July 2006 | Case Studies | Casebook

Sailing Through a Shipping Maelstrom

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The world's largest appliance manufacturer sets sail with a new tool to coordinate and optimize ocean freight transportation services.

It may seem ironic that a company named Whirlpool would need help coordinating and optimizing ocean freight transportation, but these days, companies shipping freight via ocean need whatever advantages they can get. Rising costs, increasingly complex schedules, new rules and regulations, and a variety of other issues are enough to make any ocean logistics manager seasick.

Appliance manufacturer Whirlpool recently tapped CombineNet to help steer its ocean freight transportation services into calmer waters. A Pittsburgh-based transportation sourcing technology specialist, CombineNet offers Ocean Manager, a web-based tool designed to help corporate supply chain and logistics teams quickly and easily configure and manage ocean freight sourcing events.

The challenges of ocean freight shipping, especially when saddled with inadequate planning and management tools, are all too familiar to Collin Prillwitz, a senior financial analyst at Whirlpool. That's why he sought a technology that would automate routine processes, provide decision support, and give managers fresh insight into complex problems.

Out to Sea

"CombineNet has developed a dynamic optimization tool that calculates shipping scenarios—that could not be done manually—in seconds," he says. "These scenarios present the cost and operational impact of carrier selection and business decisions."

Prior to deploying CombineNet's technology, Whirlpool relied on Excel spreadsheets to calculate its ocean freight costs.

"We used Excel to collect data from our regions. We'd send the spreadsheet to a carrier and ask it to input its information," says Prillwitz. "With CombineNet, we've entered a new world of streamlined information communication and management."

When it completed its long-planned acquisition of rival Maytag last March, Benton Harbor, Mich.-based Whirlpool became the world's leading major home appliance manufacturer. The company has annual sales topping $19 billion, more than 80,000 employees, and more than 60 manufacturing and technology research centers worldwide. Whirlpool markets Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Brastemp, Bauknecht, and other branded appliances to consumers in nearly every country in the world.

With so many locations and brands, not to mention the substantial size of many of its products, Whirlpool's shipping costs are immense. The company spends approximately $130 million per year on ocean freight services.

"Our ocean freight consists of finished product moving to global markets around the world," says Prillwitz. "We do not use ocean freight often for inbound raw materials."

Because of its high costs and the need to ship products safely and quickly, Whirlpool spends a great deal of time and effort planning and coordinating ocean freight services. That's why, late last year, the company decided to dump its spreadsheets and turn to a more powerful and sophisticated management tool.

Collaborative Communication

Ocean Manager helps shippers and carriers communicate supply and demand needs collaboratively and strategically. Via web-based messaging, the system allows shippers to express their specific requirements, constraints, and preferences, while carriers are encouraged to present their strengths and capabilities. The ultimate goal is accelerated supply chain efficiency, innovation transfer, and cost reduction.

Whirlpool uses CombineNet's technology to invite ocean carriers to limited duration bidding events for specific ocean freight services. Participating companies visit a Whirlpool/CombineNet web site and follow the on-screen instructions for participating in the bidding process.

"We generally invite all the ocean freight carriers we send RFPs to," says Prillwitz. "If we are not familiar with an ocean freight company, we'll send it an RFI, evaluate the information, then invite the company to the bid."

Approximately 40 carriers participate in each bidding event. The carriers are typically given a two- to three-week window for submitting their initial bids. As they arrive at the site, carriers can download Whirlpool's RFP and read its terms and conditions.

"Once they've accepted those terms, carriers can download our lane list—our data sheet," says Prillwitz. "Our file is open to every shipping line; everyone sees the same lane information."

The new system makes life easier for both Whirlpool and the bidding carriers, reducing the chance of miscommunication and the likelihood of unsuitable bids.

"Carriers can filter the data sheet and look for their strengths, or look for certain areas where they want to carry freight," notes Prillwitz. "Some regional carriers, for example, specialize in shipping to Southeast Asia or the Middle East."

The system's Assessment Creator feature automates RFI collection, carrier evaluation, and approval from directly within Ocean Manager. It also saves time and energy by standardizing bids and the bidding process.

"Carriers download our bid sheets, then upload the same sheets with their rate and transportation information included," says Prillwitz. "It makes the bids easier to read and cuts down the confusion."

Spanning the World

The CombineNet technology helps Whirlpool manage ocean freight shipping requirements for business units that literally span the world. The company operates nine major manufacturing facilities, located in the United States, Brazil, China, Germany, Italy, and Mexico. It also operates dozens of smaller manufacturing and distribution sites worldwide.

"The CombineNet optimization tools make sharing and analyzing information seamless and secure," says Prillwitz. "Each region has the ability to calculate its own scenarios, build its own shipping options, and see results instantaneously."

With so many shipping points, thousands of lanes are up for grabs during each bidding event. "On a global ocean freight bid, the requests come from each of our operating regions—Europe, South America, North America, and Asia," says Prillwitz.

Each region maintains its own rates, rate files, and lane files. The system helps Whirlpool managers take shipping requirements from facilities around the world and present them to carriers in a unified and understandable format.

Easing Complications, Expanding Flexibility

Ocean Manager's Lane Configuration feature allows Whirlpool to define lane attributes and shipment-related display items to represent its needs. The feature provides origin and destination (by region, country, location, and port), service type, container type, annual volume, historic transit time, commodity, and customer views.

"For a large, global company such as Whirlpool, with high-volume shipping on multiple lanes around the world, coordinating shipping data on the back end can be a complicated analytical problem," says Michael Concordia, CombineNet's vice president of North American sales.

With Ocean Manager's Expressive Bidding feature, Whirlpool's carriers can build flexibility into their bids. This allows Whirlpool to save time and cut costs in cases where it's willing to accede to certain carrier conditions or concessions, notes Prillwitz.

"Carriers can customize a bid to their business—they can add a volume discount, for example," he says. A bidder might also note that while it doesn't serve a port listed in Whirlpool's data sheet, it does have operations in a nearby harbor.

The technology also helps Whirlpool set and enforce its bidding rules. The company can set guidelines to cover almost any need.

"We can, for instance, limit carriers if they cannot meet capacity," says Prillwitz. "We can specify niche carriers to transport freight in a market they specialize in, and we can eliminate carriers at any point."

Critical Information

Ensuring that carriers submit the bid information Whirlpool needs to make optimal award decisions is made easier by Ocean Manager's Collection Configuration feature.

Whirlpool can request that carriers input multiple bid attributes that demonstrate their capabilities, including all-in-rate per container, delivery days, capacity, origin port, origin door-to-port transport, transshipments, destination port, fixed sailings, cut-off day, sailing day, arrival day, transit time, free time at port-of-discharge, and free time at destination door.

Besides paving the way for fast and accurate bids, Ocean Manager lets Whirlpool managers brainstorm on the impact of different routes, schedules, and carriers. "CombineNet's bid optimization tool is an efficient and practical system," says Prillwitz. "It delivers critical analysis in seconds that would take a team of analysts at least a week."

The system's Scenario Builder module aims to help shippers mitigate risk and make better decisions quickly by identifying award allocations that meet their business needs. Self-service advanced scenario analysis also helps companies understand the cost impact of each business rule and stakeholder preference for quantifiable decision-making across multiple users and organizations.

In addition, the system allows users to create various scenarios that present cost and operational impact based on carrier selection, schedules, and other key criteria.

Whirlpool also continues to utilize Ocean Manager after a bidding session has ended. "It provides a repository of data, especially helpful for a global team," says Prillwitz. "Our employees around the world can access information in Ocean Manager, even though they're not actively bidding."

Whirlpool uses Ocean Manager to negotiate rates and schedules with ocean carriers of all sizes.

"We work with 25 ocean freight companies globally," says Prillwitz. Its top ocean carriers include Maersk Line, Mediterranean Shipping Co., CMA-CGM, "K" Line, Evergreen International, Libra, Hapag-Lloyd, and COSCO Shipping Co.

Because Ocean Manager is an on-demand solution, hosted on CombineNet servers, Whirlpool was spared the task of installing software or integrating the product into its existing IT infrastructure.

"Ocean Manager runs on an application service provider model, so shippers don't install software behind the firewall," says CombineNet's Concordia. "Shippers and their carriers can access Ocean Manager from any desktop computer with a web browser."

Whirlpool has held two Ocean Manager-hosted bidding sessions over the past few years. Its bid season typically runs from November through February. The latest round started on Dec. 1, 2005, when Whirlpool sent bid notifications to its carrier partners.

The first bidding round lasted from Dec. 15 through Jan. 16, 2006. A second round ran from Jan. 24 until Feb. 1, 2006. Whirlpool analyzed the bids and conducted final carrier negations between Feb. 6 and Feb. 20, and awarded contracts on March 6 for shipments beginning on April 1.

User training hasn't been a problem, says Prillwitz, who notes that Whirlpool managers worldwide jumped at the opportunity to dump their cumbersome spreadsheets for the web-based technology. CombineNet supports Ocean Manager with online training available to employees at Whirlpool as well as its carrier clients.

Intangible Benefits

Whirlpool hasn't yet calculated the ROI it has achieved with Ocean Manager, but Prillwitz is certain the system will more than pay back its investment.

"It's faster and more accurate than using spreadsheets," he notes. It also provides many intangible benefits, such as expressive bidding, improved communication and enhanced insight, which are difficult to measure, he adds.

For his part, Concordia believes many ocean freight shippers are comfortable using their simple, outdated planning and management methods and unwilling to recognize that better tools exist.

"Many shippers simplify problems and try to mask their complexity," says Concordia. "If they're not aware that new and better ways to manage ocean shipping events are available, they see no reason to change."

Prillwitz agrees. "CombineNet gives us the confidence that we're managing our ocean bid process the right way."

This could be the only time in history that a whirlpool has created smooth seas for ocean carriers.

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