Case Study: Land O'Lakes and Collaborative Logistics

Every Monday at 8 a.m. sharp, a semi truck pulls out from a warehouse in Syracuse, N.Y., traversing 246 miles to deliver a load of Totino's Pizza Rolls, Pillsbury Toaster Strudel or other frozen General Mills Inc. products to supermarket customers in Carteret, N.J.

From there, it's on to General Mills plants and warehouses in Allentown, Pa.; Geneva, Ill.; and Columbus, Ohio—1,319 more miles—before the truck pulls into a Land O'Lakes Inc. dairy plant—not affiliated with General Mills—in Kent, Ohio, on Wednesday morning to pick up a load of butter and other refrigerated spreads bound for a Land O'Lakes warehouse in Florence, N.J., before "deadhauling" back to General Mills in Syracuse to start the circuit all over again.

It's a seemingly straightforward route of 2,243 miles but it's a significant journey for Arden Hills, Minn.-based Land O'Lakes and an historic haul for companies that follow its example and use the Web to collaborate with outsiders, and perhaps even competitors, to cut costs and rewrite industry rules in a way that would have been unthinkable just a few years ago.

While this particular rig on this particular route saves Land O'Lakes only about $200 a week by eliminating the need to "deadhaul" an empty semi-rig to Kent, add all these runs together, plus other shared routes, and such piggybacking is enabling a new in-house logistics strategy at Land O'Lakes that is cutting annual freight costs by 15 percent. "Before the Net, there was no way to handle the logistical, security and scheduling challenges required to team up with other companies to share delivery savings like this," says Bruce Richardson of AMR Research Inc. "The Net can give you the tools to manage it all." And how: Logistics management innovation has dairy cooperative Land O'Lakes looking at the Internet as a cash cow: So far, costs per load of product shipped, says Land O'Lakes, have been cut by up to 20 percent on some routes.

How does it work? In concept, collaboration logistics is a lot like car pooling: Just as ride sharing helps commuters reduce traffic, save fuel and, in some cases, speed the trip, Land O'Lakes is using the Web to share thousands of supply trucks to better coordinate hundreds of thousands of deliveries of everything from raw grain to boxes of sweet cream butter. And the Web is also helping LOL to negotiate better contracts with fewer carriers and rate carriers for quality, costs and performance. Does the carrier get to customers' docks on time? Are the carrier's prices competitive?

This all might not sound like a big deal, but consider this: A year and a half ago, Land O'Lakes truckers—some 50 different carriers—spent much of their time shuttling empty rigs down slow-moving backways—wasting up to millions of dollars annually.

Now, thanks to the Web, the company can identify the empty rigs, best carriers and find the fastest routes—and piggyback onto dozens of General Mills' and Georgia-Pacific Corp.'s routes to gain savings. These companies are able to do this, in part, by tapping into the processing power of a Web-based logistics network developed and hosted by Minneapolis-based transportation logistics software firm Nistevo Corp., that enables 24 other companies—from Baxter Healthcare to Seneca Foods Corp. and Ivex Packaging Corp.—to share some routes for savings.

For Land O'Lakes, it's no small change—either logistically or budget-wise. Multiply the $200 savings on a given route by 40 to 50 new weekly shared routes this year, and Land O'Lakes expects to cut its freight costs by as much as $500,000 annually. Overall, Land O'Lakes hopes to trim several million dollars in annual expenses by applying its Internet-based logistics-management system, including tapping into a collaborative network with other firms, to its annual haul of 35,000 truckloads of dairy products. "In the packaged foods industry, delivery trucks are hauling air—they're empty—20 to 25 percent of the time from one stop to the next," says Patrick Johnson, supply-chain logistics manager for the $6 billion company, and the executive who has led Land O'Lakes into this collaborative future. "In the first year alone under this system we saved $2 million in freight costs, and the company was able to take that right to the bottom line."

Since LOL's Johnson launched this leg of his new logistics strategy in 2001, the savings have kept on trucking: Land O'Lakes is also moving into collaborative warehousing, another Web-based trend for companies seeking to better manage transportation costs. "The Net is changing the way industries and companies look at the nature of competition," says Stanford University professor Hau Lee, a supply-chain expert.

Land O'Lakes is not alone in reaping substantial savings: Spice maker McCormick & Co. Inc. has reduced freight costs by 5 percent to 15 percent, while General Mills has estimated savings of up to 7 percent of its overall logistics costs. And given the savings it gets from a vast and growing Web of load sharing, Kellogg Co. eventually may find it irresistible to split a truck with archrival General Mills. Similarly, collaborative logistics is winning over manufacturers of household paper products such as Georgia-Pacific and International Paper Co. Atlanta-based Georgia-Pacific, for example, shares about 80 long-distance circuits with General Mills on a regular basis, cutting freight costs for those runs by anywhere from 5 to 20 percent, says Paul Snider, director of transportation for the Green Bay, Wis.-based consumer products division of the company.