MIT-CTL January 2009 // Volume 5 // Number 1 A newsletter from the MIT Center for Transportation & Logistics INS I DE Tetra Pak Takes Control of Global Tetra Pak Takes Control of Transportation ............................ 1 Driving freight management to strategic levels Global Transportation Weighing Your Sourcing Options ....................................... 4 Regional and global choices in the balance LOBAL VIEWS OF SUPPLY CHAINS ARE OFTEN IMPAIRED BY DIFFERENCES between national and regional transportation networks, making it difficult for Hedging Know-How That Pays Dividends ................................... 6 G companies to improve the management of freight flows across interna- Supply chains that talk finance tional markets. Swedish food processing and packaging enterprise Tetra Pak Learning to Live With Fuel Price aims to remove these obstacles with the launch of a global transportation-man- Swings ........................................ 8 agement system in February 2009. How to be miserly with miles The system encompasses all modes and will give the company a single, real- [Re]Searching for Answers: Where time view of freight movements across the 165 countries in which it operates. Supply Chain Meets Lean ........... 10 Tetra Pak will analyze its shipments in new ways, enabling it to cut costs and Taking lean beyond manufacturing raise the efficiency of its multinational transportation operations. And the com- [Back Page] Cultivating Fresh pany will control freight decisions for North America and Europe centrally, an Approaches to Market Perils ...... 12 Risk sprouts in U.S. fertilizer markets uncommon approach to the management of goods movements across interna- tional time zones. Granular Urea: NOLA Barge The new system will elevate transportation from its tactical base to a more March 2008 to December 2008 strategic level, in line with other major components of global supply chains. (Weekly Average) This is particularly true for land modes, opening up new possibilities such as ................................see pages 6 and 12 the sharing of best practices between countries. $900 Standard Procedures $800 $700 Tetra Pak is one of three companies in the Tetra Laval group, a private com- pany started in Sweden that is headquartered in Lausanne, Switzerland. With n $600 To t $500 net sales of €8.6 billion ($12 billion), Tetra Pak supplies equipment and pack- aging products for food that cover every stage of the production process. For r Shor $400 Pe example, if the product is milk, the enterprise provides processing equipment ice ice $300 Pr and packaging that takes the product from the cow to the supermarket shelf. $200 $192.50 $100 The other two companies in the group are DeLaval, which provides complete $0 systems for milk production and animal husbandry, and Sidel, a maker of filling 8 8 8 8 8 8 8 8 8 8 8 8 8 08 08 08 /0 /0 /0 /0 /0 /0 /0 /0 and blowing equipment for plastic bottles. Tetra Pak is the largest company in 7/ 7/ 1/ 0/08 4/08 4/08 3/08 /8/0 17 31 15 21 18 14 12 28 23/0 7/ /2 /1 /1 9/ /2 8/ 6/9/0 3/3/08 3/ 7/ 9/ 4/ 3/ 8/ 5/ 12 9/29/0 4/ 5/26/0 6/ 11 11 10 10 the group. NOLA = New Orleans, Louisiana Area (Source: Green Markets) Continued on page 2 Tetra Pak Takes Control of Global Transportation (continued) Tetra Laval Group Transport & Travel department is Malm recently spent some weeks in Denton in negotiations based in Sweden and negotiates transportation contracts in with prospective carriers. “We will establish what we call a collaboration with the company’s plants across the globe. target based on all the offers we received,” he said, and com- The contracts for some €300 million per annum ($384 mil- municate the feedback to the carriers. “They come in with a lion) represent about 80 percent of the organization’s total second offer and again in cooperation with the factories, we transportation spend and include €102 million ($130 mil- select and contract suppliers.” lion) on road and rail modes, €52 million ($67 million) for Ongoing relationships with carriers are shared between sea and ocean freight, and €23 million ($30 million) for local offices and the central procurement office in Sweden. express services. “We own the contract but the factory is utilizing the ser- “Just like many companies in the world today, we are a vice,” he said. A process within supplier management called process-oriented company,” said Kristian Malm, Global Pro- Supplier Base Management involves regular review meetings curement Road Freight. The standard process for procuring with carriers during which metrics such as cost, claims lev- freight in the company is supplier management. “Everyone els, and on-time delivery are evaluated. The financial health in supplier management is working with the same process,” of service providers is monitored continuously. Tetra Pak is he said. currently updating the metrics it uses to assess transporta- tion suppliers, said Malm. Whether procuring transportation to meet the specific needs of a new factory or qualifying a possible carrier for an Going Global existing operation, Tetra Pak requires transportation pro- About a year ago, the company started a project to develop viders to complete a request for information, a standardized a global management system for freight transportation. It is questionnaire that rates the providers in five areas: health, based on a control tower concept, where a tailored package of safety, environmental performance, quality, and service. information services is used to help manage logistics activi- “This is managed by us in Sweden, not the local office,” said ties. The term has become highly fashionable in the field and Malm. For example, Tetra Pak’s U.S. plant in Denton, Texas, is interpreted in a number of ways, pointed out Malm. “We might relay details of a possible new carrier to Malm’s office, call it the Tetra Pak Logistics Control Tower, and it’s based which takes care of the qualification phase. Once that is sat- on our needs and no one else’s,” he emphasized. isfactorily completed, the contracting phase begins. The service will be provided by Transportation Manage- “We review the business needs, and we challenge our ment Center (TMC), which is a division of the U.S. company factories to continuously improve our processes before we C. H. Robinson Worldwide Inc., one of the largest non-asset- go out and request a rate for a service,” said Malm. This is based third-party logistics companies in the world. C.H. done via a request for quotation, which includes key param- Robinson is headquartered in Eden Prairie, Minn., and the eters such as freight volumes, routes, and rates and is sent TMC organization is based in Chicago. to qualified transportation companies. Negotiations with freight companies are carried out jointly between the office Tetra Pak already contracts with C. H. Robinson for in Sweden and factory shipping departments. For instance, transportation, but, as Malm stressed, this freight business Managing Editor: DAVID SOLOMON Editor: KEN COTTRILL Sr. Managing Editor: JANICE PRESCOTT Desktop Editor: MONIQUE NIJHOUT Research Manager: BIKRAM GAUTAM VP, Publisher: RANDY COCHRAN Sr. Marketing Manager: LARAINE KELLY Editorial Advisors: President: JOE BREMNER MIT CENTER FOR TRANSPORTATION & LOGISTICS (CTL) MIT-CTL SUPPLY CHAIN StrATEGY (ISSN 1557-9522) is published monthly for $595 per year by the Institute of Management and Administration, Inc., 1 Washington Park, Suite 1300, Newark, NJ 07102-3130. Copyright 2009, Institute of Management and Administration, Inc. All rights reserved. A one-year subscription includes 12 monthly issues with 24/7 online access to current and archival issues. Copyright and licensing information: It is a violation of federal copyright law to reproduce all or part of this publication or its contents by any means. 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CTL contributes to the academic knowledge in the field and helps companies gain competitive advantage from its cutting edge research. The Center’s graduates occupy senior supply chain management positions in almost every industry and continue to use the Center’s resources to update their knowledge and skills. Web: http://ctl .mit.edu. Tel: 617-253-5320. | supply chain strategywww.MITsupplychainstrategy.com will remain separate and distinct from the contract with own IT capabilities. Also, using a single provider and keep- TMC. When Tetra Pak set out to look for a third-party pro- ing its existing network of carriers “saves us money in the vider of control tower services, it used the same contracting design and development of the technology; we will have one procedure it deploys to appoint carriers with one additional global Web site where we can track all of our shipments,” step: The company specified what it wanted to pay for such Malm said. services. The Web site he referenced will be Tetra Pak’s window Going forward, “we will keep the procurement activity on global freight movements for all modes of transportation. within Tetra Pak because we know our customers and our TMC will function as a clearinghouse for information on business best,” Malm said.