Projects

Box-Plant Trucking Logistics

Background

I. PURPOSE

As the pulp and paper market becomes more competitive, companies look for potential opportunities to reduce product cost, increase operation efficiency, and provide better service to customers. Logistics practices can be complicated and costly to the firm; in addition, they often have a direct impact on customer satisfaction.

Although not the only transport mode employed, motor carriers are an integral part of the transport logistics operations in the pulp and paper industry. Trucks are employed in the transshipment of raw inputs to pulp and paper mills, intermediate finishing goods from paper mills to corrugated box plants, and finished goods that are shipped from mills to distribution centers or end users. For public carriers, there are various government regulations that constrain a truck's operating route, size and weight, type of equipment, and energy conservation. Truck maintenance is also important as are various safety regulations related to hours of operation and driver qualifications. These pose numerous challenges in truck-logistics in the industry.

Dr. Jeff Liker of the University of Michigan and his students have conducted several observation-based projects for the Trucking Industry Program (TIP) Center to gain an understanding of the current practice of trucking logistics in the auto industry. The proposed project would benefit from the lessons learned in the automobile project including case studies, interviews, and questionnaire designs. See the literature review for details.

The auto industry survey can also be used as a comparison for the paper industry project. Observing how these two industries compare in the use of trucking logistics will facilitate future analyses among other industries, such as steel, food processing, etc. As more emphasis has been placed on trucking logistics in the auto industry, the significant improvements made can be viewed as a benchmark for advances in the pulp and paper industry.

Recent Changes in Industry's Logistics Operations: Some paper manufacturers have switched from tariff-oriented freight charges to simpler and more easily understood flat-rate tables. Captive forwarding companies have in some cases been replaced. In addition, some freight operations have been concentrated on fewer transport companies. Specific logistics functions such as dispatch offices or loading and warehousing staff (including the relevant equipment) have, in some cases, been outsourced to logistics service providers on the basis of vertical co-operative agreements.

In general, this has reduced the logistics costs per ton. Several speakers from Andersen (now Accenture) Consulting and J. B. Hunt advocated the "third-party" logistics (3PL) services in the first Pulp and Paper Transportation and Customer Service Conference (1996). Georgia-Pacific was one company that hired J. B. Hunt as a 3PL, reducing trucking transport costs by as much as 10% (Pulp & Paper, 1997). However, there are concerns that know-how and control of the flow of goods could be upset -- or even worse -- lost if functions are outsourced.

Another issue with outsourcing is that quality of service can suffer, e.g., an unwillingness or inability to deliver rush jobs involving small quantities on the same agreed upon conditions. As such, firms are often reluctant to enter into co-operative agreements with companies that are direct competitors and because companies do not appropriately appreciate that joint storage and/or delivery not only cuts costs but also improves customer service due to consolidated deliveries. In this context, there is a need in the pulp and paper and trucking industries for an objective evaluation of the benefits and drawbacks derived from privately provided trucking logistics operations versus outsourcing.

Potential of Information Technology: Many business operations in the pulp and paper industry, such as eCommerce, have utilized information technology (IT) to improve their productivity and efficiency. Similarly, many manufacturing operations use various IT tools to control production processes and record incoming and outgoing materials flows effectively. Experience learned from the auto-industry indicates that the use of IT tools also has the real potential to change the expectations and requirements in trucking logistics operations. Consequently, there are third party logistics (3PL) providers using IT to enhance their service quality and reduce costs.

The impact of IT usage in the trucking industry has been analyzed in a University of Michigan study (Bander, et. al., 1997). The extent to which corrugated box plants use IT tools in their manufacturing and trucking logistics operations, whether these activities have impacts in the trucking logistics' cost, lead time and quality, is not known. This project will seek to select corrugated box plants that use similar IT tools in for the study to limit the variation of trucking logistics due to the impact from IT.

Future Potential Major Strategic Trends:

1. Logistics Integration: Processing incoming goods (including the new material store), warehousing administration, internal transport and outgoing goods processing (including the finished goods store) frequently report to different departments within the company, so that there is little potential for moving available resources among various departments when work loads are particularly heavy. Combining the fragmented individual logistics functions into a single organizational unit with a centrally controlled personnel pool could eliminate substantial costs incurred by staffing additional personnel that are needed to cope with peak requirement periods.

2. Partnerships and Alliances: Company mergers and acquisitions in an industry occur for a variety of reasons, including a desire to expand their operations in target markets, strengthen their global position, boost earnings and/or generate cost savings, or stabilize prices. The $10 billion merger between Mead and Westvaco in January 2002 (Walden's Paper Report, 2001) is a recent example in the pulp and paper industry. However, the logistics activities of these companies are often disconnected. Integration (from the group point of view) and co-operation (from the plant point of view) would be beneficial. The recent alliance between Georgia-Pacific, ConAgra and International Paper (Green Bay Press-Gazette, 2002) is an example of this beneficial relationship

Correspondingly, a paper mill and a corrugated box plant and their related transportation provider(s) may have logistical problems due to a lack of integration. The relationship between these two entities can vary quite significantly, from a vertically integrated structure in which the firm and transportation provider are universally controlled, to a market exchange in which the transportation function is completely outsourced to a 3PL (Liker, 2002). Reeves and Liker (2002) used resource theories, transaction cost economics, game theory and real options to articulate the decision on the structure of partnerships.

Profiling Studies: Improved trucking logistic operations can save costs (from transportation, material handling and storage, loss from wastes, etc.), shorten lead time and enhance service quality for various firms in the pulp and paper industry Conducting profiling studies -- based on case studies of a few box plants for understanding their current logistics practices, their trucking operation culture and the effects of government regulations -- will be very helpful in understanding how to improve the trucking logistics operational performance.

Comparisons among companies will be explored using observation-based interviews and data collection. From this information, performance measures and improvement strategies can be developed and used to analyze the trucking logistics operations of operations included in this project.

There are several challenges in profiling studies. First, there are many pulp and paper companies, of varying sizes, many of which own paper mills at numerous locations. There may be geographical, social, and regulatory reasons that certain trucking practices have been conducted over the years. Although records of all trucking routes, schedules, load sizes, weights, maintenance, fuel consumption, labor cost, safety, financial information, etc. may be collected at one location, it is very possible that these records are kept manually at various sites, and are not shared. In addition, many box plants have multiple clients, each with specific data requirements for shipping, accounting, tracking, etc. that do not coincide. Very few box plants seem to utilize information technology to integrate these data together and study plant-wide logistics operation improvement strategies.

As a consequence, this study will focus on the trucking logistics operations for the materials (e.g., containerboard, chemicals, inks, etc.) going to box plants and identify how these operations differ from trucking logistics operations in transporting finished goods to end-users. Because trucking logistics operations for corrugated box plants may differ due to the plant's scale of operations (e.g., utilizing a range of 30 to over 100 thousand tons of containerboard per year) and size of production environment (e.g., a range of thousand to tens thousand square feet in warehousing and manufacturing facilities), we will focus on "main stream" box plants -- those consuming over 80,000 tons per year of containerboard with similar sizes of production environment. This focusing is necessary to help limit possibly uncontrollable variations in our project studies that would emulate from too broad of a study.

Besides profiling the "standard of measure" of trucking logistics, such as the unit cost of travel or lead-time, characterizing the processes employed for deciding which truck should be used for what purposes at what time, etc. is also important. For example, many retailing companies adopted "just-in-time" and "supplier managed inventory" in their supply-chain management logistics operations. If the pulp and paper industry is moving in this direction, there will be more pressure on the industry's logistics and transportation operations for achieving higher performance. As such experience learned from projects on full truckload, less than truckload and package express conducted by the Trucking Industry Program could be beneficial to this project.

Proprietary Information/Related Study Constraints:

Some of the information in participating firms' cost estimates and logistics operations could be proprietary or difficult to retrieve. For example, it may be useful to get some idea of the overall portion of production costs attributed to transport logistics and then look in more detail at these costs on a per mile basis. Then we could compare the per mile costs across mills and draw some conclusions of the performance in a firm's logistical operations. However, the financial data could be proprietary. There is also a need to value the impact of a shortened lead-time and enhanced service quality to the customer's operations. Some of these evaluations may be very difficult or time-consuming to collect.

To resolve these concerns, many of the project's analytical steps may be able to be based on aggregated data, which is usually less proprietary. We will also use available data (e.g., trucking costs in auto-industry, fuel consumption, gas price, traveling speed, route distance, etc.) from other sources (e.g., US DOT, Bureau of Transportation Statistics, Vehicle Inventory and Use Survey, State Freight Transportation Profile) to estimate the cost, lead-time and other needed information for our research.

Tools such as structural modeling (e.g., multiple regression), moving average or forecasting tools could be useful in these estimates. They will also be beneficial for helping to fill in "missing" or "incomplete" data" due to difficulties in data collection. Finally, use of industry contacts from the CPBIS and TIP will be critical to communicate with people having the needed authorities to aid our data collection and survey efforts.

II. SPECIFIC PROPOSAL GOALS

- Work with CPBIS and TIP to identify two or three operations to be included in the case study analysis. Minimally, we would like to include an operation that meets its transportation needs with private carriage and another that meets its needs with a 3PL.

- Literature review of other traditional and similar industries in order to get a better understanding of trucking transportation logistics in those industries and to enable the project team to formulate hypotheses and identify concerns that can be addressed in the data-gathering phase of this project.

- The case studies will start with personal visits and telephone interviews to conduct a rigorous science-based profiling-study on the selected operation's logistics records and processes (see Task #2 in Full Description for details). Techniques for estimating "missing" or "incomplete" data will be used to retrieve some of the needed information difficult to obtain.

- Create measurable indicators to describe the operations' logistics operation environment.

- Investigate factors leading to successful trucking related logistics (either in-house or outsourced activities), and develop strategies for improving the firms' trucking logistics operation efficiency and cost structure.

- Develop questionnaires and contact lists for conducting an industry-wide logistics survey that would form the basis of a second year of funding.

III. LITERATURE REVIEW

A. Search Results from IPST's and GIT's Databases

We have worked with the Associate Librarian, Mr. Hartley K. Phinney, Jr., in the Haselton Library and Information Center in order to identify previous research on the logistics and trucking operations in the pulp and paper industry. Surprisingly, a search of Paper Chem USA and PIRA (CD-ROM databases) as well as a variety of transportation journals (e.g. J. of Transportation and Statistics, J. of Transportation Engineering, Atlantic Journal of Transportation, J. of Air transportation, Transportation Research E) produced few citations. The following summarize information from a few key relevant abstracts (out of 150 or so abstracts identified).

1. Several abstracts used indicators and perspectives to address why consolidation (and "integration") in pulp and paper industry is needed for the survival and future growth of the industry. This will affect the environment of the industry's logistics operations.

2. Many European pulp and paper companies created third-party-like logistics companies (e.g., SCA Transforest, SCA Transport UK) to generate new coordination possibilities, rationalize transport flows, reduce inventories, and form a partnership with various distributors.

3. Customer demand for "just-in-time" delivery created the needs for a new distribution system.

4. A few abstracts discussed alliances in intermodal transport, especially in the European countries.

5. Many abstracts focused upon the use of IT and related technology, including eCommerce (e.g., PaperExchange -- now out of business -- and Schenker alliances) and supply-chain management, to improve their logistics operation quality.

6. Several abstracts discussed the transportation and storage issues of "dangerous goods"; others addressed energy and environmental issues in transportation.

7. A few abstracts described new technology in packaging/storing, loading and unloading materials/goods on trucks for saving manpower and cost, and enhancing productivity and safety.

8. Some abstracts reviewed the standards and regulations of trucking operations.

B. Lesson Learned from Auto-Industry's Trucking Logistics Projects

Dr. Liker's team has conducted several projects (see one of their project reports in the references) for the trucking center in order to understand the status of the trucking logistic operations in the auto-industry. Tools such as exploratory studies, site visits, phone and/or face-to-face interviews and industry-wide questionnaire surveys are used in their observation-based studies. For example, they conducted an in-depth case study with Transfreight (a third-party logistics company) working for Toyota's production plants to ship parts and finished products to various locations.

Transfreight uses the Toyota Production System (TPS) Principles of small lot sizes, high frequency of delivery, first in first out, and level flow to achieve accurate, quick, and cheap logistics service. Their services include route planning and operation, sub-contractor supervision, contingency planning and operation, sequenced part delivery, cross docking, EDI parts order management, yard control and on-site management of all services. Their "just-in-time" practice transports "the right material at the right time in the right amount" and uses tight time windows for main and sub routes with leveled schedule and cross-dock process.

C. Best Practice in Other Industries

Dr. Liker's team has also conducted several brief studies of logistics in the food processing industry. These studies have analyzed the food industry use of the "efficient consumer response" system, which is a derivative of the apparel industry's "quick response" system. They additionally have compared this industry to the auto industry -- displaying how the two logistics operations are related. There are some reports (see Task #4 in Full Description for examples) in the literature stating the experience in surveying the logistics activities in apparel, food, beverage, and other industries. Our project will take advantage of the lessons learned in their studies for conducting case studies, comparing logistics operations for different industries, and designing interview and survey questionnaires.

D. Tools for Profiling Studies

The primary tools for general profiling studies are text and data mining techniques (e.g. Porter, Kongthon, and Lu, forthcoming). These techniques go through text or data files and look for designated key words or patterns. Summary statistics or other interesting information are extracted from these files. Then, modeling and comparison procedures, such as trend analysis, regression modeling, association and contingency analysis, two-sample comparison and analysis of variance, are used to study the extracted information for understanding the knowledge contained in the text or data files. In the data extraction and modeling/comparison stages, experience from experts in the field is helpful in directing the profiling studies for improving their effectiveness. See Section 2 for details of issues considered in the profiling research for this project

References:
Anon. (2001), "Mead and Westvaco in 10 billion dollar merger," Walden's Paper Report, v. 31, n. 17, p. 1-2.

Bander, James, Nagarajan, Anuradha, White, Chelsea C., III. (1997). "Information and the Trucking Industry," Proceedings of the IEEE International Conference on Systems, Man and Cybernetics, v. 4, p. 3301-3306.

Cottrill, K. (2001), ""Survey of Supply Chain Management in the Food and Beverage Industry," Traffic World, 265(24), 21-2.

Karlin, J., Liker, J. K., and Wheeler, M. (2002), "Applying Toyota Production System Principles to Cross-Dock Operations," a paper represented at a material handling conference from project reports to the Trucking Center.

Liker, Jeffrey K. (2002) "Governance Structures in Logistics and Trucking Outsourcing: A Cross-Industry Study," Presentation at Transportation Industry Program Conference, University of Michigan.

Reeves, K., and Liker, Jeffrey K. (2002), "Resource Theories, Transaction Cost Economics, Game Theory, and Real Options - Perspectives of Firm: Viewing the Boundary Decision for Trucking and Logistics Services Through Various Lenses," an unpublished report for Reeves' Ph.D. thesis proposal.

Liker, Jeffrey K. (2002), American auto parts supplier logistics performance Study, a survey designed by Dr. Liker's team.

Literature Review Databases: Paper Chem USA and PIRA (British).

Literature Review on Journals of Transportation and Statistics, Journal of

Transportation and Engineering and other journals related to transportation in GIT's library.

Lu, J. C. (2001), "Methodology of Mining Massive Data Set for Improving Manufacturing Quality/Efficiency," a chapter (pp. 255-288) for the book entitled Data Mining for Design and Manufacturing: Methods and Applications edited by D. Braha as a volume in a series of "Massive Computing" that is organized by James Abello (AT&T Labs Research), Panos Pardalos (Univ. of Florida) and Mauricio Resende (AT&T Labs Research, Kluwer Academic Publishers: New York.

Porter, A. L., Kongthon, A., and Lu, J. C. (in press), "Research Profiling - Improving the Literature Review: Illustrated for the Case of Data Mining of Large Datasets," Scientometrics.

Rajamanickam, Rangaswamy, Jayaraman, and Sundaresan (1998), "U.S. Apparel Distribution: Where We Stand and Where We're Going?" Robbin, US, 40(4), 51-54.

Shapira, P., Youtie, J., Porter, A., Mohaptra, S., Oh, E., and DiMinin, A. (2001), "Evaluation of the MITI Advanced Material Processing and Machining Technology Program," Final Project Report, Technology Policy and Assessment Center, School of Public Policy, Georgia Institute of Technology.

Shaw, Monica (1997), "Georgia-Pacific outsources transportation activities to reduce costs, meet demand" Pulp & Paper, v. 71, n. 6, p. 117-119.

"Georgia-Pacific Puts Premium On Trucking (2002): The trailers at Georgia-Pacific can travel cheaper and more efficiently thanks in part to a collaboration with such companies as ConAgra and International Paper", Green Bay Press-Gazette (Wis.) (7/15)