in prime truck capacity locations, and the company's broad array of products is routed to discrete industry sectors such as construction, mining, agriculture, and end consumers.
"This variety of products and industry segments presents IPG with inherent challenges in consolidating distribution centers and economizing shipping, because service and distribution models can be different," he continues. "It's important to achieve the best balance between cost and service."
Understanding the importance of striking this balance, Transplace and IPG worked together in 2010-2011 to develop a logistics and facilities network study; it was followed by a second study in 2013-2014. The purpose of the studies was to review how IPG's distribution centers aligned with its overall customer service model. Both studies revealed opportunities for incremental network refinements, including investing in additional pool distribution points in specific locations.
Building on these insights required implementing new systems and establishing benchmarks. "We added a new suite of planning tools, and began measuring shipping service and on-time performance," says Tocci.
Rising to the Challenge
Adding these tools didn't happen overnight. "Any time a process changes, it creates challenges," Tocci acknowledges. "One issue was the upfront work required to transition to new tools and solutions. We already had two in-house systems that multiple departments in the company were using and managing—not just supply chain teams, but also finance and IT personnel."
The hard work paid off, and it wasn't long before IPG began to post positive results. "We achieved many transportation cost benefits after implementation," says Tocci. "On-time deliveries also improved.
"Our cost-per-pound dropped by five percent, and several years later, our freight performance measurements had improved by 17.5 percent," he continues. "We move more than 300 million pounds of freight per year, so these numbers had a significant impact on cost savings and overall manufacturing efficiency."
IPG plans to continue pursuing distribution network and transportation cost improvements—with Transplace's input.
"For example, we serve the oil and gas industry in Calgary, Alberta, so initially it seemed logical to locate a DC there, because most of our products ship from Nova Scotia for delivery to the West Coast," says Tocci. "Transplace analyzed this situation and urged us to reconsider our strategy. They performed a freight optimization study, which revealed we could achieve considerable cost savings by locating our DC elsewhere, even though we had a large customer base in Calgary.
"In the future, we want to continue to reduce overhead by consolidating plants and assessing performance," he continues. "Transplace's service optimization tool helps us do this. We operate seven plants across the United States, and two in Canada, in addition to our general offices in Danville, Va., and two service centers in Los Angeles and Monterey, Mexico. Service requirements in Canada are increasing, and will require more localized positioning of inventory. The difference now is that we know the financial impact of moving our product."
Finding the Right Combination
In a current pilot project, IPG and Transplace are performing a value improvement study comparing the costs of IPG's LTL use against other transportation modes. The project is also comparing multi-stop shipments to traditional LTL, and analyzing the most appropriate sourcing strategies for LTL contracts.
"Both companies are working together to develop a network routing guide, and Transplace is responsible for rate determination," says Menner. "Our goal is to come up with the best combination of transportation mode and carrier."
IPG and Transplace plan to put the new program into production in October 2014. The goal is a six-digit annual reduction in freight and fuel costs.
Today, IPG tracks key performance indicators including transportation and logistics cost as a percentage of sales, on-time shipping performance (tracked at the shipment and transportation mode level), customer service and support performance, and rate performance.
"Improving our logistics and transportation cost and service performance is a continuing challenge, and it is not our core competency," says Tocci. "But relying on experts helps. The key is picking the right business partners who can help you meet your particular logistics challenges."
With Transplace as its advisor and service provider, IPG has transportation and logistics performance improvements all wrapped up.