“Just because you outsource doesn't mean you can disengage,” warns David Blythe, logistics manager for medical-grade products supplier Smith & Nephew.
Tom Wade, logistics division manager for Yamaha Motor Corp., agrees, noting, “Things don't operate in practice as they do in theory.”
Both logistics executives maintain a high profile with their third-party logistics providers (3PLs), and that is one key to their success with outsourcing.
For Smith & Nephew's Blythe, site visits didn't end once the 3PL was selected. “The more you disengage, the more you open yourself up to misuse, to problems and to failure,” he points out.
The purpose of his visits, however, isn't to catch his 3PL doing something wrong. Blythe continues to visit other operations besides his own. At the top of the list are some of the large medical distributors who are Smith & Nephew's customers.
“I bring back at least one good idea from every site visit I do,” says Blythe. “And when you accumulate enough of these, it makes a significant impact on your operations.”
Because Smith & Nephew is in the medical field, part of Blythe's 3PL selection process included touring other medical sites and food-grade operations. Food-grade operations have similar needs for handling, storage and lot tracking, so Blythe sought 3PLs with direct experience in these functions.
Blythe says he could often get a sense of the 3PL's philosophy or approach to managing the site as soon as he walked in the door. Other times it was more subtle. In one case, the showcase facility the 3PL showed him was far beyond the site they actually proposed to handle his distribution.
“In a way, they shot themselves in the foot with it because they showed me this facility and I was wowed by it. The other facility [where they planned to house Blythe's operation] didn't show nearly as well.”
Site visits also helped sort out which 3PLs had slick theoretical proposals and which had practical experience. Even though 3PLs put their best foot forward on site visits and references, Blythe was able to gain some valuable insights from the less-frequently visited sites. Sidebar conversations with the people at the sites he visited often had a significant impact on his overall impression.
While Smith & Nephew's outsourcing experience is fairly new — it began its first 3PL relationship just three years ago, Yamaha's Tom Wade says the motorcycle and all-terrain vehicle (ATV) manufacturer has always outsourced logistics in its North American operation. Where Smith & Nephew has one outsourced distribution facility, Yamaha has five. And each of Yamaha's facilities is operated by a different 3PL.
Wade stresses the need for a strong partnership, and his success with outsourcing shows that works. His longest relationship is on a 30-day contract, which he jokes he may actually have changed to 60 days — Yamaha has worked with that 3PL for 30 years. The most recent 3PL has been with Yamaha for 10 years.
While Yamaha has eschewed long-term contracts, that doesn't diminish the formality of its relationships with the 3PLs. Wade also visits the 3PLs' operations regularly.
“Seeing their operations is really important,” he says, “especially things like crating, stackability, warehouse layouts and port operation. This is a practical business, a day-to-day operational business, and people sometimes make huge mistakes in logistics when they try to run it from behind a desk and never get out of their office. Things just don't operate in practice as they do in theory.”
Setting expectations and performance standards is an early part of the process of finding and hiring a 3PL. It's also part of the ongoing relationship.
Smith & Nephew's Blythe, for instance, had some specific needs that he spelled out up front. He wanted a dedicated facility because of the nature of the company's products and the need for absolute integrity. For a first-timer, Blythe got a lot right.
“We knew our business was changing,” he says. For one thing, the company was in an expansion mode. Blythe says they also looked at sales by ZIP Code and knew they could no longer keep the distribution operation co-located with manufacturing in Florida. The Atlanta area was the general target. Specifics would depend on the site selection process Smith & Nephew and its 3PL went through.
Beyond that, Smith & Nephew set up a “scope of service requirement” for its search. That written specification helped 3PLs prepare and helped Smith & Nephew screen prospects. It also became part of the written contract.
But things change, sometimes dramatically. About two-and-a-half years into a three-year contract, Smith & Nephew moved to a new facility. Blythe retained his current 3PL through the change.
Yamaha's Wade acknowledges business models change. “Some changes are driven by sales and marketing, but others are driven more from a logistics point of view. For example, packaging can change dramatically and that can have a fairly significant impact on a 3PL,” he says. “If we reduce our packaging, instead of the 3PL being able to stack the product 10 high, suddenly our new packaging will only allow the stacks to go five high.”
What appear to be simple changes can become a big driver of logistics costs and logistics efficiency. “Suddenly you need twice the square footage that you did before,” Wade points out.
Yamaha also handles water craft, and changes in customer preferences translate into changes in the product that may not have been anticipated when the original operations and pricing were set up. Wade points to a preference for longer water craft which has meant bigger crated product moving through distribution centers whose aisles may have already been tight for moving the previous, smaller model.
Another area where Smith & Nephew and Yamaha Motor agree on is information systems. It was not as common 20 years ago for a company that was outsourcing logistics to use its own information technology (IT) systems, Wade notes, but it is becoming more prevalent.
“Our warehouse management systems (WMS) and transportation management systems (TMS) are highly integrated with our mainframe systems,” Wade points out.
He doesn't discount the systems 3PLs offer, but he operates five regional distribution centers (DCs), each under a different 3PL, so one motivation in Yamaha providing the systems and hardware is that the company has already done the work to integrate the logistics systems into its corporate systems.