EPCOS Sales launched an ambitious project in recent years to restructure its global transport logistics. At the heart of the project was the introduction of a new, standardised transport management system for 23 shipping centres around the world.
The solution from German software developer AEB now ensures that customers and transport service providers are seamlessly integrated into the EPCOS logistics processes. The result: shorter lead times and enhanced supply chain performance at significantly lower cost.
They are found in nearly every electrical and electronic device: components such as capacitors and sensors. An automobile may contain nearly 10,000 such components, and our mobile phones, fluorescent light ballasts, notebooks, and wind turbines couldn't run without them. They are critical to processing electrical signals, protecting electronic circuits, and ensuring energy supply.
EPCOS, a supplier of such components, boasts a portfolio with over 100,000 different types. The company, with some 25,500 employees working in a close-knit network of over 20 development and production sites, generated revenues of roughly €1.8 billion in fiscal 2013.
Global logistics plays a key role in the success of EPCOS. EPCOS supplies some 20,000 customers around the globe – including many leading global players in the sectors of automotive manufacturing, consumer goods, IT and communications, and mechanical engineering – which EPCOS supplies either directly or through wholesalers and distributors that resell a wide selection of EPCOS products.
Growing customer demands and rising cost pressures
"Our customers have very complex logistical needs," notes Gerhard Hofmann, Manager for Information Technology and Logistics at EPCOS. "From packing and labelling to documents and EDI messages, the logistics processes must be configured to mesh seamlessly with those of the customer." Strict contract language governs some of the specific requirements. EPCOS also faces intense competition, so there is tremendous pressure to cut the costs of its global logistics operations while still satisfying high performance expectations.
Demands on the speed and flexibility of logistics are also growing – in part because the company ties its manufacturing very closely to customer orders and keeps its inventory as low as possible in order to minimize fixed capital and inventory costs. But EPCOS logistics must still be capable of satisfying customer needs if, for example, there are last-minute changes.
That might happen if a customer calls up and says "Please increase the order from 10,000 units to 100,000 units of capacitor A, otherwise we may have to stop our production lines." Coping with this scenario generally means reallocating volumes from less urgent orders in order to fulfil the urgent customer request as quickly as possible – naturally with the appropriate level of quality and in keeping with the customer's specifications. This often means bringing in the goods from more distant sites, so EPCOS needs a logistics network that can make up the difference through short lead times.
Facing these growing demands and challenges, EPCOS launched an ambitious project to reorganize its transport logistics and supply chain processes. The heart of the project was the implementation of ASSIST4, a transport management system (TMS) from German software developer AEB that is used today to manage both operational and administrative aspects of transports. The reorganization of the transport logistics was broken down into numerous smaller projects that EPCOS and AEB worked on together for years, mostly in succession but sometimes in parallel. The key phases:
- Reorganize shipping logistics operations, extending integration into customer processes
- Introduce track & trace system
- Consolidate number of transport partners, tightly integrate carriers
- Introduce global, enterprise-wide freight cost management with self-billing procedure
- Merge shipping and freight management with track & trace processes into a single new TMS
Logistics structure of EPCOS
The global transport logistics of EPCOS is closely aligned with its global production processes. The company currently maintains more than 20 production sites around the world, with a regional emphasis on Asia and Europe. Each site focuses on the production of specific segments of the EPCOS portfolio, though there is some overlap to accommodate special requirements such as physical proximity to the customer.
EPCOS uses EDI to manage orders and confirmations with its key accounts EPCOS receives delivery schedules from its customers, and the ERP system at EPCOS runs an available-to-promise check with a shipping date that generally matches the date requested by the customer. Products are shipped around the world from the production sites in a two-phase transport chain (air/road transport or ocean / road transport). The global flows of goods pass through four central transfer points in Hong Kong, Singapore, Japan, and Brazil. Here the goods are consolidated. European-bound shipments are then brought through the three import gates of Hamburg, Frankfurt, and Munich, where the customs assessment processes are controlled. Distribution to European customers is handled from these three points by channelling the goods directly into the networks of domestic transporters.
Shipping logistics extending to the customer processes
The basis for the EPCOS transport logistics is the numerous logistics centres that EPCOS maintains around the world, generally where it has its production sites. "The picking and packing processes there need to run smoothly to meet tight delivery deadlines and satisfy specific customer demands," explains Gerhard Hofmann. "That's why we decided over a decade ago to begin replacing the old in-house system and optimising our shipping processes with the AEB solution."
Today, the shipping data is drawn from the SAP host system into the ASSIST4 shipping solution via IDocs. ASSIST4 generates the picking lists, and the goods are transported according to the person-to-goods principle to the heart of the EPCOS shipping system: the packing station. This is where the packing takes place – and where the groundwork is laid for seamless interaction of the logistics processes of EPCOS and the customer.
ASSIST4 guides the packing station worker from the product packaging level. A customer who orders 1,000 type A capacitors, for example, may plan on using these articles for different products and thus different production processes. "This means that the shipping item may consist of ten different product packages, each with 100 units of the same capacitor," explains AEB project manager Sebastian Zilm. "And ASSIST4 assigns each of these ten product packages a different label, each with its own specific customer serial number. This way, EPCOS customers can channel the capacitors directly into their production processes."
EPCOS has defined up to 900 different labels in ASSIST4 to accommodate this type of customer demand. A complex rulebase developed to accommodate this automatically calculates which labels are printed how often in which process and where they need to be affixed. New customer-specific labels can be created within just a few hours and, once approved by the customer, centrally distributed to all sites around the world.
The packing station is also where the goods are packed into the shipping packaging. This is where ASSIST4 shines, automatically consolidating orders and creating sub-packages to save shipping costs. Multiple orders by the same customer are linked at the delivery note level whenever possible, so the packer has the option to pack them together in a single box.
"ASSIST4 also takes care of many packing station tasks that would otherwise fall to the dispatch office, such as printing delivery notes and packing lists. This saves trips and time," says Sebastian Zilm. The ultimate goal of EPCOS is to achieve the highest possible quality and minimize the error rate throughout the packaging processes.
Simply faster: integrated global trade and logistics
In some countries, EPCOS has used ASSIST4 to integrate customs and export management into its shipping processes. This includes using the ATLAS system in Germany or e-Zoll in Austria to automatically generate export declarations. By integrating customs process management, EPCOS accelerates its supply chain and avoids the risk of shipping delays caused by incomplete or inaccurate customs declarations. ASSIST4 also ensures that EPCOS logistics are always in compliance with all export restrictions and anti-terrorism regulations. The transport management system from AEB features a Compliance & Risk module that provides automatic background screening and a data service with daily updates for export control regulations under German, European, and US law.
When packaging is complete, loading lists are created. This means consolidating the daily volume for a particular forwarder, container, or truck in a loading list and assigning a cargo number. The loading list is sent via EDI to the relevant transport partner. But it isn't only forwarders who are notified by EDI. Customers also receive EDI messages about their consignments – including a qualified packing list with information on products, quantities, and the number of packages. This means customers are in the loop from an early stage, so they can plan with greater certainty: another aspect in which EPCOS integrates its customers into its own logistics processes.
Next step: forwarder consolidation and integration
After optimizing its shipping processes, EPCOS began reorganising the way it collaborates with its transport partners. The initial objective was to greatly reduce the number of transport service providers and streamline this link of the supply chain. EPCOS has been working with some 100 transport partners – primarily global players, but also some regional providers. Each site was given discretion to choose the transport service provider for a particular consignment.
EPCOS decided to set up a "preferred forwarder pool" of selected providers. This not only minimized the administrative overhead associated with contract negotiations, quote management, and monitoring, it also meant a greater volume with each preferred forwarder, making it possible to negotiate better prices and reduce transport costs. Above all, EPCOS pushed IT integration with its forwarders to further automate and streamline the processes from placing orders to invoicing.
"All transport service providers that wish to be accepted into the pool must meet not only our pricing guidelines but also the technical requirements for integration into our supply chain processes," explains Michael Rühl, Head of the Global Shipping Committee at EPCOS. "What this means, for example, is that data is not exchanged in the proprietary formats of the transport service providers, as is normally the case. Instead, we've defined our own global IFTMIN for electronic forwarding orders, for example, which all transport partners must use." Status updates must also be submitted in a defined format, even though the AEB TMS has the flexibility to handle all formats.
Not all the former transport partners were willing or able to comply with these technical requirements. Today, the preferred forwarder pool comprises 18 transport partners that handle the entire spectrum of logistical transport services from surface, air, and ocean freight to parcel services and together account for 80 to 90 percent of the transport volume of EPCOS.
Track & trace: proactive shipping notices raises customer satisfaction
The close-knit IT integration of the transport partners made it possible for EPCOS to tackle the next big phase of the project: introducing a global track & trace system based on ASSIST4. The aim here was to be able to track all consignments around the world through a central platform from the time they are picked up at the logistics centre until they are delivered to the end customer. All preferred forwarders and all EPCOS sites are integrated into the track & trace solution.
The system consolidates consignment data from ASSIST4 Despatch with status updates (IFTSTA) from the forwarders and presents this detailed status data for each delivery note. "ASSIST4 functions here as the event-tracking system," explains Sebastian Zilm. "The software logs both the expected and actual occurrence of events such as loading, arrival at hubs, or final delivery for trackable objects such as the delivery note, consignment, or package." The heaviest users of the centralised track & trace system at EPCOS today are Customer Service and Sales.
In the past, these departments had to call the appropriate shipping point whenever a customer wanted to know the current status of an order. Often, the shipping point was in a different time zone and no one could be reached. And even if someone at the shipping point was available, the information still had to be requested from the forwarder – a complicated, time-consuming process.
Today, thanks to ASSIST4, Customer Service and Sales have round-the-clock access to all status information through an online platform. "Proactive notifications are also issued when delays are registered at certain milestones," notes Gerhard Hofmann. "This gives us the opportunity to warn the customer and seek workarounds to ensure successful delivery."
Some key accounts also have direct access to information from the track & trace through the EPCOS website. They can track all their shipments across all transport legs or call up the dates and contents of all shipments linked to their customer number, for example – including the current status. Access to this data – directly through the online platform or indirectly through Sales or Customer Service – has led to much higher customer satisfaction.
How well are transport partners performing?
In addition to improved customer service, EPCOS is also using the data from the track & trace system to monitor its transport partners. Are consignments arriving on time? Are service level agreements being upheld? ASSIST4 provides answers to these questions and more. The solution also lets you define and monitor key performance indicators. Powerful statistics make it possible to produce and distribute very detailed vulnerability analyses.
"Such analyses are an important argument when negotiating new terms with carriers, for example, since they document the actual level of performance," says Michael Rühl. "They help us strengthen our negotiating position and achieve fair and appropriate conditions. This also makes it easy to identify which partners are especially strong and reliable, then give preference to such partners – thereby further optimizing the logistics processes."
But the success of such track & trace systems depends entirely on the quality of the information they are fed – above all, the status updates from the transport partners. The poorer the quality of the data, the less acceptance from users. Customers who encounter misinformation or no information whatsoever when checking on a shipment end up picking up the phone again when they need reliable information.
One problem with the quality of data is that the regional variances among transport partners can be extreme. Here it becomes obvious that many global transport service providers are highly diversified enterprises with largely autonomous national entities. This leads to errors when data is missing or the wrong data is sent – an in-house number from the forwarder instead of the EPCOS delivery note number, for example.
"Even though EPCOS has established a very good foundation through the preferred forwarder pool and uniform data format, maintaining a high quality of data requires ongoing efforts – such as joint workshops with transport partners" concedes Gerhard Hofmann. It's not always easy to convince transport partners how important this is. Exclusion from the preferred forwarder pool is the only means of exercising pressure.
Self-billing replaces costly invoice verification
The final phase in the reorganisation of EPCOS transport logistics was freight cost management – above all, how transport service provider services were settled. One of the greatest challenges had been auditing incoming forwarder invoices. The 23 shipping centres received stacks of paper invoices from the transport partners, and each site checked its own invoices in a two-step process that addressed two primary questions:
- Content check: Is the consignment from EPCOS and was the merchandise / delivery note actually sent with the transport service provider?
- Price check: Does the invoiced rate match the negotiated rate?
"This freight invoice audit was very time-consuming, leading some sites to outsource the task. This in turn yielded significant external costs each year," explains Sebastian Zilm. This led EPCOS to introduce self-billing wherever possible and feasible (see Figure 2). Self-billing means that EPCOS uses ASSIST4 to calculate the freight charges itself, then issues the forwarder a credit for the amount. This makes it the responsibility of the forwarder to check the accuracy of the credited amount.
Today, the consignment data for the self-billing of all 23 EPCOS shipping centres around the world – consignor and consignee data, dimensions, weight, package type, etc. – pass through the ASSIST4 Communication Management System to the central ASSIST4 self-billing system.
The software checks which forwarder was used, what the service type was, and whether it was a multi-stage transport. ASSIST4 then checks this information against the quotes and rates stored in the system for the forwarder in question and calculates the transport costs – including those for each leg of multi-stage transports. When the calculation is complete, the software then issues the credit and reports it to the SAP® FI/CO finance system.
One major benefit: "ASSIST4 automatically consolidates multiple transports from one transport partner when calculating freight charges. If two consignments to different customers are sent out on the same aircraft, for example, the software combines all the transport items with the same route and airway bill number when calculating freight charges," explains Alexander Neuhäuser, Supply Chain Management / Project Manager for Freight Cost Management at EPCOS. This yields a greater volume or weight for each transport, which in turn yields much better price scales or volume discounts.
The challenge of freight cost management
Freight cost management is a challenge many companies face. The price patchwork among transport service providers turns simple freight cost calculation into a complex task in many companies. Rates and cost models differ from carrier to carrier. Freight tariffs might be based on volume, weight, or distance, for example. Charges can be negotiated per transaction or as a flat rate for a given period. The unit of billing might be the package, individual consignment, container, or truckload. Other key factors affecting freight costs and thus critical to price models include the size of the consignment, number of transfer points, freight volume, transport distance, package size, freight network structure, and selection of the transport chain.
Good data is a good foundation
By establishing the preferred forwarder pool, reducing the number of transport service providers, and integrating the TSPs seamlessly into its own IT systems, EPCOS had already created the ideal preconditions for introducing the freight self-billing procedure. The ASSIST4 TMS also gives EPCOS an excellent source of data for consignments – package weight and dimensions, for example – and quotes. And EPCOS goes one step further with ASSIST4: The integrated track & trace system lets EPCOS synchronise issued credits with the successful consignment deliveries.
This means that payment is issued only after the transport service provider has transmitted the delivery status to confirm completion of the order. Currently, EPCOS uses freight self-billing to manage a total volume of some €10 million annually. But so far, the process is used primarily with logistics partners in Europe – and even then, only in countries where the laws make it possible and feasible. An internal cost-effectiveness study has shown that the process still pays for itself, however. In addition to the strict cost benefits, there are also many quality related aspects that speak for freight self-billing (see Table 2).
Analyses and simulations "The global consignment data gathered through freight cost management also give EPCOS a powerful foundation for strategic and tactical transport planning – especially since ASSIST4 can organise this data for analytical purposes virtually at the click of a mouse," notes Alexander Neuhäuser, highlighting another benefit the solution offers. "The software can aggregate the data by nearly all relevant criteria." This makes it possible to identify the cost drivers in one's supply chain, for example, and answer the following questions:
- How high are the transport costs for supplying key accounts?
- Which route accounts for the largest share of costs?
- How high are the freight costs by shipping point or profit centre?
Analyses of the trend over time are also important: How have the quantities for specific routes evolved? And for specific forwarders? The consignment data also provides the ideal basis for preparing requests for proposals. You can analyse the flow of goods down to the package structure and identify which packages with which weight and dimensions make up the flow of goods. This information helps transport service providers submit precise bids, often at lower cost, since it potentially eliminates uncertainty buffers.
Table 2: Overview of the quality benefits of freight cost management and freight self-billing with ASSIST4 at EPCOS
Happy customers, excellent logistics
"Shipping, track & trace, freight management: EPCOS has implemented a comprehensive transport management system with AEB ASSIST4, facilitating seamless communication of the various applications and providing end-to-end support of the transport processes, from the placement of the order to invoicing," notes Sebastian Zilm, summarising the project from AEB's perspective. "The benefit to EPCOS stems from the individual components of the solution, but the optimal effect is achieved only when they all work together."
And thanks to the new IT platform, the transport partners and customers are also integrated into the logistics processes. Specific instructions for shipping labels and documents make it possible for customers to channel EPCOS shipments into their own processes and update their own logistics to the latest status through shipping information from the track & trace system.
The TMS also allows transport service providers to be highly integrated into the workflow – in the shipping process through the transmission of forwarding order, in the freight management process through a standardised self-billing procedure, and in the track & trace system through standardised status updates.
"The optimisation of transport logistics, the implementation of a new AEB TMS, and the increased integration of customers and transport service providers have paid off," agree Gerhard Hofmann and Michael Rühl. "We succeeded in drastically cutting transport management costs while improving performance.
Flexibility, availability, and on-time deliveries also improved – and our customers have taken notice." Siemens, one of the biggest customers, recently awarded EPCOS Brazil the Diamond Prize for outstanding quality, service, and logistics. LG, the Korean manufacturer of household appliances, also honoured EPCOS as an outstanding supplier, with special mention for extraordinary on-time performance. Two of many customers that have benefited along with EPCOS from the reorganized, high-performance transport logistics and integrated supply chain processes.
But reorganising transport logistics is an ongoing process, of course, so EPCOS is already planning the next phase with AEB and ASSIST4. EPCOS will work with its parent company to expand the freight cost management system to a logistics cost management system that will encompass incoming freight shipments and other logistics costs as well as all invoice processing and auditing.
Success through collaboration
A project of the magnitude of reorganising global transport processes and implementing a TMS at all worldwide sites can succeed only if the collaboration of the participating parties is organized professionally and the parties can rely on one another. To date, some 25 AEB employees have been involved with the project. At EPCOS, the number of employees impacted by the implementation of the software – including the current end-users – has reached nearly 300.
Both partners – EPCOS and AEB – were able to draw upon their many years of project management experience. AEB has its own project management guide and standards that establish the principles for successful projects and define elements such as project roles, tasks, objectives, coordination, and communication.
Both partners had already worked together with success on smaller projects for many years, so the relationship was characterized by close cooperation and mutual trust. EPCOS also built up a high level of in-house expertise with ASSIST4 to the extent that two of its employees have become true experts in the use of the AEB solution.
These EPCOS-internal experts also organized the TMS implementation at many smaller sites, supported by AEB employees on remote standby. For the initial installations and at the larger sites, AEB colleagues were personally present, sometimes weeks at a time, to help set up processes and implement the solution.
The accumulation of in-house expertise also proved useful to EPCOS for training and support. The training sessions for the EPCOS workforce followed the "train the trainer" principle. The experts trained key users and super users at each site, who then trained the remaining users. The key users and super users work with the experts today to provide first-level support, with AEB stepping in only for larger problems.
Overview of benefits from various phases of EPCOS transport logistics reorganization
At a Glance
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