May 1, 2007
enroute | Global Services

For speed and reliability, take the bypass

for speed and reliability, take the bypass

Seeking faster transit times and greater certainty, a growing number of importers are moving products directly to customers without going through the DC.

By Peter Bradley

Walk into any large retail store and you're likely to see Arthur William's Industries' products nearly everywhere you turn. Chances are, though, you won't pay the least bit of attention to them: They're what Operations Manager Jim Morgan calls "the item nobody notices."

What William's Industries provides to many of the nation's largest retailers are store fixtures and merchandising equipment—the shelves and racks and such used to display their wares. Those fixtures may not be for sale, but retailers are just as particular about the timeliness and reliability of their delivery as they are about the shirts, housewares, and videogames they sell.

Making sure the fixtures get where they're going on time is a particular challenge when the supply chain stretches for thousands of miles. Like many other U.S. companies, William's Industries manufactures most of its products in China and brings them into the country through ports on the West Coast for distribution to its end customers. When Morgan joined the Cincinnati-based company about three years ago, it was in the throes of moving production to China and experiencing a lot of headaches with incoming shipments of finished goods. "The company policy was that suppliers would obtain the freight and give us a landed cost,"Morgan says. "We had no control over our own destiny."

Shifting some of its business to more reliable suppliers helped somewhat, but it didn't solve all of the problems. For Morgan, the situation reached its nadir during a 2004 new product launch, when the company needed to bring in 60 full containers over 45 days. "It was a nightmare," Morgan recalls. "We were not in control of the containers.We got through it, but it was not efficient."

That experience left Morgan, a materials manager at the time, determined to learn about logistics and find a way for the manufacturer to gain more control over its import pipeline and ensure timelier, more predictable deliveries to its customers. What he—and a growing number of importers—found out: If you want to speed up and stabilize the process, you need to take the bypass.

Not just about speed
Morgan eventually turned to Trade Direct, a service offered by UPS that brings merchandise in through West Coast ports, deconsolidates the shipments, and distributes them directly to its customers' customers. That service (and others like it) gives importers the opportunity to bypass their own distribution centers, cutting days out of the distribution cycle.

The idea of bypassing DCs is nothing new, but it appears to be growing in popularity. That's because it's not just about speed. It also addresses the three main drivers of cost in shipping: inventory, "touches," and distance, says Randy Strang, vice president of global solutions and implementation for UPS. "The biggest advantage is that as goods come into the country, rather than going to a regional DC, they go from the port of entry to the destination," he explains. "You can reduce inventory and the number of touches."

That's a big plus for importers that are trying to balance the competing objectives of cutting costs by sourcing from low-cost countries thousands of miles from their customers, and cutting cycle times and inventory levels. Eliminating the DC run also reduces the number of miles traveled, a decided advantage these days. "What we are seeing is that as fuel surcharges go up, [Trade Direct] is becoming more and more attractive," Strang reports.

On the fast track
Another obvious advantage to bypassing the DC (and thereby eliminating a touch) is the potential to reduce uncertainty and variability in transit times—a long-standing complaint of ocean shippers. That's the thinking behind OceanGuaranteed, a joint service launched last fall by contract logistics provider APL Logistics and less-than-truckload carrier Con-way Freight. The service links less-thancontainerload (LCL) ocean shipments with Con-way's domestic LTL network, a match-up that allows the providers to offer a day-definite, guaranteed LCL product for shipments from Asia to the United States.

The carriers created the program after research they had commissioned from consulting firm MergeGlobal revealed a need for faster, more predictable trans-Pacific service. Edward Moritz, vice president of marketing for Con-way Freight, notes that focus groups showed that importers were particularly concerned about transit time variability in LCL shipments. "Reliability and visibility are the two key words," he says.

Based on their findings, the MergeGlobal researchers, Brian Clancy and David Hoppin, proposed the creation of a new "fast track" ocean and land service under which LCL shipments would receive expedited processing at both the load and discharge ports, and then be injected directly into an LTL network for delivery to consignees. That proposal became the model for OceanGuaranteed.

Launched in September, the new port-to-door service is now available from seven Asian ports. Initially, OceanGuaranteed was offered from Hong Kong, Shanghai, and Shenzhen in China through Los Angeles to all continental U.S. destinations served by Con-way Freight. In January, the program was expanded to include service from Kaoshiung, Taiwan; Yokohama, Japan; Busan, Korea; and Singapore. According to Moritz, transit times from pickup in Asia to Con-way's farthest U.S. delivery points are 17 to 20 days. Transit times for traditional LCL services, he says, typically are 28 to 30 days, sometimes stretching out to 40 days.

High-speed connection
It's not just ocean shippers that are taking advantage of DC bypass services these days. Air shippers are giving them a try as well. Earlier this year, Kyocera Wireless Corp. signed a contract with supply chain services firm BAX Global to manage shipments of cell phones produced in mainland China to its customers in the United States. Under the agreement, BAX manages a new warehouse in Hong Kong that receives the phones from China and then ships orders by air directly to Kyocera's customers, eliminating the need for U.S. warehousing.

"Kyocera was looking for a process to streamline the whole supply chain," says Lisa Cain, global account director for BAX and manager of the Kyocera Wireless account. "It is basically a doorto- door service."

At the warehouse in Hong Kong, BAX receives instructions directly from Kyocera's inventory system. The warehouse performs some pick-and-pack services, but most of the goods arrive from the manufacturer ready for the end customer; in fact, product is often shipped out the same day it arrives at the Hong Kong warehouse. BAX ships full pallets of Kyocera's products via air carriers.Which carrier depends on the routing; Chicago, San Francisco, and Miami are the main gateways. Customs brokerage is handled by FedEx Trade Networks. BAX reports that Kyocera has already seen a significant reduction in transit times. "From their contract manufacturer, it is three to four days to the customer's door in the U.S.," Cain says. "A lot of times, we do it in two or three."

Simplification here, complication there
Although the DC bypass strategy simplifies some aspects of supply chain management, it can create complications elsewhere in the supply chain, warns Strang of UPS. For instance, it may require the shipper to allocate products to specific stores at the point of origin—something not all shippers are prepared to do. Retailers, for example, often prefer to postpone store allocation until merchandise is close to arrival at the destination port so they can base allocation on current demand.

In some instances, complications may also arise in the receiving process. That's particularly likely to be the case among small to mid-sized retailers, Strang notes. Oftentimes, the DC is the only part of their operation that's set up to receive imports—their stores don't have the capability to receive imports directly.

A number of large retailers have solved this problem by moving merchandise through what UPS calls "import flow centers"—DCs near the ports where containers are stripped and shipments are re-consolidated for domestic delivery. Now, Strang says, UPS is starting to see interest in third-party import flow centers from small and mid-sized retailers that want to do the same.

Allocation hasn't been a problem for William's Industries, which schedules its shipments for specific stores before the vessels set sail. The company ships in full containers from China, and two to five containers may move under a single bill of lading. Typically, a full container holds orders for a single retail customer, although the items may be bound for several different stores in the retailer's network. Most of the shipments are headed to existing stores for replenishing and replacing equipment. Orders for new stores still ship to the William's Industries distribution center in Cincinnati, where they are held until called for during construction. The new system works smoothly: First, the company sends orders to its suppliers in China. When the orders are ready, the factory contacts UPS, which in turn lets Morgan know which purchase orders are included, the number of containers, and when they will ship.

The supplier moves the containers to the port, where they are loaded on vessels bound for the West Coast. UPS picks up the containers and brings them to its facility in Carson, Calif., for deconsolidation. Domestic routing to individual stores depends on the size of each shipment. Though some shipments move by less-than-truckload or full truckload carriers, the company moves as many as possible via UPS ground service. "The direction from us is that anything that can go small package will go small package," Morgan says. "Everything we do is to minimize cost." Shipping charges from Carson are billed to the customer.

Quick and reliable
Morgan considers the program a great success. For one thing, he gets much more precise information about delivered costs than he did prior to implementing the service. Another advantage: The total cycle time from factory to customer is just three weeks now, compared to the five weeks it used to take to move goods first into his Cincinnati DC and then out to customers.

The improvement in William's Industries' speed, reliability, and overall cost has had a considerable impact on the shipper and its customers. For example, the assurance of faster, predictable deliveries has allowed the company to come to the rescue of customers who waited until the last minute to order. "It has gotten customers out of trouble," says Morgan. That ability to step in and save the day has earned the company more than just its clients' gratitude, he adds. "That's also helped us win orders."

About the Author

Peter Bradley
Editor Emeritus
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.

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