Charged-up logistics
Interstate's diverse battery business keeps supply chain management in-house.
By Chris Gillis
With Interstate Batteries' brand stamped boldly on the products it sells through auto parts retailers, service shops and battery stores across the country, it's easy to think of the company as just car batteries.
In actuality, however, it is the company's closely managed logistics that has sparked its drive to become one of North America's top battery providers across a number of markets.
'We're a sales, marketing, distribution and recycling
organization,' said Chris Antoniou, the Dallas-based company's vice president of global supply chain management. 'Interstate doesn't make its own batteries. Logistics is our core competency.'
Interstate has controlled freight logistics internally since its start in 1952, when founder John Searcy began selling and delivering car batteries to wholesalers in the Dallas-Fort Worth area from the back of his red Studebaker pickup truck.
Today, Interstate's battery portfolio is vast ' more than 16,000 stock-keeping units are listed in the company's catalog. Its battery products range from those used in cars, motorcycles, golf carts and boats to those used to power portable and high-tech consumer devices, such as PDAs, laptops, watches, power tools, hearing aids, cameras and forklifts.
Interstate even provides portable power to electronic equipment operated by local, state and federal agencies and the military. It's not uncommon to find the company's batteries providing power support deep under the seas among the U.S. Navy's submarine fleet.
Antoniou said a tightly controlled logistics operation has allowed the company to meet stringent delivery commitments to both its commercial and government customers.
Interstate does not employ third parties to oversee its logistics operations. The company prefers to manage its own dealings with suppliers, buyers, carriers, warehouses and licensed distributors. 'We're extremely comfortable with having our logistics expertise in-house,' Antoniou said.
Shift Abroad. When Antoniou joined Interstate in 2001, the company still domestically sourced most of its products, especially for the starting, lighting and ignition (SLI) business. The company's manufacturer, with plants in Mexico and United States, continues to directly ship to most of its automotive, motorcycle and boat engine customers and suppliers. The manufacturer has also expanded beyond domestic requirements since Interstate now has a presence throughout North America, and select markets in Central and South America, Antoniou said.
In 1999, with the portable electronics revolution underway, Interstate embraced the concept of 'every battery for every need.' This opened the door for the company to distribute numerous types of small batteries from overseas manufacturers to electronics and high-tech product retailers. This business followed with the rollout in 2003 of Interstate's PowerCare, which provides batteries for forklift applications and critical power requirements, such as refineries, data centers and nuclear plants.
'As you've seen with many other industries, Interstate Batteries has turned to source product in Asia, except when the expense of freight is a barrier,' Antoniou said.
The shift abroad is also part of the company's search for new and better battery chemistries and matching applications, he said.
Antoniou, who has worked in global supply chain management since the 1980s with companies such as EDS, Ericsson and AT&T Wireless, joined Interstate at a crucial time in its international sourcing expansion.
Initially, Interstate struggled to manage numerous allotments of small battery inbound shipments. 'We were able to take Interstate to the next step, leveraging our existing footprint, and developing a distribution model for containerloads inbound and less-than-trailerloads and small packages out to our customers,' Antoniou said.
Containers from Asia come into the Port of Los Angeles and are railed to Interstate's 115,000-square-foot warehouse in Des Moines, Iowa, for breakdown and distribution throughout the continent. The facility received about 750 TEUs in 2008.
Interstate's international shipments are moved in 20-foot containers to get the most efficient use of the box space. 'If we used 40-foot containers, we would weigh out long before we sufficiently used the capacity,' Antoniou explained.
In recent years, China has become the primary overseas source for Interstate's small electronics batteries. Smaller container volumes, or less than 10 percent of the company's overall inbound Asian container volumes, come from battery makers in Taiwan and Vietnam.
Antoniou said some Chinese battery manufacturers are considering relocating operations to Vietnam, Thailand and even as far away as India to take advantage of not just cheaper labor but a more consistent business environment. 'The rebates and VAT taxes in China keep changing,' he said.
The global economic slowdown and China's steep drop in export business since earlier this year has allowed Interstate to secure lower transpacific container shipping rates than in the past several years. Rates on 20-foot containers have fallen from highs of $3,300 to $3,600 in 2007 to as low as $2,000 in the trade.
While Des Moines continues to serve as the central hub for containerized cargoes, the company has significantly expanded its market and sales presence on the West Coast in recent years. 'We are evaluating the need for a West Coast distribution center,' Antoniou said. 'It is likely we will establish that operation within two years.'
For now, the $75 billion global battery business remains 'very fragmented,' Antoniou said. Interstate faces competition within its individual battery businesses and types:
' Within the SLI business, Interstate goes head-to-head with players such as Exide, East Penn, Delco and Trojan.
' In the PowerCare area, Interstate competes with East Penn, Enersys, Deka, GNB and Douglas.
' In the multibillion-dollar All Battery business, Interstate and Batteries Plus remain the top players in the franchise model, while InterstateBatteries.com and 1800batteries.com are the biggest in the ecommerce space.
' When it comes to alkaline batteries, giant retailers, such as Wal-Mart, are Interstate's main competitors.
To keep pace with the ever-changing dynamics in the battery business, Interstate has invested extensively in information technology in recent years. The company plans to integrate all of its operations, including logistics, within Oracle's E-One software later this year.
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| Chris Antoniou vice president of global supply chain management, Interstate Batteries |
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| 'We are not manufacturers but we have an extended supply line. It's absolutely imperative that our systems support and provide visibility to our product orders, shipments and returns.' | |
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'We are not manufacturers but we have an extended supply line,' Antoniou said. 'It's absolutely imperative that our systems support and provide visibility to our product orders, shipments and returns.'
Interstate's business uses three operating models:
' Through its distributor model, the company works with more than 300 warehouses across North America, including Canada, plus Puerto Rico, the Dominican Republic and select Central and South American countries. The heavier batteries are shipped directly from Interstate's suppliers to each of these warehouses, whereas the smaller products come out of Des Moines.
' Interstate sells batteries through more than 150 All Battery Center franchises. These are retail stores that sell to both retail and commercial customers. The locations offer every battery for every need. An additional distribution channel is Interstate's Web site (www.InterstateBatteries.com), through which products are shipped from Des Moines to anywhere in the world.
' Nationally, Interstate's four PowerCare branches provide service experts and sales for the motive/forklift and critical power businesses. Unlike the company's other models, minimal inventory is maintained for PowerCare work. Interstate leverages its existing distribution models or drop ships to customers for each specific job and deals with domestic manufacturers to meet delivery dates. 'We have grown in our abilities to coordinate the drop shipments and site management,' Antoniou said.
Interstate also ships orders the same day they're received at its Des Moines facility. 'We don't use 3PLs but do the distribution ourselves,' Antoniou said.
The company is constantly evaluating its distribution models as it adds new distributors, franchises and suppliers from more countries.
'Our biggest challenge is keeping up with all the applications that use our existing battery products,' Antoniou said. 'Everyone wants power ' and more and more often want it in remote locations.
'Keeping up with our cross-reference catalog takes an enormous amount of resources,' he added. 'This is tied to a competitive advantage we have in the market: matching the right battery to more than 1 million applications is a key value Interstate Batteries provides.'
Underlying these commercial requirements is the continuous attention paid to state and federal regulations regarding the transportation of batteries. The combination of chemicals and metals used in a battery's composition make them hazardous, if mishandled.
A number of federal agencies have some measure of oversight when it comes to battery transport, such as the Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) and Federal Aviation Administration, and Customs and Border Protection.
Lithium-ion batteries, which are often used in laptops, cell phones and other digital electronic devices, have been linked to several cargo and passenger baggage fires from overheating. These batteries are volatile because they contain a flammable lithium salt electrolyte fluid.
The DOT's National Transportation Safety Board has also documented dozens of other explosions and fires in recent years involving dry alkaline, nickel metal hydride and other types of common batteries.
On Jan. 14, the DOT published its final rule on its revised federal requirements for the transportation of batteries and battery-powered devices. These changes, which took effect on Feb. 13, also harmonize the rules with the United Nations recommendations, International Maritime Dangerous Goods Code, and International Civil Aviation Organization's technical instructions.
Persons who violate these regulations may be subject to hefty civil penalties and criminal fines and imprisonment. The issuance of penalty amounts depends on the nature of the wrongdoing. However, penalties can range up to $100,000 for a civil penalty and $500,000 and 10 years in prison for a criminal penalty.
Groups, such as the Battery Council International and Portable Rechargeable Battery Association, represent the industry on legislation and regulatory matters. But it's up to individual companies to stay current and compliant with the regulations.
'We stay on top of the trends and are in tune with regulations,' Antoniou said. 'We also work to remain up to date with the different chemistries, including limitation and transportation requirements. Interstate Batteries is well-positioned to move with the changing landscape of the market.'
Increasingly stringent battery disposal regulations have encouraged more battery manufacturers and distributors to embrace recycling. According to the Battery Council International, automotive and sealed lead-based batteries are at the top of the list of the most highly recycled consumer products at 97 percent. This is followed by aluminum beverage cans at 55 percent, newspapers (45 percent), glass bottles (26 percent), and tires (26 percent).
All of Interstate's business models are aligned with the company's lead management team, which provides customers with drop-off locations, pick-up and shipment services to customers (by telephone at (888) USA-4001 or e-mail at recycle@ibsa.com).
'Our process is to pick up the cores or spent batteries as we're delivering the new batteries, and customers can bring in any batteries to any of our retail stores or warehouses located across the country,' Antoniou said.
'One of the great values we provide to our national account customers is that we guarantee the batteries are disposed of properly and recycled,' he added. 'We have relationships with our suppliers and smelters where we recycle the material so it can be used again.'
Here too, the DOT has stepped up its oversight of recycled battery transportation. In an April 3 letter to battery recyclers and transporters, PHMSA noted 'an ongoing trend of serious safety problems and non-compliance regarding the classification, packaging, marking, labeling, documentation and transportation of spent batteries in commerce.'
Common violations and safety problems found during PHMSA investigations are:
' Large numbers of used batteries of many types are collected in large containers that do not adequately prevent damage to the batteries or prevent their release during transport.
' Outer packages are not marked and labeled as required to indicate that they contain batteries, and failure to properly describe the shipments in accompanying documentation.
' Failure to prevent a short circuit between bulk-spent batteries, such as separating individual batteries in plastic bags or taping the terminals of the batteries, which spark fires during transport.
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| 'Our biggest challenge is keeping up with all the applications that use our existing battery products. Everyone wants power ' and more and more often want it in remote locations.' | |
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PHMSA investigators linked improperly handled bulk-spent battery shipments to a truck fire in Jackson, Mich., in July 2008, and parcel truck fires in November 2006, and April and July 2008.
The agency warned that it would step up efforts to enforce the safety standards for the transportation of spent batteries. In a recent enforcement case, PHMSA assessed a civil penalty of $360,000 for multiple violations of the hazardous materials regulations relating to the improper shipment of spent batteries for recycling and disposal.
'There are a lot of small players in battery recycling that lack comprehensive transportation safety strategies,' Antoniou said. 'We think it's important for everyone in this aspect of the business to comply.'
As electric power requirements evolve, so too will the battery industry. Interstate continues to explore new opportunities in offering consumers, businesses and government agencies battery power.
One promising area for battery manufacturers and suppliers is providing storage for accumulated power from renewable energy sources, such as wind and solar technologies.
'Energy storage is key to expanding the use of renewable energy,' said a June 23 article in Windpower Engineering. 'Combining variable wind and solar-energy production to needs of the power grid is an ongoing issue for utilities and will become more important as renewable resources further penetrate the electric industry.'
Large batteries for storing renewable energy-based electric power are also part of the U.S. government's Smart Grid strategy to more efficiently supply electricity across the country.
Earlier this year, Xcel Energy installed a large one-megawatt sodium-sulfur battery unit in Luverne, Minn., capable of storing up to 7.2 megawatt-hours of electricity from a nearby 11-megawatt wind farm. 'Fully charged, the battery could power 500 homes for over seven hours,' said Windpower Engineering, which described the batteries as measuring the size of two truck trailers in length and weighing 80 tons.
The development of battery-powered cars has become a priority of the White House and automakers, who are under increasing public pressure to reduce both fossil-fuel-based pollution and the country's dependence on oil imports.
The Energy Department says lithium ion batteries have the potential to replace gasoline as a major source of energy in future cars and military vehicles. However, the government is concerned about the lacking domestic manufacturing base for these types of batteries, noting that most of this production today is underway in Asia.
In December 2008, the Energy Department announced the development of a Chicago-based coalition of companies, known as the National Alliance for Advanced Transportation Battery Cell Manufacturers, aimed at promoting U.S. production of lithium ion batteries. Argonne National Laboratory will serve in an advisory role as the alliance begins operations.
By mid-April, the alliance chose a 1,551-acre site in Glendale, Ky., adjacent to Interstate 65 and the CSX Line, an area commonly referred to as 'Auto Alley' due to its proximity to numerous auto-manufacturing facilities in the region.
If successful in securing federal funding, the alliance will establish a manufacturing campus in Glendale, consisting of a headquarters and manufacturing facility used to refine products and production processes.