It's not easy being a third-party logistics provider these days. If you're a European 3PL, you face fresh competition from U.S.- and Asia-based players; if you're a U.S.-based provider, the Europeans are snapping at your heels.
The 3PLs are all too aware that to stay competitive, they need to do more than respond to customer requests—they've got to come up with smart, fresh ideas of their own for making the business of warehousing and distribution run smoothly. If you haven't asked your 3PL provider exactly what it's done for you lately—or could do for you—it might be time to cash in on the new trend for customized services.
Consider, for example, the experience of MAN Roland North America, the U.S. arm of a large German manufacturer of printing presses, based in Westmont, Ill. MAN Roland had always kept and managed its after-market parts service strictly in-house, which is hardly surprising given that many of MAN Roland's customers run newspaper printing presses that can't afford any downtime. But three years ago, as the number of SKUs MAN Roland was handling edged above 16,000, Frank Holt, director of parts operations, decided to look for alternatives. "We elected to explore the opportunity of using a 3PL, fully realizing that this effort was a customized effort and not the normal, storage in pallets, in-and-out, sort of operation that most 3PLs provided," says Holt.
After taking three months to choose what was then USCO, but is now part of Kuehne + Nagel, Holt and his team spent three more months hashing out the arrangement's details. This included selling MAN Roland's dedicated warehouse in Middlesex, N.J., and turning over parts storage to K+N's multi-client warehouse in Alsip, Ill., near Westmont. K+N also agreed to use the Alsip facility for receiving, picking, packing and shipping operations on a 24-7 basis, keeping up with MAN Roland's clients, many of whom demand next-flight-out service. K+N now typically handles 100 same-day orders a day from MAN Roland, and it even conducts quality control checks.
As part of the arrangement, K+N also agreed to store a much smaller number of MAN Roland parts in another shared warehouse in Cerritos, Calif., in order to service a small group of particularly important MAN Roland clients. Another plus, from MAN Roland's point of view, was that K+N committed to working with MAN Roland's existing warehouse management software, rather than bringing in its own. "That's something you won't always get with 3PLs," says Eric Reed, who's MAN Roland's vice president, parts & supply chain. "They often say you'll use our system and that's it."
A happy MAN
How does service stack up so far? Holt and Reed agree that the experiment has worked exceptionally well. Inventory accuracy has improved 11 percent, the number of SKUs handled has risen to 23,000, and in 2002, K+N showed 100-percent compliance on emergency orders, which have to be ready for pickup within two hours of notification. Having the parts stored in the middle of the country means MAN Roland can better serve customers on both coasts. It saves money, too: the company pays K+N on a variable-cost model, adjusted to whatever space it needs to use at the time.
Not that this happened overnight. It takes time for a 3PL and its customer to settle in to a highly customized arrangement like this, not to mention a willingness to be accommodating. K+N changed the timing of shifts at its multi-client Alsip facility, for example, to fit in better with the receiving and shipping patterns required for MAN's daily shipping schedule. It turned out workers were arriving for the main shift at 7 a.m., though the first shipments wouldn't be received until 9 or 10 a.m. K+N moved the first shift's clock-in time to 10 a.m. to maximize staffing.
In fact, even now, three years later, the two are still fine-tuning the arrangement. "Every year they sit down with us and do a focused assessment of our partnership and their support of us. Instead of sending out a survey or talking on the phone, they sit down with Frank and myself and go through, detail by detail, the things we're happy with, and the things we would like to see done differently. We both find that to be very positive," says Reed, adding that there's also a continuous improvement program in place.
Reed says detailed metrics, as well as financial efficiency-sharing incentives, keep K+N's attention very much on the ball. It's a carrot rather than a stick approach, he says, and it seems to work. "The financial incentive was something we wanted to include to ensure that they delivered what they committed to," Holt says.
"We're now an integral part of their supply chain," says Sean Kelly, vice president for sales, central region at K+N. "There's been more involvement than with prior customers, mostly because of the complexity. They have very diverse SKUs, from a nut or bolt to a whole motor.With many customers, we're dealing at a case handling or pallet handling level.With MAN Roland, it's each component. It creates a certain kind of closeness to the customer that you don't always get."
Many happier returns
Getting thoroughly involved in a customer's business is sometimes a question of calling on all available resources, as UPS Supply Chain Solutions has found. UPS SCS, as it's known, recently put together a customized service for the digital products division of Toshiba America Information Systems Inc. To be precise, UPS SCS has taken over all laptop repair and parts servicing in the United States for Toshiba. UPS SCS uses the network of 3,000 UPS walk-in stores across the country to allow Toshiba customers to drop off their computers for repair. From there, the computers are packed up and sent to a repair facility right next to UPS's Louisville, Ky., air hub.
Previously, customers who called the Toshiba service center to get authorization for repair had to wait for Toshiba to overnight them an empty box, pack it and ship it themselves. The new UPS-run service cuts at least a day off that process and sometimes more: Because UPS has put the repair parts and repair engineers under one roof and next to the hub, a repair can be finished at 1 a.m. and still make the deadline for delivery that same morning.
Jerry Kohnke, vice president and general manager for the U.S. central district at UPS SCS, says it's truly a space-age service. The 100,000-square-foot section of UPS's 300,000- square-foot facility cordoned off for Toshiba includes a 20,000-square-foot unit sealed off from humidity, temperature and static where diagnostics and repairs are carried out. "It looks like a surgical suite—all bright lights, white walls, shiny floors," says Kohnke."Not really what you think of as a warehouse."
Joe Karcher, director of technical support and logistics for Toshiba in Irvine, Calif., says he had no idea how things would turn out when Toshiba first approached UPS SCS with its business problems in 2001. "We approached them with what we thought was a real well-thought-out RFP and they helped us to shape that. The UPS store network was their idea totally.We had no idea what UPS was doing with the UPS store network." Part of Toshiba's dilemma lay in deciding whether it was looking more for expertise in laptop repair or in inventory management and distribution. "We were asking ourselves—is this more repair?" says Karcher. "But from a customer perspective, it was about speed and quality."
Customer satisfaction has soared in the last six months since UPS SCS took over the laptop repair function, and Toshiba projects it will save millions from centralized inventory management. "It's the first time we've outsourced something so completely," says Karcher.
Out with the old, in with the new
For the 3PLs, depth of involvement and intense customization is purely about staying competitive in a world where virtually anything's a candidate for outsourcing. "Look at what Dell and Hewlett-Packard have become—marketers and engineers," says UPS's Kohnke. "Manufacturing, bricks and mortar operations—anything that can be outsourced will be outsourced." Kohnke sees new opportunities shaping up for 3PLs as big box retailers ramp up demands on suppliers —requiring, for example, that garments arrive on hangers or that toiletries arrive wrapped in plastic. Kohnke says suppliers often rely now on a 3PL to help them get that right. "There's a lot at stake, because the financial penalties are huge."
Another boon of outsourcing is that it offers customers an opportunity to save money by commingling freight, even with a competitor. Adrian Gonzalez, an analyst at ARC Advisory Group in Dedham, Mass., reports that Schneider Logistics now transports after-market service parts for Ford and General Motors in the same trucks. "It's been a long time coming," says Gonzalez. "[Schneider was] serving both clients independently and finally convinced them to commingle their freight. You see a Ford dealership next to a GM dealership but, before, Schneider would have to send two trucks. This is a win-win situation for everyone—with lower costs for Ford and GM, and better asset utilization for Schneider." The commingling program, according to Gonzalez, started in the Detroit area and is slated for expansion.
Whatever the program, says Kohnke, what the typical customer is looking for is better service—but at a lower cost. That's a challenge. "Anyone can reduce costs," he notes. "Anyone can increase service. To do them both at the same time—that's the hard part." It's all part of the bending over backwards 3PLs must do these days to simply stay competitive.