What retail transportation and logistics managers want most is to move back into the driver’s seat. After years of running inbound services on costly prepaid contracts, juggling inefficient less-than-truckload (LTL) deliveries and eating empty backhaul miles, retailers are working to take control of inbound, outbound and reverse mileage. Few have succeeded as comprehensively and effectively as Memphis, Tenn.-based auto-parts retailer AutoZone.
Since 1995, AutoZone has grown from 1,000 stores to more than 3,800 stores throughout the United States and Mexico. Over the same period, the retailer has effectively gained control of the inbound leg of its supply chain by transitioning from prepaid contracts to “collect” transactions for the carriers that deliver shipments to its distribution centers (DCs) and by consolidating LTL shipments into truckload shipments.
To facilitate these improvements, AutoZone outsourced many of the tactical and operational processes across its supply chain to third-party logistics (3PL) providers. On the domestic front, AutoZone partnered with Transplace (Plano, Texas) and, for international shipments, with Kuehne & Nagel (Naugatuck, Conn.) In some instances, AutoZone also relies on dedicated carriage provided by J.B. Hunt (Lowell, Ark.) and Cardinal Logistics (Concord, N.C.) However, outbound shipments from its DCs to stores are handled by the retailer’s private fleet.
“Ten years ago almost all of our inbound shipments were prepaid and LTL,” said Richard McDuffie, AutoZone’s VP, transportation and logistics. Now, the majority of the company’s current purchase orders are shipping collect or being transported by its private fleet. In fact, AutoZone maintains an impressive efficiency record with its utilization of backhaul miles.
“A majority of our inbound shipments are being transported by our own trucks on their return routes from store deliveries, and our fleet has become the No. 1 carrier for other Transplace clients.” Said McDuffie.
The retailer and its 3PL partners have also made considerable progress consolidating LTL shipments into more economical truckload (TL) deliveries by implementing cross-docking procedures. Previously an AutoZone vendor would send multiple LTL shipments to each of the retailer’s DCs to serve the stores closest to each respective DC. With seven domestic DCs serving thousands of stores and receiving shipments from hundreds of vendors, there was considerable inefficiency in this approach. Now AutoZone’s vendors consolidate store orders into TL shipments, which deliver to the DC closest to that vendor where they are cross-docked for delivery to the other AutoZone DCs and ultimately for store delivery.
“Consolidating vendor shipments into TL quantities has allowed us to take a seven- or eight-day process down to only two days,” said McDuffie. “Ten years ago practically every shipment was LTL, now most of our purchase orders are arriving on consolidated truckload shipments.”
Unique challenge: The nature of auto-parts retailing creates unique demands on reverse logistics because core auto parts that have reached the end of a life cycle, such as alternators, starters and batteries, can be returned to the manufacturer for refurbishment. These products have sufficient value to justify the retailer and manufacturer crediting consumers for returns and shipping the parts back through the supply chain. AutoZone has converted this logistics challenge into an opportunity to optimize its backhaul miles, which McDuffie characterized simply as “distribution in reverse.”
The majority of products sold at AutoZone are purchased from vendors with distribution locations in the United States, which keeps the returns process more manageable than it might be with international suppliers. “I anticipate we will continue to source globally, but how much we grow international sourcing will depend on what makes the most sense from a service and a cost perspective,” predicted McDuffie.AutoZone
Headquarters: Memphis, Tenn.Annual sales: $5.948 billion in fiscal year ended Aug. 26, 2006Store count: 3,800 in United States and MexicoTransportation: Dedicated carriage, 3PL providers and private fleet
Managing international logistics is not his primary concern, however, largely because he anticipates Kuehne & Nagel would be capable of handling any increased flow. What he worries about are transportation problems that are closer to home, over which he has no control.
“I’m most concerned about the transportation capacity and infrastructure in the U.S.,” noted McDuffie. “The ports and rail system in our country are not sufficient to handle the volume, and we aren’t maintaining or developing the highway infrastructure to support our population base. The steady rise in fuel costs is also worrisome—but addressing the transportation infrastructure tops the list of what we should be working on.”
Thomas Sanderson, president of Transplace, echoed his client’s concerns, citing the “huge limitation on port capacity, limited funds to repair existing highways with no money available for expansion and the continued shortage of truck drivers,” among the most critical needs.
By partnering with a 3PL provider, retailers can gain better utilization of all their transportation miles as well as relieve overall congestion and demands on the domestic infrastructure. For instance, Transplace manages more than $2.4 billion of freight annually for its clients—providing ample opportunities to utilize AutoZone’s backhaul miles that otherwise would be empty.
McDuffie suggested the key to a successful 3PL partnership is inclusion. “We bring our 3PL providers into the tactical and strategic planning process and share our business information with them so they can reduce costs and improve service,” he said. When selecting a 3PL provider, he makes his choice based on the value proposition and innovation that the partner proposes to deliver.