3PL Archives

The Value of Becoming a Technology-Driven 3PL

Guest Commentary | By John Reichert • 09/10/2009

In the past, entering and competing in the Third Party Logistics (3PL) marketplace required sales savvy, options for inexpensive warehouse space and good operational management skills. With these things in hand, a 3PL could acquire clients, lease space, hire workers and launch operations in very short order. Price was always king and the 3PL with the lowest price usually won. Contracts were renewed provided the 3PL met its service levels and prices remained low. New 3PL companies sprouted overnight and everyone was happy.

Gone are the days where being the lowest-cost provider is enough to win the business. Today, customers expect 3PLs to offer advanced and adaptable solution offerings, which allows 3PLs to compete on a higher plane than just price. In turn, this enables more efficient and flexible operations and provides stronger returns for end clients. Becoming a technology-driven 3PL is not only the key to winning new contracts; it also provides stronger client partnerships, which are harder for the competition to overcome when contract renewal time arrives.

So, what exactly are these advanced solution offerings? It is not only advanced warehouse management systems (WMS) and transportation management systems (TMS) that ensure real-time visibility and accuracy. It is these applications working hand-in-hand with a client’s systems and users. Let’s look at a few examples of what is possible today.

Unlimited Visibility: 3PL’s now have the technology to offer their clients real-time information through secure browser applications. Clients can access this information at their office, at Starbucks via their Blackberry or smart phone, or at their end customer’s offices while discussing sales and delivery opportunities and/or issues. A client’s end customers and suppliers can also access the same information for broader supply chain collaboration. As a direct result, clients save money, improve customer service and improve margins.

Fast, Easy and Immediate Knowledge Transfer: For example, a client has a fast-breaking product opportunity that requires special packaging or other value-added services. The client can create their own detailed instruction documents, and even short video clips on proper techniques, and post them directly on their internal site. The 3PL operator can view these documents and videos through live hyperlinks on their workstations to aide in the process. As updates are posted the 3PL operator sees the changes immediately, including animated graphics if needed to draw attention – no email, no phone calls required. Clients benefit from faster speed to market, improved quality and consistency, and rapid response to changes.

Image-Driven RF Operations: The latest technologies allow 3PLs to provide RF operators with instructions using images and videos in combination with, or even in place of, traditional text data. 3PL clients benefit immediately from improved quality by showing images of the required unit of measure, the required packaging instructions, and kit assembly videos to RF operators unfamiliar with their products. A 3PL can deliver more complex operations while keeping operating costs below those of the manually-driven processes of its competitors. The 3PL also benefits from increased retention, closer client partnerships, and stronger value propositions for attracting new clients and revenue sources.

Merged Information with No Integration: Integration technology has advanced over the years to allow faster and easier integration with various client ERP applications. Today, separate client system data can be embedded directly on the 3PL’s WMS screens (PC and mobile RF). Users see information from both systems on a single screen without realizing two systems exist, all without extensive IT work required. Information sharing today also extends beyond text and numbers, and now includes full multimedia capabilities for embedding documents and images. Clients benefit from easier on-boarding of the new 3PL, less IT investment, and improved quality and efficiency of their 3PL partner.

With all of this capability in hand, today’s 3PL winners – both existing players and newcomers – can become valued, shared partners with the clients who need them in today’s ever changing economy. Without this technology advantage, 3PLs may be unable to reduce their prices low enough to overcome the higher client ROI offered by technology-driven competitors.

John P. Reichert is Product Manager, Warehouse Management Systems, at TECSYS Inc. His career encompasses close to twenty five years of strategic and operational expertise in product development, product management and deployment of ERP systems for domestic and international companies. Since 1998, Mr. Reichert has been a key contributor to the development and marketing of TECSYS’ WMS initiatives for healthcare and high-volume distribution companies. Prior to joining TECSYS, Mr. Reichert was a senior manager in R&D, product management and solution engineering with three logistics software companies. Prior to that, Mr. Reichert was with Frito-Lay where he was a key contributor in the development and deployment of distribution systems across the U.S. during a seven year span.

What Doesn’t Kill Us, Makes Us Stronger: A New Model of Logistics Excellence

Guest Commentary | By Darin Cooprider • 08/11/2009

It’s been a year since fuel hit an all time high and companies were scrambling to keep fleets on the road, goods on the shelves and their sanity. And it’s been nine months since the economy went south and the jury’s still out on when we’ll begin the long, arduous climb back to normalcy.

I believe it’s not all bad. In fact, there are lasting lessons to be learned from an economic downturn and tough times often make better businesses. It’s a little like Darwin’s theory – evolve or, well you know. There’s a lot of change for the better that can be made when everyone’s looking to find a way out of a tight corner.

As the link between all the stakeholders in the supply chain, who’s better to be the catalyst than the logistics providers? From where we sit, there are plenty of opportunities for everyone in the supply chain to work together to drive value creation, improve efficiency, and reduce costs.

Just take a look at the traditional delivery model for soda to a convenience store: there’s likely to be as many as 15 suppliers, making three to four deliveries a week. In theory, this works for the retailer – there’s no need to hold inventory at the store level, and high service-level agreements make it nearly impossible for the supplier to miss a delivery. Often overlooked though are soft costs, like the extra staff needed to accept the delivery. There’s risk, too: if the supplier’s marketing group has a big promotion that hasn’t been communicated to the operations’ team, the retailer may find themselves with empty shelves. The cost of the model to the supplier is apparent – it’s not ideal, but in many cases, it’s viewed as the cost of doing business.

But when everyone works together toward a common goal, collaboration can deliver so much more than just a way to increase efficiencies.

For one of our largest customers in the CPG space, recognizing that route sales are actually a key component of merchandising was a powerful place to start. For them, the best solution was a direct-to-store model; of course, eliminating the distribution channel provided cost savings, but the real win came from being much, much closer to their customers – and the demand cycle.
For others, joining with other customers in their regions to share warehouse space, and fleet capacity is a better strategy. In one instance, we have competitors openly embracing this co-op approach.

By analyzing supply chain networks and identifying opportunities to pool volumes, share facilities, and take advantage of third-party suppliers’ economies of scale, everyone will realize significant cost savings while still achieving outstanding customer service levels.

The key is that in any case, bringing everyone to the table, sleeves rolled-up and ready to wrestle the most difficult questions to the ground often uncovers unexpected – and sustainable – value.

What does collaboration look like in terms of real benefits?

Better visibility. Whether the products are in production, in transit, arriving at their destination or ultimately, being purchased, everyone in the supply chain can see them. Increased visibility improves faster decision making and adjustments to the supply chain can be made real-time — saving money or making money depending on what’s happening.
Optimized inventory levels. When everyone is working from a common platform, it’s much easier to achieve more accurate fulfillment and replenishment cycles. Minimum quantity thresholds are eliminated since pooled volume levels are fulfilled across the shared network. Common platform visibility eliminates the need for buffer stock.
Dramatic improvements in order-to-cash cycles. It is business after all. When goods move seamlessly and are synchronized over the shared network, and transit and delivery times are clearly tracked to provide triggers for ownership and payment transfers, money gets where it needs to go faster and with more reliability.

I’m not saying it will be easy. We’ve been doing what we’ve been doing for decades and change is scary. But after the past year, I firmly believe that now’s the best time to turn the old way of doing business on its head and embrace a new way of thinking and doing business. After all, what better way to spend the recession than investing in the evolution of our business? I, for one, don’t want to end up as one of Darwin’s alternatives. How about you?

Darin Cooprider, VP-Supply Chain Solutions Retail/Consumer Packaged Goods at Ryder, has more than 20 years of experience in operations, transportation and 3rd-party logistics implementation and management. Prior to joining Ryder, he was with Johns Manville, a Berkshire Hathaway Company where he lead the company’s strategy for supply chain integration across seven global business and was the technology leader for commercial and operational systems. Darin also served as VP of supply chain for The Home Depot and VP of supply chain operations and planning for Kmart Corporation.

A Logistics Service Provider Makes The BusinessWeek Top 50

Logistics Service Providers | By Steve Banker • 04/03/2009

I picked up this week’s BusinessWeek and took a glance at their cover story, “The BusinessWeek 50: the Best Performers.” As I scanned the list of the top 50 financial performers, I was surprised to see a logistics company, Expeditors, included on the list (they were number 28). I’ve always viewed logistics as a leading indicator of the economy. When the sector starts to perform poorly, it’s a sign that the economy is heading south, and when the sector’s performance starts to improve, it’s a sign that the economy is on the rebound. Further, what makes Expeditor’s inclusion even more noteworthy is that they are engaged in global logistics management, including ocean and air freight forwarding. As such, they are particularly influenced by global trade patterns.

Obviously, the global economic recession has adversely impacted global trade. Yesterday, I received an email from Panjiva announcing that after completing an analysis of global manufactures, they found that there was an “astonishing” 10 percent decrease, from January to February of this year, in the number of manufacturers shipping to the U.S. (there were 118,000 manufacturers shipping to the U.S. in February 09, down from 131,000 in January 09). Compared to February 2008, there were 30,000 fewer manufacturers shipping to the U.S. this past February. These statistics underscore the 9 percent decrease in global trade volume forecasted by the World Trade Organization.

BusinessWeek attributed Expeditors’ success, and several other top 50 performers, to a pay-for-performance culture. At Expeditors, each branch office keeps 20 percent of its pretax profits which feeds their merit-based system for disbursing options. This intrigued me enough to review their annual report.

Like many other logistics companies, Expeditors has operational excellence programs focused on achieving cost-effective customer service based on business process reengineering. But in an industry famous for high turnover, it’s clear to me from reading their annual report that Expeditors puts an emphasis on people. The terms “employee retention,” “employee development,” and “training” appear many times throughout the annual report. In the South Pacific region, the management team bragged that staff turnover was at “an all-time low” and that they were focused on “retaining the best performing employees.”

Expeditors’ goals for customer retention and expansion are clearly linked to their employee retention goals. In addition to a focus on employees, they also have a goal of “working closely with world class service providers.”

Actually, the front section of the annual report is semi-entertaining in an “in-your-face” kind of way (how many annual reports can claim that?). The company hits back at the financial analysts, consultants, and pundits who evidently had pressured them to carry less cash (which makes companies vulnerable in economic downturns), grow through acquisition (which they believe would dilute one of their key assets, their corporate culture), and thoroughly explain their corporate governance processes (they believe a culture of honesty, not regulation, is the only true protection for investors). The report goes on to say, “So here’s what we have to show for not listening to them: 30 years of consistent, reliable growth driven by our consistent, deeply rooted culture.”

The iPhone as a Logistics Visibility Device

High Tech & Electronics Industry | By Steve Banker • 04/01/2009

When it comes to Logistics Service Providers (LSPs), it is clear that FedEx and UPS have technology-driven value propositions. There is no other way that they could economically and efficiently pick up and deliver large volumes of packages each day without the aid of technology.

But technology innovation is not just limited to very large LSPs. Some “boutique” service providers, like D.W. Morgan, have also built their company, in large part, based on their technological capabilities.

D.W. Morgan provides transportation solutions using their own people, trucks, warehouses, TMS, and visibility solutions. One niche for them is last mile, just-in-time deliveries of raw materials to inbound VMI hubs that supply the contract manufacturing facilities of their high tech clients. Morgan calls this service “supply on demand.” In this area, the company has developed a proprietary “last mile” real time visibility solution that includes status updates, GPS with geo-fencing, and signature capture.

For GPS, the company uses SkyBitz, which leverages satellites for both pinpointing an asset’s location and for communicating that information back to headquarters. Many other GPS providers switch to cellular networks for communication because it is less expensive, but Morgan prefers the higher-cost SkyBitz due to its higher reliability.

Last mile visibility is not particularly difficult to achieve in the U.S., but if you are providing this service around the world – particularly in low cost manufacturing nations in Asia and Eastern Europe-stitching satellite and cell phone coverage together to track distinct supply chain transactions becomes more difficult. Consequently, in the past, Morgan provided customers with near real time data from these countries, but it was a very labor-intensive process.

Last year, when Apple released a software development kit for the iPhone, Morgan decided to build an iPhone tracking application for their drivers to use. This application allows for a signature to be captured and sent back to the U.S. headquarters where it is then automatically uploaded to the Internet for their customer. The signature is validated with a GPS stamp that shows where the signature was captured, and users can even use a Google map to zoom in and see where the transaction occurred. The application also allows drivers to upload pictures of damaged shipments to the Internet. Finally, Morgan has built human resource functionality into the application. For example, drivers sign in and out of work and breaks using the iPhone. Currently, the iPhone does not support bar code scanning, but Apple will release a new version of their platform in June which will have the ability to support peripheral devices via Bluetooth.

What are the advantages of the iPhone for Morgan? Apple has assembled a global network of mobile carriers to support the iPhone, so there is better global coverage; the software development platform allows Morgan to be masters of their own destiny and to quickly build flexible solutions for customers; the platform also serves as a communication and HR system for their mobile workforce; and, finally, Morgan has branded itself as an IT innovator and this “cool” solution helps to validate that branding.

D.W. Morgan is not a low-priced commodity player. Their focus is on critical transportation moves. They are willing to use somewhat more expensive technologies if those technologies provide greater reliability and flexibility. Morgan’s use of the iPhone development platform also validates what we wrote about in “An App Store for Logistics“-i.e., how companies need to “think different” when it comes to how you develop, sell, purchase, and deploy logistics software.

Visualizing Replenishment

Inventory Management | By Steve Banker • 03/30/2009

I recently read an academic paper from the WHU-Otto Beisheim School of Management called “3^rd Party Logistics Providers’ Role in Replenishment” that I liked. The paper contained good information, but it was also a bit long and kind of dense (although not nearly as inaccessible as most academic articles). I realized after reading it that the vocabulary used by most supply chain managers to talk about replenishment is extremely limited. This means that the models we use to think about replenishment are also imperfect. Therefore, in order to make intelligent decisions about which style of replenishment is best suited for a particular supply chain, we first need to visualize the different models available.

So, my goal today is to show you (in a concise way) the core model from the article, along with my own spin on it.

Replenishment spans across planning, management, and the actual ownership of inventory. Buyers, vendors, and various third parties typically play a role in replenishment, and the inventory managed spans across raw materials, work-in-process (WIP), and finished goods.

The Replenishment Hierarchy (Source: WHU paper, with ARC edits)

Based on this hierarchy, you can model different styles of replenishment by asking which party is responsible for inventory forecasting, inventory management, and inventory ownership.

Traditional Replenishment Models (Source: WHU paper, with ARC edits)

However, these traditional models don’t portray the full array of replenishment models available when you consider the full set of players that can participate in this process. First of all, many manufacturers have outsourced their logistics and manufacturing processes to third parties. These third parties often take responsibility for inventory management and perhaps also take ownership of certain types of inventory. However, outsourcing inventory planning is far less common. In short, working with third parties is very common for supply chain execution, but very uncommon for supply chain planning.

Actually, there are other third parties besides contract manaufacturers and logistics service providers that could be involved in inventory planning. These third parties have distinct value propositions depending on the type of inventory involved and whether you’re talking about inventory planning or management.

Contract Manufacturers: Management and ownership of raw materials and WIP are a natural extension of current activities.
Third Party Logistics: Inventory management of raw materials for supplier hubs feeding factories; inventory management of finished goods for their customer’s customer; inventory ownership for 3PLs with performance-based logistics (PBL) contracts .
Consultants: Ability to do advanced forecasting and inventory planning, potentially using very capable but low cost planners from offshore locations. Support for their customer’s S&OP process.
Software vendors: Ability to use demand planning and multiechelon inventory optimization tools to their fullest extent. Support for their customer’s S&OP process.

When one considers players in the replenishment process other than buyers and vendors, it becomes readily apparent that new replenishment models are possible-at least nine new scenarios, and many more if you consider collaborative planning scenarios.

Sample of Possible New Replenishment Models (Source: WHU paper, with ARC edits)

Further, there is a natural tendency to think about replenishment in terms of finished goods. A broader perspective is necessary. The diagram below shows just a few of the many possible options.

visualizing-replenishment-4 — (Source: WHU paper, with ARC edits)

In conclusion, when thinking about different types of replenishment models, it is also important for companies to think about creating joint benefits. In the Buyer Managed, Vendor Owned scenario (also known as consignment) the buyer wins while the vendor incurs extra costs. Those costs are eventually passed along to the buyer in the form of higher prices. However, in classic VMI while the vendor does hold more inventory, it also gains some flexibility in terms of when to schedule production runs. This can lead to lower production costs and a win/win relationship that saves both companies money.

Evaluating the B2B Communication Capabilities of 3PLs

Logistics Outsourcing | By Steve Banker • 03/13/2009

Every year since 1996, Professor John Langley of the Georgia Institute of Technology has published a report called “The State of Logistics Outsourcing” that highlights trends and issues in third-party logistics. Over 1,600 logistics executives participated in last year’s survey. According to the report, “One area warranting particular scrutiny is a 3PL’s planned technology investments: the gap between user IT expectations and 3PL’s ability to meet those expectations has persisted over several years of the study.”

A 3PL that is unable to exchange timely, accurate, and complete data/information/documents with its customers, relating to planning, execution, and performance measurement, will not have happy customers. Therefore, what B2B communication capabilities should a prospective 3PL customer look for? To answer this question, I interviewed Lori Brofford at Sterling Commerce and Chris Jones at Descartes Systems Group. Both companies provide B2B communication solutions to customers in various industries, including logistics service providers.

My key premise was that 3PLs need advanced electronic data interchange (EDI) capabilities to communicate effectively with customers. I asked Ms. Brofford what she looks for in a 3PL to help insure they can do this well, and she highlighted four things:

Security – Is the 3PL, for example, ISO/IEC 17799:2005 certified? This standard establishes “guidelines and general principles for initiating, implementing, maintaining, and improving information security management in an organization.”
Availability – How often is a 3PL’s EDI solution up and running? Customers should include this metric as part of their 3PL performance dashboard.
Reliability – How well does the 3PL perform against its B2B communication requirements? Does the 3PL reliably use the documents your company specifies (e.g., advanced ship notices, freight invoice, shipment schedule, UCC128 container labels)? Do they execute these transactions in the required timeframe? For example, you might require a 3PL to send advance ship notices to both you and your customers within a certain timeframe. Receiving an ASN after the goods have arrived is useless, but this is a common problem. Both Descartes and Sterling Commerce gave examples of customers whose 3PL partners are only 50 to 60 percent compliant in this area. Companies can’t expect a 3PL to automatically achieve high reliability; they really need to assign people to track compliance on an ongoing basis and work with 3PLs to improve in this area.
Flexibility – A 3PL should support various transport and communication protocols-e.g., File Transfer Protocol (FTP), Hypertext Transfer Protocol Secure (HTTPS), frame relay, and Virtual Private Networks (VPN). Flexibility, which may be even more difficult for a 3PL to achieve than reliability, should not require customers to download software.

The other point both Sterling Commerce and Descartes made is that EDI “standards” are far from standard, which often leads to data quality problems. If a 3PL is using a B2B communication technology supplier, and that supplier runs a single instance multitenant network, data quality problems can be greatly reduced (for an explanation of why this is so, you can read my colleague’s recent posting on “More Questions About Software-as-a-Service“).

Chris Jones of Descartes made some additional points. First of all, B2B communication does not only occur between the 3PL and the shipper. A 3PL’s B2B strategy needs to include the ability to communicate with other trading partners like carriers, suppliers, and customs agencies. Non-asset based 3PLs, for example, subcontract transportation to third-party carriers, who in turn need to communicate effectively with 3PLs.

This point leads directly to his second point: B2B communication needs to be more than just EDI. A 3PL must have the ability to address what Mr. Jones calls “high tech, low tech, and no tech” scenarios. EDI is the “high tech” scenario, and it’s commonly used by large companies. But if a 3PL is managing your transportation operations in China, for example, it’s unlikely that the Chinese carriers they’re using are EDI-enabled. Some of those carriers might have the ability to exchange information via web forms (“low tech”), while others still rely on phones and faxes (“no tech”). Those “low-tech, no-tech” transactions then need to be converted into real time B2B data, which means the 3PL (or their B2B technology partner) needs a robust trading partner on-boarding process.

Another reason why a 3PL’s B2B strategy needs to encompass more than EDI is that many communication requirements extend beyond the defined EDI transaction sets. For example, customs agencies around the world are beginning to require importers and carriers to electronically submit additional pre-shipment data (e.g. “10+2” regulations). These data sets are currently outside the EDI transaction world. Another example is proof of delivery, which may include, in addition to a 214 EDI message, signature capture and document scanning information.

The bottom line: when companies evaluate the technological capabilities of potential 3PL partners, they need to think beyond software applications like warehouse management or transportation management systems. They also need to consider and understand a 3PL’s B2B communication capabilities, taking into account factors such as security, availability, reliability, flexibility, and “high tech, low tech, no tech” on-boarding capabilities.

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