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August 11, 2020
8 minutes

The art of implementing transport contracts – round table discussion

A round table discussion on the theme of Carrier RFQ compliance. The focus of the discussion is how the implementation of new transport contracts is rolled out and complied with. Seated around the table are Peter Olofsson, IKEA Components; Lars Jarmander, Orkla Group; Dan Andersson, Chalmers; Henrik Malmrup, Hiab; Stefan Isacson, Schenker; as well as Johan Hellman and Roland Jansson from Unifaun. The discussion is led by Stefan Karlöf, Supply Chain Effect.

“I have to say that generally everything works very well in IKEA. Both in terms of implementation and getting the carriers and our employees to keep to the agreements. But for a long time now we have been working to create processes and procedures for this. We have a tightly controlled package that regulates KPIs and everything from the legal aspects, how disputes should be resolved, and how we follow up and measure performance and costs.” “We have also succeeded in creating very good visibility in the supply flow, from suppliers and factories to retail stores and end consumers”, says Peter Olofsson, Transport and Process Development Manager for IKEA Components, and previously Global Purchasing Manager for the IKEA Group’s land transport.

“In my current role, I work to align and incorporate IKEA Components into the system and structure for transport that applies for the Group in general. There definitely is potential for improvement in the work, but we have a big advantage in that we already have smoothly functioning mechanisms for this within the group”, says Peter Olofsson.

IKEA currently has around 150 transport suppliers globally. This is relatively few considering the frequent need for local niche operators familiar with the geography. Global transport operations are managed centrally from Switzerland, as well as regionally, such as in Europe, for example, where the transport operation is managed centrally as a common organisation, with common IT systems, control towers and processes. IKEA Components AB is a member company of the IKEA Group, providing the Group’s suppliers with the inputs and components used in IKEA’s furniture.

Major differences between different businesses

At IKEA, transport takes a high share of the value of the goods, there is a high level of cost awareness, and transport and logistics have long been a priority area. The participants around the table agree that this is very different for different businesses.

“We are facing great challenges in the Orkla Group, even though we have come along a good way. In a decentralised organisation with almost seventy legal entities and factories here, there and everywhere, we have a culture where the various entities are accustomed to deciding things for themselves. That fact that head office says how things should be done does not suffice, there is a need for consensus, support and cooperation between those of us who work centrally and those who work in the operation”, explains Lars Jarmander, Senior VP Logistics at Orkla Group.

Support is fundamental

Lars Jarmander has worked in the Orkla Group for just over 2 years. One of the main tasks includes centralising, streamlining, standardising and finding synergies in transport operations.

“A year ago we had forty-seven transport suppliers, today we have thirty-eight. Perhaps we should have cut down even more, but we have chosen to take it step by step and in cooperation with the organisation. The level of interest among the top management in these issues is often quite low. It means that a lot of potential is missed”, says Lars Jarmander.

The discussion continues on the importance of support. Everyone seems to agree in this respect as well, that support and participation are absolutely crucial to success, and the importance of involving their own organisation and the carriers.

“A common problem we often face is that a purchasing organisation or similar has procured something that does not reflect what the business needs and has confirmed the order. Then when we are due to deliver, we soon understand that there are errors in the content of the transport agreement. This is a typical example of how important it is to actually involve all of the parties at an early stage of the process if it is to be possible to implement an agreement”, explains Stefan Isacson, Head of Business Development at DB Schenker and head of a team responsible for developing and implementing the transport solutions for Schenker’s hundred largest customers.

“We really see the whole range of different stakeholders. Everything from the very well organised to those who are not so structured and demanding. One frequent challenge is the customer’s belief that everything not explicitly outlined in the agreement should be included in the basic price. We believe, on the contrary, that for something to be valid it must be stated in the agreement, and above all we want a commitment on the services included in the agreement”, says Stefan Isacson.

Need for a business understanding

A clear conclusion from the discussion is therefore that procurers of transport solutions really do need to have an understanding of the business as well as a good knowledge of logistics. Being a good negotiator is definitely not enough on its own.

One experience is that when sourcing is leading transport procurements, it easily becomes a question of price because they are often distanced from the business and are therefore unable to understand the whole set of requirements.

“It is possible to do it centrally, but by people who understand the whole of the company’s supply chain, and in close collaboration with business areas and companies with an operational support”, says Henrik Malmrup, Director Service Excellence & Supply Chain at Hiab Services. Hiab is a leading supplier of products for load handling, including the brands Loglift, Jonsered, MOFFETT and Zepro.

“The importance that people who purchase transport services should have competence in transport can hardly be overestimated. Something that has been pointed out by transport buyers at our workshops. Our surveys also show that it is predominantly transport managers who choose the type of transport”, says Dan Andersson, associate professor at the Department of Service Management and Logistics, Chalmers.

Dan Andersson is one of the driving forces behind the Transport Purchasing Panel, the aim of which is to contribute to streamlined purchasing, better logistics and reduced environmental impact from transport by means of research in close collaboration with the business sector.

Increased management focus

Henrik Malmrup asserts that transport is almost never a core activity. This is why it is often difficult to get the resources and the right focus from management.

“The same applies to logistics in general, which is often only considered as a cost item, and something that should work without costing money. Herein lies a common challenge to everyone working with logistics and transport, to show how we can create value and competitiveness.”

Lars Jarmander agrees. Management takes note that transport takes up a large proportion of the logistics cost, but it is unusual to consider transport as a source of increased competitiveness.

“Unfortunately, transport gets most attention when it is not working, and then the organisation and skills needed to develop and improve are rarely available.

The role of the IT systems

A common denominator for the discussion’s participants is that they use Unifaun’s TMS (Transport Management System) in their activities The question then becomes inevitable: How can IT systems including TMS and TA systems be used to implement, and ensure compliance with, transport agreements?

“The TMS governs the choice of transport and facilitates the follow-up of transport costs and performance. They make the choice automatically and are therefore of educational value within the organisation. “Introducing a new system also sets requirements for order and methodology in the agreements and suppliers, which means that it can contribute to a simpler implementation and ensure compliance with the agreements”, says Henrik Malmrup.

Other participants nod in agreement. Everyone agrees that a TMS is extremely important, but again there is emphasis on the importance of involving the organisation, local companies and entities in the work to draw up and negotiate transport agreements.

The prescription

The key to successfully implementing and creating compliance with transport agreements appears to be to encourage commitment, involvement and understanding of the needs. This in turn forms the basis for correct requirements specifications, well-worded agreements, and good dialogues with suppliers. There will also be a need for structures, processes and IT systems – including TMS – in order to process agreements and transport administration. And once all of this is in place, the preparations will be complete if the top management is committed and knowledgeable, and understands the role of transport as a means of competition and creating value!