Case Study: Land O'Lakes and Collaborative Logistics - ' Cultural Roadblocks '

Cultural Roadblocks

But it's not all peaches and cream. Collaborative logistics hasn't yet delivered the supersized savings that the early hype promised. Originally, Land O'Lakes had been hoping for twice the savings over five years; now, the dairy co-op expects savings of only a fraction of that by 2003. "We've not achieved the savings we'd hoped on route-sharing but we still felt it's significant," Johnson says. One drawback, Johnson says, is that there aren't many member companies who need refrigerated trucks like the ones that Land O'Lakes uses to transport its perishable cargo.

Cultural problems also continue to slow wider adoption of the concept. "Teaming with others inside your industry, some of whom are considered the enemy on other fronts, still isn't a simple concept for a lot of people," says AMR's Richardson. The misgivings of one could erode a collaborative logistics network's usefulness for all. Adds Johnson: "Learning to share is still a tremendous challenge. External sharing, our company with another, is hard enough, but sometimes it's even a challenge internally."

There's also worry about scheduling; some shippers are afraid that sharing routes with other companies could make a firm more vulnerable to scheduling delays over which individual companies may have little control. "If production went down, if a customer didn't end up ordering a product, if one link in the chain breaks, then what happens to us when we've built our schedule around that?" says Mike Sinclair, vice president of national accounts for Crete Carrier Corp., a Lincoln, Neb.-based carrier and Nistevo subscriber. "There's no shipper out there who wants to pay an extra 200 to 300 deadhead miles because one company's leg isn't there that week."

Johnson says that he, too, was worried at first, but less so now because Land O'Lakes has limited how often it uses Nistevo externally, opting more to use the network to ship products from one company location to another—and less to coordinate direct shipments to external customers. "If there was a problem at General Mills and the truck was delayed leaving General Mills and we were counting on it being at our warehouse at a certain time so we could ship out some customer freight on it, sure we'd have some concern. But with us, it hasn't turned out to be a problem, at least not yet."

But concern across companies still runs high. According to the Georgia Institute of Technology, in a survey of corporations about their logistics practices over the past three years, interest in collaborative logistics is greater than actual use for many firms. "If you ask to what extent they're using collaborative logistics or Web-hosted spot buying right now, and to what extent they'll be doing so in the future, we always get enthusiasm for future results," says C. John Langley, professor of supply-chain management at the Atlanta school. "But when we look at the survey the next year, we keep having to conclude that the future hasn't quite arrived yet."

Johnson says the main reason for this in his view is that collaborative logistics is tough to execute. "You're having to share stuff," he says, "and that's never easy in a competitive environment that's made up of companies with different cultures and different objectives and different metrics and performance measurements." Still, Johnson believes the prize—significant potential savings and efficiencies—make the struggle worthwhile. "Everyone at Land O'Lakes had talked about doing this for a long time, and there have been savings so far, and more to come. There are trucks, for example, that have the space on them to take 45,000 pounds of stuff to customers, yet we're getting only 34,000 or 35,000 pounds on them. If you could get somebody else on that truck with you, to fill it to capacity, it's gravy."

For now, though, some packaged goods partners continue to be plagued by a palpable cultural disconnect between their IT departments and "the logistics guys," Langley says. The big problem, he says, is the indifference or even antipathy some corporate CIOs display toward business-side logistics managers. "Particularly where companies have had a big systems implementation like SAP, they'll stiff-arm everyone else for two or three years until they think they've got everything under control," Langley says. "If you're trying to manage logistics activities, that doesn't help you a whole lot." Adds Adrian Gonzales, senior supply-chain and logistics analyst for the ARC Advisory Group: "Sometimes, the logistics groups aren't high enough on the pecking order to get the good IT support they need."

But not so at Land O'Lakes, where Johnson was determined to make logistics a priority—and worked closely with IT to develop the new logistics strategy from the start. When Johnson arrived at the company in 2000 from Pillsbury's Häagen-Dazs division, he expressed no dissatisfaction with the job being done by traditional third-party logistics provider C.H. Robinson, which saved Land O'Lakes money by negotiating better shipping rates than the co-op could get, charging the company a $15 fee every time Robinson procured a truck.

But Johnson was convinced Land O'Lakes could do better—and he was right. "From talking to carriers, we knew that there was some money on the table if we eliminated the middle person," Johnson recalls. "We figured we could go with a core-carrier strategy, using fewer carriers, which would allow us to leverage our size. We would be more important to them, and they'd want to make us happy." Direct control also would assure that needed capacity was always available. Johnson says LOL's IT people were supportive: "I think the challenge in working with IT any time is finding something you both agree on," Johnson said. "Lots of times, IT thinks it's got bigger fish to fry—you know, ERP systems and the whole nine yards. Logistics is only a very small piece, but it's been very successful for us."

To join Nistevo's network, Land O'Lakes paid an initial subscription fee of $250,000, and the co-op incurred nearly again that much in related startup costs, such as training its 10-person logistics staff to use the Web site. But Johnson says those fees were covered by savings from his logistics strategy within the first six months of use. What's next? Some companies remain determined to try to go to the next level and achieve the holy grail of collaborative logistics: two or more producers sharing a single truckload, not just a route. "There are some products we have that fill up the truck but don't weigh out, such as toilet paper," says Georgia-Pacific's Snider. "If we could partially fill that truck with items that are heavy and dense it would help. Ideally, we'd like to weigh and cube the truck out at the same time."

Land O'Lakes' Johnson, for one, is game. He's trying to arrange for a single truck to carry a refrigerated load for his company, then turn off the cooler and carry a dry load—toilet paper would qualify—for a collaborator on the return route. "These problems," he says, "aren't insurmountable." Indeed, for Johnson and Land O'Lakes, collaborative logistics has only begun to milk big savings.

Dale D. Buss is a freelance journalist based in Rochester Hills, Mich. He regularly writes about IT issues and the consumer packaged goods industry. His work has appeared in The New York Times, The Wall Street Journal, BusinessWeek, Business 2.0, Chief Executive and Brandweek. Please send comments about this story to editors@cioinsight-ziffdavis.com.