Ted Lunsford, Strategic Initiatives Lead, Transportation and Logistics, American Electric PowerResponsibilities: Manage and negotiate carrier contracts for the company’s inbound and outbound freight Challenge: Extreme weather events can damage equipment, requiring expedited shipments for repairs and replacements Tools of the trade: Online routing guide and load posting software Improvement strategies: Evaluate freight pay data for clues to more efficiently manage material movement and cut costs; work with internal supply chain partners to identify savings opportunities and gain feedback on carrier performance; create a transparent, closed-loop process that tracks orders from placement to shipment to payment
“The back-end of AEP’s shipment infrastructure — freight pay data — helps the company spot hidden opportunities… Simple logic embedded into AEP’s online routing guide and load posting software, hosted by Memphis-based technology vendor CTSI Global, helps optimize transportation, making shipments as simple and seamless as possible.”
Bright ideas at workWith nearly 38,000 megawatts of generating capacity, American Electric Power (AEP) ranks as one of the nation’s largest electricity generators. The Columbus, Ohio-based utility also owns the country’s largest electricity transmission system, a nearly 39,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined. For Ted Lunsford, AEP’s strategic initiatives lead in transportation and logistics, daily work involves managing and negotiating carrier contracts for inbound and outbound freight, including internal shipments moving between company locations. While AEP doesn’t ship its core product — electricity — it does move all the material and equipment involved in generating, transmitting, and distributing electricity. “We ship material such as light poles, photocells that sit on top of the light poles, and the meters installed outside of the home,” Lunsford says. “We also shift equipment such as transformers, regulators, capacitors, wire and cable, and other materials. We move a range of commodities, shipment sizes, and weights every day.” AEP not only moves a volume of shipments, it also sends them over a wide service area. “We have contracts in place for most transport modes: parcel, LTL, truckload, flatbed, and expedited,” he says. “We operate in 11 states in the Midwest and Southwest — from Michigan down to the tip of Texas.” In all, AEP serves more than five million customers. Lunsford and his team play a key role in the ultimate success or failure of AEP’s freight management and cost control. “We operate between 350 and 400 facilities, ranging from large power plants to small storerooms where we hold inventory,” Lunsford says. Part of the company’s internal logistics model is based on a hub-and-spoke system. “We feed material from large distribution centers to small storerooms so it reaches facilities that are close to our customers,” he says. “We’re positioned so we can grab material quickly, enabling us to handle outages or service interruptions.” When sharing inventory between facilities, the company uses contract carriers or its small internal fleet.
Expecting the unexpectedActivity hits a peak whenever an emergency strikes or the unexpected happens. “We recently endured a round of hurricanes that hit our territory in Texas, Louisiana, Oklahoma, and Arkansas,” Lunsford says. “In Ohio, Hurricane Ike knocked out power to more than 600,000 AEP customers. In these cases, expedited delivery is essential to get the right material to the right place at the right time.” Negotiating and managing carrier contracts is one of Lunsford’s many responsibilities. “I look for top-tier carriers that can provide great service, with minimal loss and damage, at competitive rates,” he says. With the exception of expedited-intensive emergency situations, time doesn’t play a big role in Lunsford’s responsibilities. “Our partner carriers do a great job of picking up and delivering material within one to three days — origin to destination — from almost anywhere around the country,” he says. Cost savings, on the other hand, are vital to Lunsford and AEP. “The big savings and efficiencies come from carrier compliance and identifying consolidation and mode-shift opportunities — from parcel to LTL, or LTL to truckload, for example,” Lunsford says. “As primarily an inbound shipper, we don’t fit the typical manufacturing or distributor model of operating within a hub-and-spoke system, moving product along the same lanes every week.”
On the lookout for opportunitiesThe back-end of AEP’s shipment infrastructure — freight pay data — helps the company spot hidden opportunities. “Freight pay data is the most important piece of our transportation management,” Lunsford says. “That data holds a wealth of information to help efficiently manage material movement and control costs.” Simple logic embedded into AEP’s online routing guide and load posting software, hosted by Memphis-based technology vendor CTSI Global, helps optimize transportation, making shipments as simple and seamless as possible. “Our purchase orders include shipping instructions that guide the vendor to our Web site if AEP is managing the freight,” Lunsford says. “The vendor enters basic information, such as ZIP codes and weight, online. Within one minute, the vendor has the information to contact the appropriate carrier by phone or electronically tender a load for pickup.” On the back end, Lunsford uses CTSI’s freight pay data and TMS tools to analyze shipping patterns, lanes, carrier compliance, and cost-savings opportunities. Lunsford works continuously to improve AEP’s transportation network. “Each year for the past five years we’ve made significant changes in how we handle increasing freight volumes and how we deploy our hosted shipping solutions,” he says. In that time, his operation has evolved from a highly manual, operational intensive process to a more tactical and strategic group. “Our goal is to have a transparent, closed-loop process from the time we place an order to the time the material and freight costs are paid,” he says. “That includes proper routing, load consolidation, event management for material in transit, centralized claims processing for loss and damage, freight pay audit, and back-end reporting.” Ultimately, however, close working relationships with internal supply chain partners are also required to create efficiencies and cut costs. “We work with procurement and our suppliers to analyze opportunities for transportation efficiencies and savings,” Lunsford says. “We also rely on our supply chain partners for feedback on carrier service levels and key performance data.” Internal supply chain partners can also help pinpoint holes in transportation services that AEP may need to plug. Despite the hectic nature of his work, Lunsford believes that patience is key when it comes to creating a world-class transportation infrastructure. “You have to take it one piece at a time,” he says.
selection from Inbound Logistics feature “A Day in the Life of a Transportation Manager” by John Edwards, January 2009