Red Hat, located in Raleigh, North Carolina, certainly set the bar high when PARCEL Forum selected its logistics team as the recipients of our first-ever Game-Changer of the Year award at our show in October of 2015. Founded in 1993, Red Hat is the world’s leading provider of open source software solutions, using a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat prides itself on creating relevant, innovative technologies that liberate resources for growth and prepare customers for the future of IT.
We at PARCEL received several qualified submissions, and all of them demonstrated, on many levels, a commitment to optimizing their logistics processes in a way that truly changed their organization’s “game.” But Red Hat’s submission stood out to us; we sensed that those involved in their project had not just a desire to streamline their processes for efficiency’s sake, but that they truly wanted to change the way their organization both saw and invested in their logistics process.
Like many companies, the most pressing problem for Red Hat was how to reduce their shipping spend, without affecting customer service — a dilemma that I’m sure resonates with many of our readers! Red Hat was experiencing explosive growth; from the end of fiscal year 2011 until the end of fiscal year 2015, Red Hat’s number of employees more than doubled, going from an already impressive 3,700 to 7,500. During that same time period, revenues grew from $909 million $1.8 billion. That kind of growth within an organization often comes with excitement, innovation — and a new set of challenges. The most pressing challenge that needed to be addressed was the fact that the “shipping" department was understaffed and used antiquated means of processing ship requests, which naturally led to inefficiencies and over spending. The team had to find a better way to move an increasing number of packages, without sacrificing customer satisfaction.
The three team members who spearheaded this project were Rick Pate, Manager, Global Logistics Operations and Steve Shaffer, Project Manager.
The shipping and receiving department was rebranded as the logistics department in 2013. The change wasn’t just limited to a new name; the way team members conducted business began to change, as well. The most noticeable shift was that the team went from being merely reactionary to becoming strategic and proactive. No longer content to just solve problems after they appeared, the logistics team sought out solutions to potential roadblocks before they even had a chance to occur.
This was something really resonated with Rick Pate. “When I first came to Red Hat from FedEx, I noticed that our team was very tactical. We needed to be more strategic because of the money we were spending. With our growth, it spurred us to put together an actual program. Along with Steve’s help with rebranding what was basically a shipping and receiving unit before, we became a lot more strategic with what we did.”
Steve Shaffer concurs. “The re-branding was a strategic move to create more awareness of the logistics’ team’s capabilities and services. As we started growing, we wanted to leverage that growth within the company. It was an opportunity for new business, and to strengthen our partnerships with Red Hat’s business units. But our [ultimate] goal was to create value by lowering costs but still providing excellent customer service.”
As part of their strategic initiative, the team implemented business rules with associates and vendors that included packaging, consolidating and optimizing service levels. This has had a huge impact, according to Pate, especially considering that most Red Hat associates aren’t shipping professionals. “Our associates basically brought up a package to the shipping room and just said, ‘Get this package there as quick as you can, the best way you can.’ They weren’t taking into account what it was going to cost us. We were probably running at about a 70% clip, overnight shipping at the time. That could be anywhere from the same state, all the way to the west coast.” I can just picture the logistics pros who are reading this article right now, cringing at the thought of the expense of all that needless overnight shipping. No wonder Red Hat needed to remedy this!
Another complication was the fact that Red Hat doesn’t really have a typical shipment size, according to Pate. “We mainly do intra-company, inter-office shipments, and we can go anywhere from a letter to 1,000 pounds of freight. It’s quite different than what some people might expect from a software company.”
One of the first tactics Red Hat utilized to combat this shipping inefficiency was setting some simple ground rules. Pate explains that they educated their associates on what type of shipping speed to use for what type of shipment destination. A simple (but hugely cost-saving) remedy they implemented was requiring that any shipment that was going in-state or to a neighboring state needed to be shipped via ground. It would still arrive the next day, but at a much lower cost than the overnight service.
The team also established rules for vendors and took a more proactive look at supplier invoices from procurement of goods, among other things. This tactic alone revealed huge markups tacked on by vendors, which Red Hat could eliminate simply by putting each shipment on a specific account.
In their search for better solutions to fulfill ship requests and process improvements that helped associates make educated decisions when choosing carrier services, Red Hat utilized the experts at the PARCEL Forum. Through the forum, Red Hat found several companies that offered a multi-carrier Transportation Management Solution (TMS). After an extensive RFP process, the team chose xCarrier by Process Weaver, implementing the solution globally in early 2015.
With this implementation, customer service satisfaction is over 99%. In less than two years, Red Hat saved nearly 35% in transportation costs while moving an increasing (20%) number of packages. Key Performance Indicators such as cost per package, cost per pound and cost per employee are down nearly 18%. The TMS allowed the implementation of a new "hub and spoke" business model within each country, which reduced labor costs by 20%.
The global implementation of this system in more than 50 of Red Hat’s 85+ offices replaced an inefficient shipping form. Employees can now create ship requests and track each shipment through their individual dashboard. This unique system is beneficial to both employees and team members by increasing efficiencies while reducing costs. The global added value is the ability to freight shop among carriers, audit invoices for billing errors and carrier service failures, as well as collaboration between global team members and business entities within the company.
The success realized by Red Hat is something that any company should be proud of achieving. But Red Hat’s situation is even more unique, according to Pate, since, “it’s tough sometimes because we’re not in manufacturing, we’re not in retail, so it was hugely important to educate [leadership] about why we needed an actual logistics team.” Clearly, with their success in reducing costs and improving overall efficiencies, they’ve more than proved their worth. And we at PARCEL and PARCEL Forum were proud to award them our first-ever Game-Changer of the Year award.
Could your operation be the 2016 Game Changer of the Year award winner? Fill out a nomination form and let us know why your organization is truly a game changer in the parcel arena!