Q1 (a). TNT Express Company Background
- Thomas Nationwide Transport (TNT) was founded in 1946 by Ken Thomas, who started the company with only a single truck
- Originally, the company started out in Australia but was acquired by the Dutch national post and telecoms company, then called KPN, in 1996
- This takeover led to the transfer of its headquarters in the Netherlands, but the management decided to retain its name
- TNT Express is now a global company operating in 200 countries worldwide. Weekly, TNT Express delivers approximately 4.7 million packages using a network of more than 2,600 facilities, a fleet of about 30,000 road vehicles, 50 aircrafts and has a workforce of approximately 77,000.
Q1(b). Nature of the problem
- In 2015, TNT Express recorded a revenue growth of 3.5% to reach €6914 million and a €50 million reported loss attributable to the equity holders (TNT annual report 2015).
- Due to a worldwide financial crisis towards the end of 2008, there was a sharp decline in volume, which extended until mid-2009.
- Owing to this decline, there was a fall in air network performance. Therefore, an immediate solution was imminent.
- To find a solution to this problem, TNT Express decided to build the DELTA supply chain model, an end to end supply chain optimization project with the aim of reducing aircraft use, preserve growth capabilities and, most importantly, preserve the quality of service.
Q 2(a). Problem context discussion
The DELTA supply chain model, which is a network optimization model, was particularly complex and interesting given the following implementation challenges:
- Development of the DELTA supply chain model was difficult because the model covers the whole of Europe, which consists of 650 depots, 90 hubs, and 150,000 origin-destination combinations. This makes it difficult to acquire the accurate level of details to facilitate the board in decision making.
- Data gathering was another major challenge because it was supposed to be done in 8 weeks, an activity that would normally require months just for one country.
- Gaining the trust of the decision makers in using the model mainly because some details had been overlooked from the calculations of the initial results.
Compared to the Economic Order Quantity (EOQ) and Newsvendor models the DELTA supply chain model, which is a network optimization model, is more complicated due to the following challenges in relation to the case:
- It takes a lot of time to convince analysts, network managers, and depot managers. This is mostly because most of them are not familiar with optimization; hence, difficult for them to adopt new tools that they initially see as reducing their control.
- The available data is spread across many information technology systems, thus reducing the quality of the data and making it hard to retrieve.
- It is hard to develop a standard decision support solution because it is supposed to cover all countries in which TNT Express operates. Each country has its way of working with varying volume profiles and different local regulations.
- Objectively, tracking results is difficult since managers might not be transparent with their results considering the company policy of decreasing the budget of managers who meet their optimization targets.
- New users resist change despite demonstrated successes because they feel their business is not comparable.
In conclusion, the network optimization model (DELTA in this case) was the best choice of model for solving TNT Express’s problem.
As a result of their various program interventions, TNT Express was able to save 207 million euros in the following avenues in the period from 2008-2011:
- 132 million euros from the supply chain sub-program
- 48 million euros from the networks subprogram
- 27 million euros from the pickup and delivery (PUD) subprogram
- In addition, the Global Optimization (GO) program also enabled TNT Express to reduce Carbon dioxide emissions by 283 million kilograms, equivalent to 1,000 trucks traveling around the world seven times.