2.5-million reasons to insource your logistics

Outsourcing has become the norm in business but when Corus wanted to improve its logistics it decided in-sourcing was the better option. We spoke to Bill Kehoe of Corus to find out more.

Conventional business wisdom says outsourcing is the best solution when you are dealing with sizeable logistics requirements but Bill Kehoe would disagree.

Driven by a strong commitment to continuous improvement and working in partnership with both customers and suppliers, Bill and his team began to scrutinise every part of Corus’ logistics operation about eight years ago.

“We examined the pricing system that the logistics and steel industries were using and it didn’t seem to work for either party,” says Bill. “As a customer we had no idea how the costs incurred related to our deliveries and at the same time each transport firm was forced to use a system that had no relationship to the costs it incurred as a business.”

In a move reflecting Corus’ partnership approach, Bill began an intensive consultation process with transport providers to identify what costs and time were incurred by them on the company’s behalf.

A new pricing system was subsequently developed which ensured suppliers were reimbursed for costs and paid a management fee to cover time.

“Suppliers welcomed the new system,” says Bill “By basing their pricing on agreed costs plus time instead of tonnage, suppliers knew for the first time that they were guaranteed to make a specified percentage of profit on every job.”

The new pricing system took into account changes in fuel costs – a major concern for

many haulage companies whose profits can often be wiped out by this and other unpredictable factors. 

It was Corus policy not to award transport contracts for the same period as equipment lease agreements.  This put the supplier at risk particularly in relation to trailers which were specific to the steel industry.  Corus agreed to underwrite these leases in the event that they either changed service provider or in-sourced.

“Our logistics providers welcomed our new approach because it meant for the first time they could have an open, honest relationship with a customer and, for many, it enabled them to get complex information about their own business’ cost base for the first time.”

The system was an unprecedented success with average utilisation per vehicle increased from 17 to 22 tonnes per shift for no increase in costs.   So why did Bill opt to change the process again?

Bill explains: “Challenges facing the UK steel industry as a whole meant that, like other steel companies, we were looking to reduce costs.  This factor combined with our focus on continuous improvement, lead us to question whether we could reduce the amount of money spent on management fees by taking some of the logistics function in-house.”

A complex feasibility study was undertaken which considered factors such as TUPE, contract management support and the availability of drivers.  Bill and his team realised that the disadvantages of in-sourcing transportation and logistics were not as difficult as first perceived because the key resource (the people) were protected under TUPE.  What Corus needed to do was convince them to change employer.

Driver recruitment – a key issue – was tackled by the development of a ‘driver pay package’ by Corus’ HR team.  The package exceeds the norm for the haulage industry by providing over six weeks holiday per year, a salary based on a 55 hour working week including breaks, sick pay and a final salary pension scheme.  

“Our drivers pay package leads the industry and has proved outstandingly successful.” says Bill “When we launched it, we literally had drivers queuing for jobs with us.  This helped ensure the transition from an outsourced to an in-house logistics function was seamless.”

Drivers elect to work either day or night shifts, in both instances it is a job and finish system.  This allows working time hours to be used in the most cost effective way – on busy days they work longer shifts and quiet days shorter periods.  The salary system allows for this flexibility by providing continuity of earnings which they value.

Additional driver support is also available in most of the traffic desk teams.  These drivers also help ensure continuity of supply by providing additional day time support to cover sick leave, holidays and periods of exceptionally high demand. Their inclusion in the traffic management control team has also improved operational efficiency with jobs being allocated by people who have an in-depth understanding of specific delivery requirements.  These factors have combined to improve customer service.

Driver and customer safety has also been improved with a recent £3.5-million investment in a new fleet of bespoke rigid and artic vehicles together with trailers that are specially designed to suit Corus’ requirements. 

Finally fuel costs were significantly reduced by the instigation of bulk buying.  On current volumes 1p per litre is worth £14k per annum.

The switch to an in-house logistics operation has delivered significant improvements in customer service, driver retention, health and safety and, because of a commitment to replace equipment every five years, service reliability. 

And the improvement process never stops. Bill concludes: “We’re now analysing driver feedback so we can incorporate it into the new vehicle and trailer designs we are developing.   We continue to monitor our cost base on a monthly basis and to check that we’re applying a consistent approach across all of our in-sourced and outsourced service centres. And as ever, we’re always looking for a better way to do business.”