A new distribution center outsourcing relationship between consumer products company Focus Products Group, LLC, and supply chain consultancy TZA puts a new twist on an old saw: Money-back guarantees in the warehouse and DC space.
Money-back guarantees are nothing new. For years, transportation service providers like FedEx Corp. and UPS Inc. have offered them in the event of late or missed deliveries. But the offering is not commonplace in the world of warehouses and DCs, which makes the Focus Products-TZA partnership an unusual arrangement.
Under the three-year agreement, Focus Products, a Lincolnshire, Ill.-based distributor of kitchen, bath, and food-service products, has outsourced to TZA the operation of its 175,000-square-foot DC in Pleasant Prairie, Wis., located between Milwaukee and Chicago. Effective the first week of April, TZA will migrate Focus Products' 70 full-time DC employees onto its payroll; it has already begun introducing practices and processes that will improve the efficiency of the Focus Products' floor operation, according to Mike Schoenfeld, a TZA vice president who heads up the company's outsourcing operations. TZA employees started working on the DC floor earlier this month, says Schoenfeld.
Schoenfeld says there are performance guarantees built into its contract with Focus Products, though he wouldn't disclose details.
TZA's outsourcing offering typically produces productivity increases of between 20 and 30 percent, which translates into bottom-line payroll savings of up to 20 percent, according to Schoenfeld.
Schoenfeld says TZA's outsourcing strategy is to guarantee savings through performance-based fee structures such as fixed piece rates and gain-share agreements. "We don't believe in marked-up hourly wages or cost-plus contracts where a provider is incented to run up costs," he says. "Our approach is to guarantee the performance results that our assessments show are possible."
Focus Products will remain responsible for the order processing and customer service components of its business, with TZA taking over the floor execution at the DC, says Schoenfeld.
"Most of our associates come out of the existing Focus Products work force," says Schoenfeld. "By hiring its workers; applying our capabilities, tools, and practices; and bringing in our managers, we significantly reduce the risk of outsourcing while driving savings to their bottom line."
For Long Grove, Ill.-based TZA, the relationship is the first where it has taken its outsourcing model generally reserved for consulting projects directly into the physical DC.