Logistics is a supply chain effort involving the planning, implementation and control of the forward and reverse flow, storage and services of goods from origin to destination.
Frito-Lays logistics defined its mission as delivering the right product, to the right place at the right time, in the right amount, in a cost effective manner.
The logistics system is complex and consists of six geographic zones. The managers of the zones were responsible for their own logistics and there was very little interaction between the zones. They primarily utilized their own private fleet of trucks and supplemented it with third party carriers to transport its less service sensitive shipments such as inter-plant shipments. They had a very high on-time delivery rate of 99.1%.
The private fleet coupled with the CADEC system allows fleet drivers to maximize productivity and provide excellent customer service. The CADEC system is designed to support regulatory reporting. It routinely tracks trip events from the perspective of the driver and the time between significant points of travel. It has good reports and provides reliable and consistent data with flexibility afforded through a combined automatic data capture and driver keying. The fleet drivers act as customer reps and are the eyes and ears of the organization.
Frito-Lay appears to have a strong distribution network. It is one of the companys pillars for success. The companys private fleet is an integral part of the network because it guarantees an uninterrupted supply chain. Because the product production cycle is short and the majority of the items are highly perishable, the logistics network and, in particular, its private fleet allows Frito-Lay to guarantee an uninterrupted supply chain. The objectives of the logistics are tied to the goals of Frito-Lays corporate headquarters.
The private fleet also may allow Frito-Lay to provide back haul service and act as a profit center. The VSP system will probably need to be upgraded, however, in order to accomplish this. It is an older system used to determine routes with an antiquated algorithm for determining routes. There are opportunities to improve routes (and therefore reduce cost) by replacing VSP. It also appears that the best routes would be needed to insure that the backhaul proposal is cost effective.
2. As Ed Kluger, prepare a marketing plan for Frito-Lays proposed backhaul services
Kluger would need to first convince the internal team regarding the benefits of the backhaul service. He would need to describe the overall benefit to the company, particularly overall profit.
The overall external marketing plan for the proposed backhaul service should take into account the following:
a. Customer analysis: Frito Lay should identify/segment the specific market that it should target, followed by developing a positioning statement that clearly states the benefits/ advantages of working with Frito-Lay as a third party transport/logistics provider. As a general approach, it should target companies that do not have transport/logistics as their core competencies. For instance, manufacturing companies may not necessarily have strengths in logistics/transport services and Frito-Lay, given its success in logistics and transport can leverage its strengths and capabilities in this area. This would then allow the customers to focus on their own core competencies.
b. Company analysis: Frito-Lay should then evaluate its own core strengths in providing backhaul services. Does success as being its own logistics provider translate to efficiencies in being a third party logistics provider or are its current services too specialized for its needs? Does Frito-Lay have a unique positioning/competitive advantage in providing this service as opposed to other logistics providers? Arguably, Frito-Lays current delivery system may be too customized for its own customers demands and it may be a challenge to coordinate backhaul services especially with its existing VSP system (vehicle scheduling program) which appears to be inflexible and unsophisticated to serve even Frito-Lays own transport needs.
c. Competitor analysis: Frito-Lay should systematically evaluate whether competitors exist in the market that can have a competitive advantage in providing logistic services. It should also determine whether it is able to provide service leadership or operational excellence in logistics.
If marketing analysis then suggests that Frito-Lay has a core competency in providing common transport services, then it can promote its backhaul services as a means for the customers to allow Frito-Lay to take over operational capabilities that may not be the customers core competency. Using Frito-Lay as a transport service can also reduce the customers logistical expenses and investments in developing its own delivery service.
3. Should senior management at Frito-Lay approve the backhaul proposal? How should the backhaul program be implemented?
Frito-Lay should not approve the backhaul program for the following reasons:
a. It would be a distraction from their core-competency, which is maintaining their service-to-sales structure.
b. They have six core products that account for 80% of their sales. Each core product has a short shelf life (25 to 30 days) and has to cycle through the distribution system very quickly. This means that the backhaul sales organization would be at a competitive disadvantage with other trucking companies as their ability to pursue more lucrative routes would be restricted.
c. Their existing vehicles are too specialized to be functional for delivery of other products. 85% of their fleet are drop-frame trailers, which are two feet off the ground, thus creating large restrictions on the amount of weight that can be carried. In addition, these drop frames are fairly uncommon, require special loading docks and are not compatible with forklifts. This makes loading and unloading more cumbersome, which may result in lower turn around and delivery rates.
d. The evaluation of the expected gross margins seems aggressive at 65% after 11 years of operations, especially since at no point is competition introduced into the assessment.
e. Another factor is that management would like to halt the rise in delivery costs, which may have more to do with excessive service to sales policies. Backhauling may simply mask a larger growing problem.
f. The overwhelming lack of company support from the sales department to the drivers makes it very difficult to launch.
Instead, in order to reduce the rise in delivery costs, Frito-Lay may consider the following:
a. Invest in IT improvement, particularly their vehicle scheduling system (currently VSP), which is currently ineffective and cumbersome to use. A more efficient and coordinated IT system can streamline the scheduling process, thereby reducing delays and their attendant costs.
b. Reevaluate its distribution network (plants, regional units) to find a way to minimize interplant transfers, or the tiered delivery process for specialty products. One way to address this is to evaluate the flow of goods through the various plants followed by reconfiguring the delivery routes to increase efficiency. An IT system (as mentioned in part a) can facilitate this process.