Freight Expectations - Streamlining international logistics at Osram Opto Semiconductors   (December 2006)

FCS can cut the time that freight spends in the pipeline by 33%. It cuts costs in the hub by 75%. It achieves this by applying more mature business processes to the business. And it can stop disagreements about performance; metrics spell out the truth! In this case study we see how FCS helped Osram Opto Semiconductors to make gains in productivity, cost savings and customer service.

FCS reduces the overall lead time from factory to customer from three days to two - and saves the cost of a regional distribution centre in Germany

Osram Opto Semiconductors designs and manufactures semiconductor devices used, for example, in the automotive industry for light, sensor and visualisation applications.

In common with many other players in the high tech market, the company used a traditional regional distribution centre - based in Frankfurt - to handle the shipment of its products manufactured in Malaysia. Everything was flown into this regional distribution centre - which was managed by a third party - and then redistributed to the company's European customers.

Not only was it an expensive exercise but it added 24 hours to the time taken for deliveries to reach the end customers.

Coincidentally, Osram was (and still is) dedicated to complete customer satisfaction, employee empowerment and shareholder return through innovation, continuous improvement and total employee involvement. As part of this continuous improvement, Osram reviewed its international logistics arrangements for shipping its products to Europe from the Far East.

On the recommendation of DHL Global Forwarding, Osram's preferred 3PL provider, the company began using Audax's Freight Control System (FCS) software to enable it to see what precisely was happening in the pipeline and if improvements could be made. Would it be possible to simultaneously improve SLAs and reduce costs?

Today, the freight journey starts with DHL employees working inside the Osram factory in Penang. All the parcels are barcoded and scanned prior to shipment to the airport (export gateway). While the goods are flying to Frankfurt, EDI is used to alert FCS to the contents of the incoming delivery. When they arrive at the DHL hub (import gateway), airside of Frankfurt Airport, every item is scanned and then labelled for its onward journey to European customers, based on the information received via EDI.

Before FCS was introduced to Osram by DHL, the goods were taken to a regional distribution centre, where the freight was broken up and then staged for manual sorting. It was therefore subjected to the inefficiencies inherent in that sort of environment - which is still so typical of many delivery pipelines.

Working with DHL, Osram was able to close the distribution centre and improve customer service. The factory's output is now delivered to European customers in significantly less time - the two days instead of three mentioned earlier. This performance is matched by a consistent and previously impossible quality of service.

The cutting of the transportation time has enabled Osram to be far more reactive to the demands of its major customers, significantly improving customer service.

How it happened

How did FCS achieve this remarkable differentiator in customer service, cutting a whole day out of the delivery schedule while ensuring that goods were not lost, misplaced, inadvertently broken up or misdirected?

FCS ensures the rapid transfer of all shipment information, reducing the time between placing an order and delivery to a minimum. It also allows for the easy integration of critically important processes, which leads to a reduction in the number of process interfaces....which leads to greater efficiencies.

Because FCS enables just-in-time logistics, in perfect synch with just-in-time manufacturing, Osram was better able to control quantity and speed of throughput, making the company realise that it did not need the warehouse.

The future of the facility was reviewed and the inevitable conclusion drawn that it could close and allow SLAs to rise and costs to fall. The business case for change on this scale was irrefutable.

FCS now controls the flow of goods through the DHL hub, enabling time-defined deliveries to be organised to meet Osram's customers' requirements. But there is more to the software than such features as track and trace, merge in transit (where relevant) and cross dock, which all smooth the way through the pipelines. There is also exception handling.

Exception handling

Part of the success of the software lies in its ability to handle exceptions. Shipments that are only part complete or have incomplete details are automatically identified and can be flagged for manual attention, while everything else is processed automatically.

By using piece level barcoding and handheld scanners in the import gateway, FCS records, in real time, the status and location of every item. This ensures full transparency for every individual piece of shipment along the entire delivery pipeline. In turn, it means that Osram has full control over its logistics operation.

If required, Osram can act at short notice and make new arrangements for onward shipment up to 10am on the day of arrival at Frankfurt. Urgently required parts can therefore even be delivered to Osram's customers on the same day. At risk of repeating the central message of this case study, the new FCS-led approach to pipeline management could only have one conclusion; a pipeline that bypassed the warehouse and went straight from the manufacturing plant to the customers.

Complete control

Dr Rolf Soukal, Supply Chain Management at Osram Opto Semiconductors, confirmed the two major benefits of this new partnership, stating: "We were convinced not only by the fact that DHL gives us complete control of our shipments, but also that it ensures, with the help of FCS, the quickest possible delivery of our time critical goods within Europe."

Stefan Hartmann, Key Account Manager, High Tech, at DHL Global Forwarding, commented: "Integrating the processes for arriving and departing freight directly at the airport reduces the number of interfaces and shortens the transport routes."

More from:

Box material or subset: For many companies, globalisation offers the possibility of manufacturing at low cost - and delivering directly to the customer (trade/OEM and/or end user customer) by cutting out warehousing. There are real benefits in this approach but they can be reduced in scope and scale by the performance of the long delivery pipeline involved.

Ideally, the pipeline will enable freight consolidation to take place until break up in the import gateway. If the pipeline does not allow for consolidation - and measurement showing the exact location of all pieces of the freight - it will struggle to perform adequately let alone in an optimum state.

FCS uses a combination of bar-coded labels, hand held scanners and EDI to track freight at each stage of its journey - from when it leaves the factory via the shipper to arrival at the export gateway, hand-over to the carrier (e.g. airline), arrival at the import gateway (for Osram, that is Frankfurt Airport) and final delivery to the customers in Europe.

Where FCS is used, not only is paperwork is minimised - with waybills automatically produced and their shipment costs calculated - but the customers and 3PL are kept aware of where freight is v where it should be. There is no guess work. Guessing, based on assumptions and logic, is an inherent weakness where measurements are not made. It can result in delays and missed shipment times when a search is made for 'lost' freight, and it cannot contribute to increases in productivity and profit.

In Osram's case, customers are advised of the status of their shipments, and appointments arranged to deliver the freight based on specific customer information. Osram is able to do this because it is sure about the status of the shipments, based on the real-time data supplied by FCS.

Like an increasing number of manufactures of high tech goods, Osram has broken with the past and its amateur approach to global logistics. A lack of mature processes, with measurement at their core, means that the vast majority of global logistics operations are performing well below par.

Lack of investment, lack of true professionalism and an attitude of muddling through mean that in many cases distribution centres are being used when they could be closed, goods are delivered 24 hours later than they should be, service levels are generally poor and no-one can know for sure where a shipment - and/or its component parts - are.

Osram, with the help of DHL, has joined more than 30 high tech global firms, most of them manufacturing in China/the Far East, who use FCS to improve their delivery pipeline. These firms, operating just-in-time and seeking super-efficiency in every part of their supply chain, within a very competitive business environment, could not afford to be let down by a delivery pipeline that was the weakest link in the chain.