As the home of 13 Grey Cup and five Stanley Cup winners, Edmonton understands the value of teamwork. That awareness has paid off in the real world when in the summer of 2005 a handful of food processo...
As the home of 13 Grey Cup and five Stanley Cup winners, Edmonton understands the value of teamwork. That awareness has paid off in the real world when in the summer of 2005 a handful of food processors began consolidating their outbound shipments and significantly reduced their transportation costs. Those benefits resulted from their decision to put aside their individual rivalries and set up the Food Processors Logistics Research Council (FPLRC) to coordinate their deliveries to customers in Vancouver and Calgary.
“The system runs ‘like clockwork’,” says Jeff Clark, Edmonton-based president of Kitchen Partners Ltd., the major supplier of sauces and other ingredients to Boston Pizza. “We are enjoying savings of about 40% on our transportation costs.”
Teamwork became the solution after the participants decided they needed an innovative, community-based solution to cut shipping costs to major markets since Edmonton is the most northerly of all large Canadian cities. “To overcome that handicap,” says Eric Haak, vice-president, operations Sunrise Bakery Ltd., and FPLRC player, “we knew we had to do something. We decided to find a way to work together as a region because we realized that we were in fact competing against the world not each other.”
As with all innovative projects, success started with commitment from senior executives. That support came in the form of the CEO Club, a group of about 10 corporate leaders from non-competing food processors who decided up front that to remain competitive they had to establish a true, one-for-all, all-for-one approach to reducing shipping expenses. That required ditching the basic skepticism of small- and medium-sized business executives about collaborating with rival firms not to mention the celebrated independence of Alberta entrepreneurs.
The mere existence of the FPLRC is a huge breakthrough. Spokespeople from relevant industry associations such as the Toronto-based Food & Consumer Products of Canada (FCPC) and the Canadian Trucking Alliance (CTA) in Ottawa stated that they had never heard of such a community-based transportation consortium actually up and working.
The key to the FPLRC’s original launch and eventual success was establishing a set of viable, operational processes. These included finding a suitable carrier to buy into the unconventional solution, coordinating members’ shipping schedules, reorganizing customer delivery dates and most important, delegating the support function to a third-party player.
To help the group through the proof-of-concept stage, the FPLRC received grants and other support from the Province of Alberta and Edmonton Economic Development Corp (EEDC).
The FPLRC lucked out by finding a savvy carrier who grasped the concept right away. “At our first meeting,” says Will MacLean, customer relations manager for Coastal Pacific Xpress (CPX) Inc. in Vancouver, “I quickly recognized what they had in mind was simply truckload shipments with picks and drops at either end.”
Although the project was entirely new business for CPX, real synergies emerged very quickly. That’s because it was already delivering 140 times a week into Edmonton, so that the FPLRC shipments represented “found money” in the form of return-trip freight (aka back-haul) opportunities.
Re-organizing the delivery dates posed several challenges. For example, after setting up the original schedule around the needs of one major receiver that had the least flexible processes, it had to be amended. However, once the schedule was finally settled, all the other consignees quickly fell into line after being reassured that they would continue to enjoy the same delivery service levels that they had before.
In essence, CPX provided a truck on certain days of the week and the FPLRC members had to fill it. Initially, the truck was not always full. But as the project became more popular, CPX also stepped up to provide additional space on other trucks for overflow loads as well as providing additional seasonal service at the same basic rates. Members all shared in the same per pallet cost regardless of the volumes they shipped.
Getting shippers to coordinate their shipping times was in many ways a no brainer. Still, it required adjusting members’ existing processes to line up consolidation times and routings. But the effort was worthwhile since besides the cost savings of switching to TL from LTL rates, it also gave shippers more control over their outbound traffic. Before, they were shipping a handful of pallets whenever a customer needed them. But with the new consolidated shipments, deliveries became “milk runs”. This enabled FPLRC members to impose greater discipline onto their purchasing and inventory management practices.
But the most crucial decision was bringing in a third party – QGI Consulting – to schedule pick ups, arrange deliveries and pay carriers rather than having one of the shippers do it on behalf of the entire group. In simple terms, using an outside administrator maintained the project’s confidentiality, objectivity and productivity without unduly burdening one of the shippers.
“To me, this approach is the ‘glue’ that holds the whole thing together,” says Brian Dumsday, senior associate, QGI Consulting in Edmonton. “Much earlier in my career, when I was helping a group of Winnipeg garment firms set up a similar shipping group, the whole idea died after they decided to save money by having one of the member firms handle all the paperwork.
“The others did not want to share all that information with a competitor.”
Although the FPLRC is now a certified success, in the beginning members faced various uncertainties. Among them was the fear of “burning bridges” to their existing carriers if this untried concept failed. If the new arrangements did not work out, could they go back to their previous carriers? If not, would they have to scramble to find new ones? Ultimately, they forged ahead since the potential benefits far outweighed the risks.
The initial cost savings led to other collaborative initiatives. These included combining the group’s corrugated packaging spend to gain volume discounts from suppliers. The FPLRC has also just started looking at doing the same for office supplies. A less successful project involved approaching a local, Edmonton-based high tech firm to install GPS equipment on the vehicles. Although its results were disappointing, the group has not given up, hoping that a more up-to-date solution will be more useful.
What’s more, QGI developed a simpler electronic ordering system with templates and a pull-down menu to replace the original system of using e-mail to arrange pick ups.
Currently the FPLRC is actively planning for the future with the rollout of Phase II focused on expanding its shipping lanes to Toronto. Once again the motivation and incentive is to reap savings by switching to TL from LTL shipments. So far, progress has been slow, owing mainly to logistical concerns about deciding on a convenient GTA (Greater Toronto Area) terminal from which the various cargoes can be seamlessly cross-docked and trans-shipped to different consignees.
“We do a lot of business in Montreal and Atlanta Canada,” says Jerry Bigum, Edmonton-based president of Kinnikinnick Foods, a leading producer of gluten-free baked goods, “not to mention the Northeastern US. So we are still working out how to get our products from the Toronto area to their final destinations.”
At the same time, the FPLRC is trying to attract new companies by targeting shippers whose transportation needs would cause the least disruption to those of existing members. Although the current FPLRC membership contains no direct competitors, according QGI’s Brian Dumsday, the fear of having products from two competing firms on the same truck is, in reality, a red herring. “Any shipper worried about having a competitor’s product on the same truck as his own,” he says, “is living in a fantasy world.
“That’s because if they use LTL to ship their products, it is already quit
e possible that at one time or another, its products have shared the same vehicle as those of a direct competitor since they likely have no control over what the carrier is transporting on that day.”
The FPLRC’s success has attracted the attention of others. For example, it is rumoured that the City of Calgary is looking actively into sitting up its own version. Winning that “Battle of Alberta” is likely worth another championship in Edmonton’s trophy case.
By the numbers
* Edmonton to Calgary, frozen goods: from June 27, 2005 to October 29, 2006, FPLRC volumes have been 2,342 pallets with a total weight of almost 2.5 million lbs.
* Edmonton to Vancouver, frozen goods: from September 12, 2005 until October 29, 2006, FPLRC volumes have been 1,598 pallets with a total weight of almost 1.9 million lbs.
* Edmonton to Vancouver, fresh/chilled products: from November 21, 2005 until October 29, 2006, FPLRC volumes have been 1,185 pallets with a total weight of just over 1.9 million lbs.
* Edmonton to Calgary, fresh/chilled products: from July 24, 2006 until October 29, 2006, FPLRC volumes have been 192 pallets with a total weight of almost 0.4 million lbs.
Although FPLRC members report that 2006 transportation costs reflect savings ranging from 27% to 35% compared to those in 2004, QGI’s Brian Dumsday concludes that those figures, if anything, actually understate the actual savings. “Let’s assume that members are currently paying an average of $30 per pallet before taxes on a particular lane,” he says. “That includes a recent increase.
“Based on the 2004 fee schedule, members were paying about $40 per pallet – one-third more. Now if we assume that rates between 2004 and 2006 increased only 5% then our shippers would have been paying $42 per pallet had they continued to ship as individuals. However, in reality consolidated shipping has actually saved them 40% ($42 compared to $30 per pallet).”