Penske Logistics Leverages Local Expertise in Expanding Brazilian Operations

Sao Paulo, Brazil Site Visits

January 15 & 16, 2007

By

Evan Armstrong

Key Personnel:

Joseph Gallick, Senior Vice President of Sales

Gary Franz, Managing Director - South America Region

Mohamed Nassif, Operations & IT Director - South America Region

Paulo Monteiro, Finance Director - South America Region

Paulo Sarti, Director of Sales - South America Region

 A myriad of taxes, import/export regulations, high interest rates, infrastructure and geographic constraints, language barriers, and security issues make Brazil a challenging country for supply chain managers. These challenges often make it imperative for global companies distributing products in Brazil to have a strong logistics partner.

To meet the needs of its global customer Ford Motor, Penske Logistics established its Brazilian operations in 1998 by investing in a joint venture with Cotia Trading company.  In August of 2005 Penske Logistics bought out the remaining interest in Cotia Penske Logistics and formed a wholly-owned company.  In a market that is just starting to embrace logistics outsourcing, Penske has leveraged its local staff with Brazilian market expertise to grow revenues from $25 million in 1998 to $65 million in 2006. It currently has an approximate staff of 1,200 associates and 1.8 million square feet of warehouse space primarily serving the needs of 14 major customers. Top Brazilian customers include: Ford, HP, Ingersoll Rand, General Motors, Lexmark, Officer, Samsung, Sony, Terra, and Tyco.

 A good example illustrating Brazil's logistics challenges are Samsung's outbound distribution operations. To meet the demands of the Brazilian market, Samsung has built manufacturing plants in Campinas (just outside of Sao Paulo) and in the north central city of Manaus.  Manaus is a targeted growth city developed out of the Amazon rainforest by the Brazilian government. Because of its location and the need to transport products via the Amazon river before being transloaded into trucks, the transit time from Manaus to Sao Paulo (Brazil's largest city) is 12 days.

Sao Paulo Samsung Warehouse

Penske manages the majority of Samsung's Brazilian distribution operations including a 120,000 square foot warehouse adjacent to its headquarters in Barueri-Sao Paulo. Approximately 1,200 stock keeping units (SKUs) are maintained in on-hand inventory for same-day order fulfillment.  Security is very tight since high-value products stored include: large flat-panel televisions, computer monitors and appliances.

Approximately 30,000 pieces are received from Manaus and 100,000 pieces are received from overseas operations each year. Penske's systems automatically schedule receiving dock doors. Inbound product quantities are verified, barcoded and if necessary serial numbers are scanned in by Penske personnel prior to being directed for putaway by Penske's warehouse management system (WMS).  Penske's facility is very modern and all activities are driven by its WMS via radio frequency (RF) devices. 

Product is stored in five position racking with the fastest moving items stored on the floor closer to the outbound shipping doors. Picking is RF driven and is typically done in waves, routes, or by final customer. Penske performs continuous cycle counting and reconciles Samsung's inventory each day. Inventory accuracy has been running at 99.7% and inventory turns 1.5 times per month.

During Samsung's peak season from August through December, approximately 400 outbound orders are filled per day. Outbound transportation is managed using Penske's proprietary "e-cargo" transportation management system (TMS). In addition to warehousing and distribution, Penske is also performing repair and refurbishment work for Samsung. This includes performing returns processing, product quality checks and basic refurbishment and repackaging. Samsung's Brazilian customers include retailers: Casas Bahia, Carrefour, Pão de Açúcar, and Wal-Mart.

Sao Paulo Multi-Client Warehouse (MCW)

A short drive from Penske Logistics Brazilian headquarters, is its very secure 250,000 square foot multi-client warehouse. Having an approximate workforce of 350 the MCW utilizes Penske's proprietary TMS and WMS and with integrated RF interfaces to manage logistics functions.

Penske runs a sizable aftermarket spare/service parts kitting and fulfillment operation for GM's Brazilian car dealer distribution network. The operation is staffed by 150 workers in three shifts occupying 60,000 square feet of space.

Each month approximately 2.1 million parts are picked, packed and shipped to dealers and GM's regional parts distribution centers.  Many of the shipments require significant transportation management with same-day or specific delivery window requirements.

Lexmark is another large MCW customer and has grown with Penske since its operation startup in 2004. It occupies 53,800 square feet.  A staff of 45 associates are responsible for receiving inbound product, performing product customization, warehouse management, outbound distribution, and reverse logistics services. An example of one value-added service being provided is special ink jet labeling for the Brazilian market. Penske manages approximately 3,000 outbound loads per month for Lexmark.

Sony Style's Brazilian business to consumer internet order fulfillment operation operates in a fenced off 35,000 square foot section of the warehouse. Approximately, 250 orders for everything from large screen high definition televisions to accessories are processed each month. Sony's enterprise resource planning (ERP) system has been integrated with Penske's WMS to efficiently manage warehouse activities. In addition to order fulfillment, Penske provides Sony with full outbound transportation management services. Approximately half of the outbound orders are LTL (less than truckload) and half are FTL (full truckload).

Penske is a primary 3PL for Brazilian headquartered Officer Distribuidora a wholesaler of IT equipment and software.  Officer has a branch office located in the MCW and is directly integrated with Penske's WMS for order picking and outbound fulfillment.

The final MCW customer operation we viewed was for Terra, an online business selling caller identification equipment, modems, cable television converters, and other electronics. It occupies approximately 30,000 square feet of the MCW and utilizes Penske's "Logix" ERP system for order fulfillment and customer invoicing.

Penske Logistics manages two aftermarket automotive parts distribution centers (PDCs) for Ford in Brazil; one is in the Northeast and the second one which we toured is in Sao Paulo. With an approximate dealer network of 500, both operations require top-notch integrated value-added warehousing and transportation management capabilities.

The 387,000 square foot dedicated Sao Paulo Ford PDC began operations in 1999 and is staffed by 220 Penske associates. Inbound parts are received from Ford's manufacturing plants and suppliers.  Inventory consists of approximately 47,000 SKUs and 10 million items stored in over 81,000 warehouse locations. Penske's key performance indicators include a minimum order fill rate of 97% and 99.6% inventory accuracy.  Penske has been running at 99.9% inventory accuracy.

To increase operational efficiency, Penske developed four 12 meter high vertical carousel sorters for picking fast moving items.  Each individual sorter contains 82 shelves and can quickly process hundreds of orders at the same time.

Outbound parts orders are received from Ford's dealer network and Penske picks, packs, and ships the orders. Delivery requirements are stringent. Orders received by 2 P.M. must be shipped that day and those received by 6 P.M. for Sao Paulo dealers must be delivered by Penske that evening. All other orders must be delivered within 48 hours of order receipt.

Transportation Management System - "e-cargo"

To tackle the distinct needs of managing transportation in Brazil, Penske Logistics uses its proprietary transportation management system (TMS) dubbed "e-cargo".  While Penske uses i2 for TMS in the U.S., e-cargo has been developed to handle four federal Brazilian taxes, individual state taxes, and a tax imposed on each transportation invoice.

e-cargo runs as an ASP web application via sequel server (SQL) on an Oracle database. Overall transportation execution functionality is very robust. Orders are received from customers via EDI interfaces directly into e-cargo.  The system in-turn facilities optimal routing, carrier selection, rates shipments and drives picking on the warehouse floor. e-cargo has templates for automatically preparing bills of ladings.  Once shipments are in transit, e-cargo offers solid internet tracking and tracing capabilities via communications with carrier global positioning systems (GPS) or through "check" calls to Penske's central transportation management call center. This shipment visibility provides Penske with vital information to insure high-value loads are secure.

Summary

By leveraging its local expertise and inherent skills as an automotive logistics leader, Penske is growing its presence amongst high-tech industry customers in Brazil. We anticipate that Penske Logistics will continue its global expansion by developing solid integrated warehousing and transportation management operations in high-tech and other select verticals.

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