Outsourcing is not child's play

Transportation
Outsourcing is not child's play

To hear Mike Horn tell it, going the third-party logistics (3PL) route can be a less-than-satisfying experience. According to Horn, president and CEO of Palisades Toys, his early experiences with a 3PL were clouded by inconsistent service, and even worse, at times he couldn’t even get product out of China.

For a medium-sized company doing business with major retailers like Target Stores and Musicland, mediocre just wasn’t good enough — Palisades Toys’ continued existence depends on delivering the goods, every time.

Horn’s philosophy is to do one thing and do it well. He knows the toy industry, specifically how to manufacture and market collectible action figures. He looks for specialists to help with everything else. So, he went to a “fulfillment house” to help with order management and pick and pack operations for Palisades Toys.

“They didn’t seem to understand that ‘pull a carton and ship it to the customer’ means ‘pull a carton and ship it to the customer,’” Horn recalls.

As a result, he had to troubleshoot. When he visited the supplier’s warehouse, he found product the 3PL didn’t know it had, stacked six high in a corner of the warehouse. Not only had the 3PL lost the record of the inventory, but the stacked pallets were quite clearly marked Do Not Stack.

“They didn’t know what they had in the warehouse,” Horn recalls, yet nearly every employee had one or more of Palisades’ action figures at their workstation. Clearly, employees had helped themselves to the inventory.

Everyone needs to play a little, says Horn. “If you would see our offices, there are toys everywhere. If they’d have asked for some action figures, we’d have been glad to supply them.”

Given that experience, it wouldn’t be surprising if Horn was turned off by 3PLs. Instead, he decided to shift gears. His preference had been to work with smaller companies like his own. Today, however, Palisades uses UPS Supply Chain Solutions.

UPS handles shipments of Palisades’ product out of China, deconsolidating them on the U.S. West Coast and moving complete shipments to the company’s East Coast warehouse or handling the customer-direct shipments from the deconsolidation center. Handling his logistics this way, Horn is finding that he can get paid for the goods as much as two weeks sooner.

Tom Van Dixhorn, vice president of operations for The Beverage Group, got a lot of his logistics experience with beverage giant Evian. Now, helping to build a market for a recent start-up, he’s calling on that experience to make the right choices in outsourcing. He’s learned, as Horn did, that not all 3PLs that claim to be full service providers can deliver.

“I was definitely looking for a company that could move goods, store them and account for them,” says Van Dixhorn.

Much of The Beverage Group’s freight is not full truckload, so the company needed a 3PL who is very robust in the area of consolidation. Van Dixhorn didn’t just accept what he heard from various 3PLs as gospel, nor did he simply look at some case histories of client successes. He dug deeper in the evaluation process.

First, he needed warehousing that matched his customer concentration areas. With that quantified, he looked at the 3PLs’ other clients to determine if they had similar products going to the same customer base. That was the top layer.
“The cost of shipping a partial load any distance is very troublesome to people serving the grocery industry,” says Van Dixhorn. “You have to get a firm grasp of how the 3PL provider handles consolidation: What is their ability to have another load that’s supposed to deliver on the same day to the same customer?” That’s a second layer.

Van Dixhorn kept digging. Many of the suppliers will say they have loads going to Phoenix every day or they deliver to a particular customer twice a week, but you have to make sure the loads will actually match up, he cautions. “You need to get an idea of whether you’re going to get a consolidated load half the time or a quarter of the time.” That’s the level where he assesses the financial impact of consolidation.

Van Dixhorn also looks at the agreements 3PLs have with their truckload carriers.

“If your 3PL is shipping 100 truckloads a day with a particular carrier, they should have more leverage than I do if I’m moving 10 loads a day.” In the same way he drills down to determine what percentage of consolidations he’d get on his partial truckloads, Van Dixhorn also examines their agreements with truckload carriers.

Van Dixhorn found a match with CaseStack. The 3PL’s warehouses met his needs, the existing customer base and service lanes matched, and the information systems provided access “anywhere anytime.”

Information and communications are also important to Palisades Toys. Horn learned about visibility by not getting it. There isn’t enough margin or life cycle in the collectible action figures Palisades makes to allow for a lot of inventory or for over stocks. Selling off excess inventory at a discount runs counter to the goal of building the value of collectible figures.

A streamlined supply chain with high visibility requires a technology investment that the larger 3PLs are able to make, Horn says. They have the money to invest in the necessary infrastructure, he points out. And, when you’re a smaller company dealing with giants like Target, the 3PL you use contributes to the confidence that you can deliver as promised.

Horn feels very comfortable now dealing with big players. “You get what you pay for,” he observes. But in saying that, he feels that though he’s a smaller player himself, his rates are in line with the service he gets.

Large or small, a 3PL has to have complete, robust information systems to satisfy The Beverage Group’s Van Dixhorn. It also has to be flexible and have the ability to handle seasonal peaks and growth. He prepared requests for proposal (RFPs) using data on his inbound and outbound shipments, speaking in terms of actual bills of lading per day. He also listed other needs like lot tracking and complete access to data.

Even though The Beverage Group is not a large company, once Van Dixhorn narrowed the field of likely 3PLs, even the large providers were open and provided access that allowed him to examine their fit.

The payoff for both Palisades’ Horn and The Beverage Group’s Van Dixhorn is that they remain competitive against much larger companies after fine tuning their 3PL relationships. LT

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September, 2003

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