Turning Regulation Into Positive Change

Editor’s Note: In this monthly series we summarize a selection of the latest research from master’s students at the MIT Center for Transportation & Logistics (MIT CTL) and affiliate programs. The students are mid-career professionals from multiple countries, and their projects are sponsored by and carried out in collaboration with multinational corporations. This month we feature a project from the Graduate Certificate in Logistics & Supply Chain Management (GCLOG), which is managed by the Center for Latin-American Logistics Innovation, part of the MIT SCALE (Supply Chain and Logistics Excellence) network. GCLOG offers MIT CTL’s supply chain studies to leading students enrolled in a master’s program in supply chain management or related areas at a reputable Latin American university. Every GCLOG student is required to complete an applied research or capstone project.

When the Brazilian government introduced stricter rules regarding the number of hours truck drivers can work, companies had to figure out the best way to respond to changes that added cost to freight transportation networks. PepsiCo Brazil responded with an in-depth study of its freight operations that has enabled the company to increase the efficiency of its network.

The study was carried out by Renato Starling, Transportation Productivity Manager at PepsiCo, for his 2015 capstone project while studying for a Graduate Certificate in Logistics & Supply Chain Management (GCLOG). The project is titled Choice Between Private Fleet and Common Carrier and the adviser is Edelcio Koitiro Nisiyama.

Fewer hours
The legislation took effect in September 2013 and imposes a number of restrictions on driver working in Brazil. For example, they are not allowed to drive for more than 10 hours daily (eight regular hours plus two hours of overtime), must have a break of at least 30 minutes every four hours, and take a weekly rest of 36 hours.

PepsiCo uses a private fleet of trucks in combination with third-party carriers to deliver its products in Brazil. The company estimated that the number of miles driven has fallen by 7% as a result of the new limits. Also, labor costs now account for about 37% of total transportation costs compared to 32% before the legislation was implemented.

The network study aimed to develop a methodology for evaluating the cost of private fleet movements in each lane used by PepsiCo. By comparing these costs to those associated with common carriers, the company could identify the optimal mix of carriers in each lane.

Efficiency measures
The study found that PepsiCo’s private fleet is still competitive for shorter hauls, largely because there are fewer opportunities to carry freight on the backhaul. The breakeven for length of haul is about 200 Km.

In light of findings like these, PepsiCo decided to sell seventeen of its older, less efficient trucks, and to do another, more detailed study, that is likely to result in the sale of more vehicles.

The company has also initiated a program to minimize the number of empty miles traveled and fully utilize its private fleet by actively looking for opportunities to capture backhaul cargo. PepsiCo has three main businesses in the Brazil, snack foods, dairy products, and coconut water, and has increased the number of backhaul loads by about 30% by pooling truck space for these businesses.

Further changes are expected as the full implications of the new rules become apparent. For example, self-employed drivers do not have to follow the new regs, and some large carriers are pushing to establish partnerships with these independents. Also, some carriers are encouraging drivers to buy their own trucks.

SC
MR