Related to:
July 24 2006 05:33 PM

    While today�s cost-conscious businesses have reinvented just about everything from the manufacturing plant to the retail store, many have yet to truly analyze the significant cost of moving materials across their shipping docks.
     
    No logistics process is perfect; there is always room for some improvement. And, in many cases, it makes sense to look outside your four walls for the solution. Rather than continue to tax shrinking internal resources, you may want to look at logistics outsourcing some if not all non-core functions currently handled in-house to a 3PL.
     
    So, how do you go about it? Well, once you understand the logistics process and what you�re looking to achieve, identifying the most qualified sources will seem less daunting.
     
    The word �logistics� is often vaguely defined, causing a lot of people to be intimidated by it. You shouldn�t be. Think of logistics as a pipeline of interrelated � and interdependent � activities. At the center of the pipeline is a company�s manufacturing or production process. Activities on one side of the pipeline support production. Activities on the other side support distribution.
     
    Throughout the entire pipeline is a broad group of activities that represent logistics services such as inbound material flow management, inventory control, packaging, cross docking, just-in-time delivery, warehousing and transportation. All of these activities can be performed in-house or outsourced to 3PLs. (Editor�s Note: See �Eliminate Headaches: Four questions to ask before outsourcing,� found on page 18 in this issue.)
     
    Now, consider what aspects of the logistics process or pipeline should be addressed for possible outsourcing. There�s a lot to think about: How can outsourcing address distribution costs, better supply chain control, competitive flexibility, customer service, seasonal fluctuations and/or accommodate new product introductions?
     
    Distribution Costs
    When considering outsourcing, many companies are inclined to maintain distribution functions in-house because a warehouse may already exist or a fleet of trucks may be on the company�s books. But there is a good reason to look at outsourcing, even when these facilities already exist in-house: taking these things off the accounting ledger. It�s even more important to consider the cost of managing the facilities.
     
    Analysts may think that when their employers or clients already own warehouses or have staffing in place, they can manage it less expensively themselves. This view ignores all the other costs of handling products that go beyond people and real estate. These costs are difficult to identify on a balance sheet, but they are nevertheless substantial. Consider transportation management, security, maintenance, information systems, utilities, taxes, government compliance, human resources and legal fees. An experienced 3PL can often be less expensive.
     
    Supply Chain Control
    Information is the cornerstone to inventory management � and to controlling what�s going on within your supply chain. Better information leads to better decisions. Better decisions lead to greater control. And greater control denotes reduced supply chain costs.
     
    Some people may be concerned that bringing in a third party to manage logistics will cause them to lose control within the supply chain. But many 3PLs have proven information technology at their disposal. They can connect the warehousing and transportation processes so a complete flow of information is possible, from start to finish � and back again, if returns are involved.
     
    Competitive Flexibility
    Market conditions today change faster than the blink of an eye. Companies looking for a competitive edge will be looking for a fast response from either a 3PL as well as in-house resources.
     
    Today�s consumer is more demanding, price conscious and has more purchasing choices than ever before, so retailers and e-tailers must be more creative in what they sell and how they sell it. Producers and buyers may not always know where products are going to be sold and in what combination until much later in the assembly cycle. A 3PL has the advantage of being able to quickly expand the use of existing capacity without adding more full-time labor. It also can utilize its network of freight carriers to maximize its transportation buy.
     
    Customer Service
    Shippers realizing how well they meet their customer�s expectations can be the difference between surviving and thriving. This was an important lesson learned by many during the recent dot-com rise and fall. One would expect an in-house organization to understand the importance of service to its customers. But 3PLs understand that delivering exceptional customer service is the key to their livelihoods as well. Their success is wedded to yours.
     
    Look for 3PLs who are eager to discuss the service needs of your customers as well as your own. Establish standards for key performance measures. Capable providers can support a variety of quality improvement programs and will often imbed performance measures into their contracts. They will seek gain-sharing considerations when they exceed your expectations and accept penalties when they fail to perform.
     
    Seasonal Support
    Many shippers have a mix of products that are subject to demand fluctuations across seasons such as Christmas, Easter, Halloween, winter and summer. These sales peaks and valleys translate into distribution and transportation volume fluctuations that can be costly for fixed capacity fleets. Why pay for capacity that you only use part of the year? A 3PL can offer warehouse and transpor-tation alternatives that change with your needs during seasonal periods. Some providers will guarantee operating capacity during heavy periods especially if you maintain loyalty during softer ones.
     
    New Product Introductions
    New products create temporary changes in your supply chain. Worse, they may or may not catch on in the marketplace. This is an area where a 3PL can greatly improve your distribution efficiency, by eliminating costly real estate (warehouses), capital equipment (trucks) and human resources (people). Planning a program roll out with an experienced 3PL insulates your existing distribution and transportation process from overwhelming spikes in volume. It also assures a high level of security plus a more precise coordination between shippers and retailers.
     
    Logistics is more than just managing and moving products. It�s about knowing your options so you can get more efficiency from your supply chain. No single form of logistics is right for everyone. In-house works for some; outsourcing works for others.
     
    Outsourcing to qualified 3PLs will deliver the improvements you�re seeking. Logistics is their core business. They devote 100% of their time and energy to it, not 10%, 20% or 30% of it. And because they often work for many clients in similar end-use markets, they can leverage their experience in terms of increased productivity for new clients having similar logistics requirements.
     
    Tom Piatak is president and chief operating officer of the Stoner Transportation Group, Inc., a leading freight forwarder and provider of transportation management services. He can be reached by phone at 904-247-4336, ext. 210 or by email at tpiatak@stonier.com. For more information, you can visit their Web site at www.stonier.com.
     

    Follow