Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

3 Ways to Measure the ROI on a Pop-up Distribution Center

Guest Commentary | By •

Mike HoniousHoliday peak season. New product launches.  Flash sales.

Does the mere mention of these make you anxious?

In a supply chain, the balancing act of supply and demand can be tricky and at times costly. Forecasting, previously accepted as an art, now demands near science in order to succeed in today’s dynamic retail environment. However, your supply chain can only prepare for and react to the volumes based on the resources readily available within a fulfillment operation. If there is not enough space for the inventory, or enough labor to fulfill the increased order volume, then you can’t react to the shift in supply and demand in order to capitalize on revenue.

How can a business overcome this conundrum?
Operating similar to stores or kiosks that pop-up in malls during the Christmas season, pop-up fulfillment centers are becoming the must have gift for any retailer who has severe surges in order volume. Pop-up distribution centers are operations where warehouse space is leased for a temporary amount of time, usually 4-6 months, in order support peaks in order volume. These peaks in volume could be driven by marketing promotions, holiday sales, or even the reaction to a competitor being out of stock of an item. When planned in advance, a pop-up fulfillment center can increase your inventory capacity and labor operations to capitalize on the sales growth from these peaks.

A “pop-up” fulfillment center is no longer a luxury you can’t afford to have during the spikes in your business. A pop-up fulfillment model is an investment in the improvement of a supply chain to better support your revenue goals and customer satisfaction metrics. The return on this investment shouldn’t be measured on only costs saved but rather revenue gained and risk adverted.

Here are three ways to look at the return on investment of a pop-up:

1. Measure the ROI through an increase in throughput.
How does a pop-up accomplish this? One purpose of the pop-up distribution model is to increase fulfillment resources, such as space, labor, and inventory, in order to process higher order volumes in a single day, week, or even month. Doing so creates an increase in throughput and enables a network of fulfillment operations to process more orders throughout the length of a peak cycle.

What does this mean for decision makers of a company? The measurement of throughput can directly impact sales and marketing driven revenue. Should marketing have a promotion that will increase sales significantly over the holiday shopping season, the fulfillment operation needs to be capable of supporting this growth. If the product development team has a new product that needs to be launched on a large scale, the operation is expected to handle this temporary increase in order volume. A pop-up distribution center allows a business to temporarily scale (rent) their fulfillment operation to support its sales growth with significantly less risk to the company.

2. Measure the ROI through a shortened tail.
How does a pop-up accomplish this? In logistics, the term “tail” is used to describe the number of orders that carry over from the previous day. During peak seasons, if you carry over 500 orders from Monday; you are heading into Tuesday with 500 orders already in the queue with more being added that day. This can be a common, yet unwelcomed, event during a peak cycle. However, by opening up a pop-up distribution center, an operation can allocate orders across both the regular fulfillment center and the pop-up site in order to shorten or even eliminate the tail.

What does this mean for decision makers of a company? A shorter tail means one thing for a brand – maintaining, or even improving, customer satisfaction. Consumers ever-increasing demands are making it more and more challenging for brands to deliver on the expectation. By decreasing the number of orders that are carried over from the previous day, i.e. shortening the tail, an operation can meet the consumer’s service expectation and keep them coming back for more.

3. Measure the ROI through fewer back orders and ship shorts.
How does a pop-up accomplish this? High quantities of back orders and ship shorts are not ideal for an operation, particularly during peak cycles. By increasing your storage capacity through the use of a pop-up distribution center, back orders and ship shorts can be reduced. Products that are forecasted for high order volume can be fulfilled on time and picked to complete more frequently.

What does this mean for decision makers of a company? This means a lower risk of lost sales by reducing the number of cancelled orders and cart abandonment, further driving brand loyalty and customer retention. During peak cycles, such as new product launches and holiday seasons, it is very common for consumers to provide feedback on their experience through social media.  An investment in a pop-up fulfillment operation can prevent your brand from being involved in a negative social media firestorm.

What does all this mean?
The success of a peak season is crucial to both a fulfillment operation and to a brand. Leveraging a pop-up distribution center alleviates a lot of the pressure associated with these sporadic, high volume periods. For a brand, the ROI is significant in terms of revenue growth, customer satisfaction, and lower risk of lost sales.

Mike Honious joined OHL in November of 2005 and currently oversees the Contract Logistics and Warehouse business. Mike’s previous responsibilities at OHL included executive oversight of engineering, operational excellence, project management, IT implementation, and the Nashville based forklift company Material Handling Resources. Prior to joining OHL, he spent thirteen years with Gap Inc. serving in various management capacities. He was Senior Director of Campus Operations, responsible for 2.2 million sq. ft. of warehousing operations and served as Director of Global Engineering Services for the specialty retailer. Mike earned a BS degree in Industrial Engineering Technology from the University of Dayton, is an active member of WERC, and has attended supply chain and executive leadership courses at Tennessee, Penn State, and Vanderbilt Universities.

 

5 Best Practices in Chemical Logistics and How to Implement Them

Chemical Industry | By •

Mike ChallmanFor chemical manufacturers, knowing what you don’t know about your transportation process can be your greatest asset. But many logistics customers are reluctant to admit their shortcomings. One of the biggest weaknesses we see in new clients is a lack of control over the shipping process, the data and the decision points.

That’s why it’s critical for chemical companies to work with third-party logistics providers that are able to develop customized programs tailored to their industry. Following are the key practices we’ve identified for chemical logistics success.

5 best practices for chemical logistics

  1. Supply Chain Visibility – Chemical companies need to know how their products are being handled at every stage of the shipping process.
  1. Effective Information Management – A robust reporting system is essential, but too much raw data can be overwhelming. Information should be communicated in a meaningful and engaging way.
  1. Active Participation in Supply Chain Issues by Multiple Shipper Departments – To do the best work, everyone from production to customer services to sales needs to be plugged into discussions.
  1. Current Market Intelligence – An effective two-pronged approach involves staying abreast of both the overall transportation market (e.g., knowing carrier rates and who the players are in your areas) and the chemical-specific market (e.g., knowing the current rules for shipping hazardous materials).
  1. Strong Carrier Relationships – Transparency and regular, planned communication is key to strengthening relationships among all parties.

4 Tips for implementing these practices

While it’s essential to identify best practices, you won’t benefit from them unless you formulate a plan to implement and stick to them. These four tactics can help:

  1. Find the right technology. While technology such as transportation management systems, benchmarking tools and reporting tools may be abundant, not all of it is suited to the chemical shipper. And it’s especially dangerous to rely on a manual system of spreadsheets, sticky notes and email. If you’re putting your faith in tribal supply chain knowledge, your first priority should be capturing that information using the appropriate technology for chemical logistics.
  1. Implement a structured and disciplined engagement strategy between your key departments and your 3PL. Groups such as production, customer service, sales, marketing and executives often work in silos so it’s important to get them talking not only to your 3PL, but also to one another to help them understand how they’re connected. The 3PL should take the initiative to create a schedule and agenda for key meetings with you and your departments.

We recommend three types of meetings between stakeholders:

–  Monthly operations conference calls to talk about tactical issues like what’s happening this month, whether there are any campaigns coming up, and how to approach an upcoming season of bad weather.

–  Quarterly business reviews to discuss the programs being worked on together to improve the process and what the metrics that have been gathered tell us. These strategic meetings should be held in person and be rotated from the 3PL headquarters to your headquarters to regional offices. This gives the stakeholders a chance to hear from individuals who might not speak up on conference calls.

–  Semi-annual or annual meetings to address the overall program and find out whether it’s meeting your expectations and if you have additional needs.

When we began working with Pilot Chemical, the company’s various departments were isolated and unharmonious. Actively participating in supply chain meetings helped create a culture of collaboration where every department understands the impact their decisions have on the company as a whole. This engagement strategy paved the way for Pilot to implement all five of the best practices outlined above.

  1. Create a robust and active information management program. Determine which key performance measures need to be tracked. There’s lots of stuff you can measure, but not everything you can measure is meaningful.
  1. Utilize a flexible engagement strategy. A canned solution may be adequate when you’re shipping boxes of nontoxic goods, but when you’re dealing with chemicals, you need a customized solution that meets your requirements.

This tactic is key for creating supply chain visibility — both outbound and inbound. In fact, gaining control of inbound transportation is a huge opportunity but also an enormous challenge. Not all manufacturers are willing or able to do so, but Emerald Performance Materials is bravely taking the step this year, something that wouldn’t be possible if the company didn’t already have visibility with its outbound program.

When it comes to shipping hazardous chemicals, off-the-shelf logistics solutions just won’t do. Chemical manufacturers evaluating a 3PL should look for those that offer proprietary solutions for chemical logistics. And together you can build those customized solutions by starting with these five best practices.

 

Mike Challman leads all of ChemLogix (a division of CLX Logistics) Managed Services in North America, including freight management operations; benchmarks & bids; carrier programs; dedicated truck & rail fleet operations; and brokerage services. His multifaceted background includes operations, customer service, solution development, project management and continuous improvement programs.

Prior to joining CLX Logistics, Challman spent nearly 25 years in the transportation industry.  He has held leadership positions with several motor carriers and third party logistics companies.  A decorated Air Force veteran, Challman earned his Bachelor of Science degree at the U.S. Air Force Academy and holds a Master’s of Business Administration from Oklahoma City University.

 

3PL Executive Insights from MercuryGate User Conference 2013

Logistics Service Providers | By •

What is the path to building successful and lasting 3PL-customer relationships?

That was the main theme of a panel session I led at last month’s MercuryGate User Conference 2013, which included the following 3PL executives:

The panelists talked about the importance of trust and transparency, and the need to truly understand customer expectations and desired outcomes. They also talked about how 3PLs and customers need to clearly communicate with one another on an ongoing basis, ideally across multiple points of contact. Technology also plays an important role in creating lasting relationships, particularly when it comes to providing customers with insights and market intelligence (BI/analytics) and enabling new processes and responding to exceptions quickly. And of course, the panelists talked about talent and how “human IP” is becoming a critical component of their value proposition to customers.

Simply put, the panelists underscored many of the points I raised in “4 Important Factors to Consider When Evaluating 3PL Partners,” and they validated a key trend occurring in the 3PL industry — i.e., the continued merging of operations, technology, and consulting.

While at the conference, I also had the opportunity to interview three of MercuryGate’s logistics service provider clients: Michael Bartz from ReTrans; Jeff McDermott, VP of Transportation Management at OHL; and Phillipp Dismukes, TMS Technology Manager at Old Dominion. I was particularly interested in understanding the factors that led them to seek out a transportation management solution and what features and capabilities they were looking for in a TMS.

There was a common thread between their stories: their companies were growing very quickly and their existing TMS could not scale quickly and effectively; and they wanted a solution that was quick and easy to configure to support the diverse needs of their clients. Here are a couple of excerpts from the interviews that illustrate those points:

Jeff McDermott, OHL: “We were a company that had seen significant growth in our transportation business unit, and a lot of that growth came through acquisitions that we had made…and we woke up one day and found out that we had five [different TMS solutions] under our roof. So, we knew that in order to scale our business and be able to grow the way we wanted to grow, we needed to get to one platform. So, the challenge was finding the right platform that could meet the needs of all of our [large and small] customers…and that’s really when we set out to go through the RFP process. We wanted to look at all the providers out there to pick the right one that could scale from [our smallest customers] up to [our largest] customers. And that’s where we really felt MercuryGate stood out…being able to apply complex business rules if needed, but also have that simple and easy-to-use interface [that made it] easy for our employees and customers to [use the TMS].”

Michael Bartz, ReTrans: “ReTrans has been a pretty aggressively-growing company for the last 12 years…When I got to [the company] we had a TMS that was built on FoxPro, which is a legacy retired piece of technology, and we actually had three different TMS, none of which were scalable…We had literally busted out of the seams of the [TMS] we had grown into. [Regarding onboarding customers], we really changed our philosophy. When I arrived at ReTrans, our integration path with a customer was to hand them our format of how we would integrate [them] and say, ‘Well, you really have to do that,’ and, you know, that may not always work. So [with MercuryGate] we are able to be a lot more flexible. If a customer needed to do item-level detail on their load plans, we could do that, or if they were doing multi freight class shipments, [we could do that too]…the flexibility became an asset for us…and as we got more flexible, we actually integrated more easily and reliably with customers because they didn’t have to necessarily jump through hoops to fit our square peg, and so that was a big benefit for us.”

I encourage you to watch the brief videos below to get the “rest of the story,” including their advice for other 3PLs looking to invest in a TMS and their views on the biggest challenges and opportunities facing the 3PL industry in the years ahead. 

I also attended several product sessions while at the conference, including updates on Carma (carrier management), Mojo (transportation optimization), RateFriend (rate benchmarking), Mobile, and their ezClick architecture (a key enabler of the solution’s flexibility and ease-of-use). The most interesting session for me, however, was on how 3PLs can use Mojo as a sales tool — something that both Michael and Jeff commented on in their interviews. In other words, Mojo enables 3PLs to analyze, quantify, and document the potential transportation benefits a customer can achieve under different optimization scenarios — an example, as mentioned earlier, of the insights and business intelligence customers expect from their 3PL partners.

The bottom line is that 3PLs face the same big challenge as their customers: keeping up with the rapid pace of change. When it comes to TMS for third party logistics providers, scalability, flexibility, and ease-of-use are as important — if not more — than features and functions. MercuryGate recognized this need in the market more than a decade ago, and today the company has 185 3PL clients and is almost tripling the size of its headquarters as it paves a path to reach $100 million in revenue by 2016. And so MercuryGate faces the same big challenge in the years ahead as its 3PL and shipper clients: keeping up with the rapid pace of change in customer requirements, technology trends, and the competitive landscape.

(Note: MercuryGate is a Logistics Viewpoints sponsor)

Guest Commentary: 5 Essential Technology Questions to Ask Any Logistics Service Provider

Guest Commentary | By •

You probably have a list of standard technology questions you ask potential logistics service providers. When you’re evaluating the technology of various LSPs, you can separate fact from fiction by asking a few simple questions. When pursuing a solution that obviously incorporates technology services it’s natural to investigate the provider’s technology. What surprises many companies is the importance of a provider’s technology even when the solution appears to not be technology-based. It’s an increasingly complex and interconnected world out there and an underperforming partner can significantly hamper your ability to take best advantage of it. Luckily, it’s easy to know whether a provider is well qualified.

When evaluating a provider’s technology, I recommend asking five essential questions. You will likely find additional value when you add these questions to your RFP — you’ll get better data to make a more informed decision.

  1. What does visibility really mean to the logistics service provider? Can you see your shipments’ status at any point in the process? Is transportation data integrated the next day, or can you get updates throughout the day? The answer could mean the difference between your ability to head problems off before they start, or the imperfect scenario of reacting to problems with day-old data. Also ask how easy is it to collect the data, interpret the findings, and analyze the metrics. Does the technology platform work the same way in every region where you do business? Do they offer global visibility, and can they demonstrate it? Visibility, especially global visibility, is essential to helping you proactively mitigate risk. With visibility, you can also track and trace worldwide without information gaps.
  2. Can they customize their tools to meet your needs? As you know, the ability to tailor a technology to suit your business is huge. Do you really have the time or resources to alter your business processes to fit your provider’s technology? The answer is probably no, and you shouldn’t have to. Make sure you ask detailed questions about the extent to which you can configure the technology to your specific needs. With a customized approach, you can increase your speed to market and easily clear barriers to progress.
  3. What process integration options do they offer? By all accounts, everybody does EDI. But in reality, not every shipper can do traditional EDI. More importantly, it’s unlikely that all of your supply chain partners can do EDI. Ask about the effort the technology provider makes to use all the tools you and your supply chain partners use—from XML files to smart phones to web tools, and more. It’s paramount that you can easily integrate the way you do business and gather data with the provider’s transportation technology. Also ask if the technology easily automates processes. Can their technology help you improve your data quality? It should be able to assist you with all these things.
  4. How many of your current service providers are already integrated with their technology? Last month, another Logistics Viewpoints guest commentator wrote about new carrier onboarding as a key criterion when selecting any shipping software. I couldn’t agree more. You probably have a broad (and changing) network of service providers. Make sure you ask about the ability to connect to and easily access your shippers, carriers, and anyone else in your network. If your provider has a large worldwide network of connected companies, you’ll likely discover that many of companies you work with are already on the platform, which makes the start-up process that much easier.
  5. How mature is their system availability process? Do they regularly test their availability and problem recovery process? Can they walk you through it? Do they maintain their own data center or have they outsourced that responsibility? Ask about their data security and inquire about their disaster recovery program. Do they have redundant systems that can prevent long outages? Data security and business continuity are crucial to any company that depends on technology (including yours).

Beyond these questions, you can also look into other aspects, such as knowing who controls your provider’s core software. A provider that owns its own technology and executes with it every day is going to update the technology more quickly to evolve at the pace of your business. That is part of the reason why we have a long history of investing in our own technology platform. As our CIO points out in a recent blog posting, what you’re really after is a solution that will grow with your company. If your LSP does not own its transportation technology and have in-house support personnel, it may not be able to evolve fast enough to accommodate your business. You need your technology to fit your business requirements both now and in the future. At the very least, expect your provider to have full control over the system’s core software so they can develop it as your needs evolve.

In summary, when you have a provider that can excel in the five core areas discussed above, and can articulate how they will continue to improve their capabilities, then you are ahead of the curve.

Ryan Pettit directs C.H. Robinson’s technology strategies. He leads the Navisphere technology development platform and other product development initiatives. Ryan joined the company in 2000 and has over a decade of technology leadership experience in logistics and TMS. He enjoys working directly with industry stakeholders to collaborate on innovative transportation solutions and he is a frequent contributor on TMS strategies for Transportfolio® Blog and the TMC Blog.

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