3PLS: Looking Out for You

Sept. 1, 2004
Is it in your best interest to use a single third-party logistics provider or to use multiple providers? The answer could be key to balancing your business.

According to a study by Northeastern University and Accenture, nearly two-thirds of Fortune 500 companies use multiple third-party logistics providers (3PLs). And why is that? Not being able to find a single-source provider whose service offerings are broad enough, is the answer most commonly given.

Dr. Dale S. Rogers, professor, University of Nevada, in his research of warehousing going back to 1928, shows that the number and type of services offered by 3PLs has increased substantially over the years.

Historically, says Rogers, the words "storage" and "warehouse" were the most popular descriptive terms for these companies we now call third-party logistics providers.

Now, instead of being a specialist in a particular kind of service, 3PLs are being asked to function as specialists in many aspects of the logistics business. Rogers has found that the word "logistics" did not appear in the names of members of the American Warehouse Association until 1990.

One or many?
Laurie Johnson, vice president and CIO, UPS Supply Chain Solutions, says the combination of visibility tools (software) and supply chain management from a single source benefits the user company by providing the information it needs to help lower costs. "True supply chain expertise and complete visibility into an integrated end-to-end supply chain," she says, "is the single, most important benefit to customers by logistics providers."

That visibility, for the user of third-party logistics, should extend from the time the shipment leaves the manufacturer's dock until it reaches the end consumer. The same source that manages the goods should manage the movement.

It's true, says Johnson, that seeing is believing; however, being able to respond is the key for successful logistics providers.

"In our experience," says Mark Morrison, senior vice president, TNT Logistics, "a Fortune 500 company is not going to have a single-source provider because multi-national companies will chose what they need from a narrow field of highly qualified providers."

Bobcat Company, Fargo, North Dakota, has opted to use a single 3PL source, APL Logistics, for its aftermarket parts organization. Rich Goldsbury, Bobcat's vice president of marketing services, says working with a 3PL is not a matter of just turning over your business. "We work hard, on a daily basis," says Goldsbury, "to let them [APL Logistics] know what we need, what our expectations are — or are not — and if they're performing to our expectations."

APL operates a parts distribution warehouse for Bobcat in the Chicago area, with services ranging from inspection and processing of returns, to creating production parts kits and transportation management.

"Six years ago when we started looking for a partner," says Goldsbury, "we looked for a company that knew our business, had continuity within the management of its own system, and had a good business system with built-in redundancies so that we would not miss a day's business if something went wrong."

The 3PL community has carved out niches, sweet spots, as one exec referred to it. Users of 3PL services are beginning to recognize and take advantage of those sweet spots. Morrison says that nearly 70 percent of APL's work is inbound to manufacturing plants. "Early on we adopted 'lean' concepts and electronic tools to give manufacturing a first look at inbound inventories, and that's what appeals to them."

Does size matter?
Large or small, asset-or non-asset-based, the challenges seem the same for all third-party logistics providers. Customer service and loyalty can make or break you in this game.

Recently Exel was appointed international lead logistics provider for DaimlerChrysler. Exel's role encompasses supply chain management from non-North American Free Trade Association countries into DaimlerChrysler's North American plants and its aftermarket Mopar locations.

Not all companies play on the international stage. "When a potential client approaches us," says Dennis O'Brien, president, Custom Marketing Services, Calera, Alabama, "we don't say, 'Here's our system and you'll have to fit'. We ask them what they need and how they want it done."

O'Brien's company primarily serves small, niche companies in the sales promotion business, doing everything from arranging transportation to taking care of returns and repackaging. "We have a number of customers who are all in the same business," he says, "yet each one of them has its own way of doing that business. We have to be flexible, have the right people in place and do things the way they want it done."

When Custom Marketing took on the fulfillment business for Southern Living At HOME, a direct-sales homefurnishings business, things changed. "Its business went from nothing to more than $120 million annually in three years," says O'Brien. "We went from hundreds to thousands of shipments per day."

To keep up with the rapid growth, this 3PL turned to Forte Industries, Mason, Ohio, for planning and systems integration. Forte's expertise in material handling brought the 3PL up to the speed required for rapid order fulfillment.

Another firm, Con-Way Logistics, because of its size, can offer customers third-party services ranging from simple crossdocking projects to complete supply chain management. The company operates six high-cube warehouses in metropolitan areas with the capability of next-day delivery to about 90 percent of the U.S. population.

"We have the full line of technology services," says Joe DeLuca, director of marketing services, Con-Way, "and we share that technology with our customers. It means that smaller customers can take advantage of cost-effective services without making a large investment."

One size fits no one
The reasons for outsourcing logistics remain much the same as always: Users do not look at distribution as a core competency. There are, however, other reasons equally compelling. During times of tight money, the question of capital expenditures and expanding current facilities is at the forefront of management's thinking. There is also a huge investment that must be made in current and future technology just to keep pace with the rest of the world.

For example, recently Ozburn-Hessey Logistics, Nashville, launched a fully integrated distribution network, the OHL RFID Compliance Center, at its Dallas regional distribution campus. This network will serve three of Wal-Mart's distribution centers. As a service to its customers, radio frequency identification tags will be applied to all pallets and cases within the center.

Another example of a 3PL making a major technological investment that an individual company might not want to make is Cardinal Logistics' deployment of Voxware's voice recognition software. Mike McGuire at Cardinal says voice recognition helps capture critical data. "We're able to deliver customized reports, and voice recognition gives us a competitive advantage in the market," says McGuire.

Gene Forte, president and chief improvement officer at Forte Industries, offers a unique perspective on choosing a 3PL. His company is a material handling design and integration firm and has been working with 3PLs for about 15 years.

"We work with our clients to help them make the choice," says Forte, "of whether to move to a 3PL or keep their logistics in-house."

And the way Forte does that is to have the client go through the exercise of determining and designing the kind of system it needs. "The client needs to know how the operation should

work and what it wants to achieve, before it hires a 3PL," says Forte. Knowing what your business requirements are and the level of warehouse management software you'll need are the only ways to determine what levels of service you'll be seeking in a 3PL.

What works best?
If we go back to the query posed at the beginning of this article — whether companies are using a single or several sources for third-party logistics services — we find the answer is a definite yes and no. The best choice is whatever works for you. As Goldsbury of Bobcat says, his parent company, Ingersoll-Rand, uses a variety of third-party scenarios within the company, even within the confines of the Bobcat Company. "We tend to focus [on a single supplier] on the divisional basis, rather than on a corporate basis," says Goldsbury.

Forte says the 3PL must be able to demonstrate a level of commitment to provide distribution-on-demand in financial as well as technological and management terms. "You must have the proper management team [in a 3PL] as well as a floor-level management team to achieve success," says Forte. He adds that you need the proper optimization program after the system is in place, as well. "There are certain ramp-up requirements and continuous process improvements that have to take place," he says.

There's not much doubt, the differentiator among 3PLs is the technology they bring to the table. "The first thing anyone considering outsourcing should look at," recommends Dennis Schoemehl, president, Logistics Management Solutions, a non-asset-based 3PL, "is whether the 3PL has the shared technology you'll need."

He adds that technology ranks only a bit higher than the 3PLs' knowledgeable professionals who will be handling your business. In the end, the best advice continues to be; do your homework and play with someone you trust.

Outsource Your Information
Software can be expensive and challenging to implement. Using a third-party logistics provider can also be expensive and challenging. What if you could trim your logistics costs, gain inventory visibility and improve customer service on a pay-asyougo basis, with no major investment of dollars or time in software implementation? There is an alternative you might not be aware of.

Outsourcing managed services (online banking, for example) is a growing reality, and subscriptionbased services, such as those offered by Cube Route, a Toronto company, offer a new way for you to manage the risks of logistics software.

"We're not a software company," says Claude Germain, founder and CEO of Cube Route. "We provide on-demand logistics, with a service-mentality, grown out of our own practical experience."

The service it offers is on an advanced technological platform, Internet-based, where the customer pays only for what it needs.

"We're risk managers," says Germain. "We take away that financial risk of purchasing software and the risk of integrating the software into the rest of the legacy systems within a company."

Essentially what Cube Route does is manage your information from the time you get an order until the time the product is delivered.

"Companies that turn to 3PLs because logistics is not their core competency," says Germain, "are finding that distribution is part of their core if they do it right. If they invest in the talent and right service, they can gain better control of their assets."

Software as Service
Often a key to success, or at least optimization of a project, is having the right level of warehouse management system. One of the important parts of maintaining a competitive edge in today's market lies with finding ways to trim transportation costs while increasing service levels.

Achieving greater visibility in the supply chain (and more specifically understanding critical profit and cost levers) is a traditionally understated strategy. It opens the door to operational success and, ultimately, market leadership. With greater visibility, companies can streamline the delivery processes and reduce costs, while improving customer service.

The visibility challenge users of 3PL services face is knowing inventory levels when that inventory is located away from where it will be used. Software provides the needed visibility and is being used by major corporations.

For example, DaimlerChrysler Corporation's Mopar Parts Group — the primary distributor of parts and accessories for all Chrysler, Dodge and Jeep dealerships worldwide — functions much like a 3PL. It is using SeeChain applications (SeeCommerce) to manage more than 280,000 original equipment service parts, and process more than 200,000 dealer order lines per day. Mopar is using the consignment inventory module to address offsite storage problems. In six months, it has improved its inventory record accuracy from 42 percent to 95 percent at more than 19 supplier locations.

"SeeChain has enabled us to dramatically improve inventory record accuracy for consigned inventory that is maintained at supplier locations," says Jerry Quell, senior manager, inventory management, Mopar Parts Group. "By bringing difficult-to-manage offsite material under the same inventory control system we use for parts stored in our distribution centers, the consignment inventory module has allowed us to eliminate inventory write-offs for lost and missing stock."

Using the software program, managers are automatically alerted when performance thresholds for consigned inventory are violated. The alert contains links to root-cause data that enables managers to address impending shortages or overstock conditions before they can negatively impact business performance. In addition, the software enables enterprises to better forecast demand by correlating and analyzing the impact of variances in actual inventory levels when compared with predefined performance indicators.

Information Available
If you would like more information on third-party logistics providers and services, contact any of the following companies:

AccentureAPL LogisticsCardinal LogisticsCon-Way LogisticsCube Route • Custom Marketing Services, 205-668-3720 or write 330 • ExelForewayForte IndustriesGencoLogistics Management Solutions Ozburn-Hessey LogisticsRedPrairieSeeCommerceTNT Logistics UPS LogisticsVoxware

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