ISRN LUTMDN/TMTP-- 5570--SE Tetra Laval’s European Road Freight – Suggestions for Improving the Distribution Structure and Transport Supplier Base Master thesis: 5570/2006 Authors: Marie Berglund Malin Leander Tutors: Robert Lindroth Department of Industrial Management and Logistics Björn Lindahl Team Road Tetra Laval Group Transport and Travel Preface This thesis, written during the autumn 2005, marks the end of our eventful lives as students of Master of Science in Industrial Management and Engineering at Lund Institute of Technology. The thesis has been conducted at Tetra Laval Group Transport & Travel (TLGT&T) in cooperation with the Department of Engineering Logistics at Lund University. It has been 20 fascinating weeks, where we have gained deeper insight into the area of logistics as well as the transport industry. We have also realised how complex multinational companies can be and how surprisingly low focus on logistics they have. Furthermore, we have learned to appreciate each other’s company, during both happy and frustrated times, in a small room of four square meters. We would like to take this opportunity to thank those persons that have been extra valuable and important for the completion of this thesis: Björn Lindahl, our tutor at Tetra Laval, thank you for your guidance and patience with our sometimes too many and annoying questions. Your knowledge and experiences have been of crucial importance for our research. Robert Lindroth, our tutor at Lund University, thank you for your enthusiasm and support. Without you this thesis would not have been what it is today. You have, with your valuable feedback and tricky questions, continuously given us inspiration to keep up the good work, and helped us to stay motivated. Keith Hearne, our English expert and support, thank you for eliminating the swenglish from our thesis and also for questioning our conclusions and reasonings. We are extremely grateful for your inhuman patience during endless nights of reading. Mattias Persson, our test opponent and support, thank you for your valuable comments and advice. Furthermore, we would like to thank all the employees of TLGT&T and Team Road in particular. We also want to show our appreciation and thank Robert Ingvarsson at TLGT&T, Lennart Andersson and Patrik Johnfors at Frigoscandia, Kristian Pettersson at Transfargo as well as Thomas Johansson and Ulf Tobiaesson at Schenker for answering our questions. We are happy with what we have accomplished and hope that you as a reader will find it interesting and useful! Enjoy! Lund, February 3, 2006 III Summary Tetra Laval Group, which consists of Tetra Pak, DeLaval and Sidel, has a central department, purchasing transport and travel solutions, called Tetra Laval Group Transport and Travel. This department consists of different divisions, one of which is Team Road, who is responsible for the contracting of road transport solutions in Europe and currently has 55 contracted suppliers. Tetra Laval has a considerably large volume of goods flows within Europe, and the lack of coordination between the business units implies that the group is probably in a good position to implement a more efficient flow system, with the end goal being to reach some form of synergy among the groups’ transport flows. Furthermore, Team Road lacks a holistic view or map of the current situation, which is a necessity in order to identify potential areas of improvement. This thesis is commissioned by Team Road and is focused on mapping the current European truck flows, as well as identifying possible areas for improvement with regard to distribution and supplier base management. The mapping and analysis is based on statistics of transports carried out in 2004, which were submitted by the transport suppliers. This data has been compiled, updated, and thereafter analysed thoroughly, resulting in a comprehensible picture of the current flows for the three industry groups. The largest flows on a country and a city level have been identified, with respect to weight as well as number of transports. Existing return flows, both on a country and a city level, have been abstracted and could be useful to highlight during negotiations with suppliers in order to reach more favourable agreements. The analysis of co-loading, between and within the three industry groups, indicates that the possibility to utilize co-loading is complicated by the three different distribution systems as well as the diversity in the actual products they are shipping. Team Road strives to reduce its supplier base, which would imply lower administration costs and facilitate the important establishment of closer relationships with existing suppliers. The analysis of the transport market indicates low complexity, with low supplier dependency as well as low switching costs. This means that a reduction of the supplier base could be attainable. IV One of the reasons behind Team Road’s high amount of suppliers is the sub optimised distribution structure of Tetra Pak. Even though a smaller amount of suppliers would imply lower total costs, the reduction of a particular supplier may not be possible. Each plant has its own interests in mind, and wants to contract the cheapest supplier possible for its business need. However, Team Road needs to look at the overall picture in order to lower costs. Each additional supplier implies increased administration costs, which should be compared with the cost savings achieved by contracting a cheaper supplier. ABC and Kraljic analysis of the supplier base have been conducted and provides Team Road with a suggestion of 17 suppliers that could be of interest in a potential pruning process. V Abstract Title: Tetra Laval’s European Road Freight – Suggestions for Improving the Distribution Structure and Transport Supplier Base Authors: Marie Berglund Malin Leander Tutors: Björn Lindahl, Team Road, Tetra Laval Group Transport and Travel Robert Lindroth, Engineering Logistics, Lund University Problem: Tetra Laval has a considerably large volume of goods flows within Europe. However, the lack of coordination and communication between the various business units implies that the group is probably in a good position to implement a more efficient flow system, with the end goal being to achieve synergies among the groups’ transport flows. Team Road is responsible for contracting the road transports from the majority part of Tetra Laval’s European factories. Since each contract is acquired, negotiated and developed individually, the company is in a position where it has a sub-optimized transport structure with as many as 55 transport suppliers contracted. Furthermore, Team Road lacks a holistic view or map of the current situation, which is a necessity in order to identify potential areas of improvement. Purpose: To map Tetra Laval’s European road freight, and provide suggestions for improvements with regard to the distribution structure and the transport supplier base. Methodology: The research is based mainly on large volumes of data, submitted by different transport suppliers. Furthermore, to get an insight into Tetra Laval and the transport market, meetings with Tetra Laval VI Group Transport & Travel employees and interviews with transport companies were conducted. In addition, theoretical studies were carried out to obtain a broad, but at the same time, deep understanding of the relevant areas. An analysis of the problem was conducted, using the theoretical and empirical study. Finally, based on the analysis, conclusions and recommendations were formulated. Conclusions: The conclusions reached from the analysis are as follows: • Team Road could benefit from the information gathered about trade balances during negotiations by highlighting the return flows on a country level that might even up the transport companies’ imbalances. • Identified return flows on a city level could be beneficial when trying to negotiate a lower price from the transport company. • The possibilities to implement a roundtrip are limited, since it requires even flows with high volume utilization in both directions. • The possibility to utilize co-loading is limited, and has not been investigated further. • A reduction of the supplier base is possible, and would imply lower administrative costs. The analysis indicates that the supplier base could be reduced by as many as 17 suppliers. • It could be beneficial for Team Road to develop close relationships with the most important suppliers, since a close cooperation with suppliers who provide additional services could increase the overall performance. Key Words: DeLaval, Distribution, Sidel, Supplier Base Management, Supplier Reduction, Tetra Laval, Tetra Pak VII Table of contents 1 Introduction..........................................................................................1 1.1 Background ....................................................................................1 1.2 Problem Analysis ...........................................................................3 1.3 Goal and Purpose ...........................................................................5 1.4 Focus and Delimitations.................................................................5 1.5 Target groups .................................................................................6 1.6 Definitions......................................................................................6 1.7 Outline of the thesis .......................................................................7 2 Methodology .........................................................................................9