3PLs & PLM: Returns on Investment
Is product lifecycle management the next market opportunity for third-party logistics providers?
Product lifecycle management (PLM) solutions have traditionally been limited to discrete manufacturing industries where product variability and complexity and dense supply networks placed a premium on end-to-end visibility into and control over multiple processes.
Increasingly, however, demands for these types of services are crossing industry verticals, as consumer goods and food and beverage manufacturers recognize that outsourcing functional aspects of product development, from conception through fulfillment, can reinforce supply chain management best practices.
Given this new demand and the current trend toward outsourcing, the third-party logistics industry (3PL) is closely following PLM's lead. In turn, traditional PLM technologies are slowly morphing into what might be termed "3PLM" services, as 3PLs bend and apply solutions to meet the unique needs of their customers.
Broadly, PLM refers to the succession of stages a product goes through, from design to after-shelf disposal. It's the management of these stages that logistics providers eye as potential areas for growth in an industry thirsting for new revenue sources.
Still, many 3PLs define PLM in narrow terms or use the concept as a catch-all for a wide range of services that fall under its umbrella.
"If you ask 10 people in the 3PL industry to define PLM, you will probably get 10 different definitions," says Scott Morgan, vice president of customer care at DSC Logistics, a 3PL based in Des Plaines, Ill.
Whether loosely or strictly defined, however, "PLM is poised to become the next evolution in 3PL outsourcing," observes Doug Christensen, former CEO of NAL Worldwide, and current managing director of Chapman Associates, a mergers and acquisitions advisory firm based in Schaumburg, Ill.
To date, companies have seldom outsourced the complete supply chain lifecycle to a single 3PL.
"Progressive 3PLs have attacked PLM from several different angles," says Christensen. "Some have developed individual solutions—off-the-shelf, proprietary, and modified off-the-shelf—that address single supply chain components such as sample or new product launches, forecasting, purchase order management, physical flow management, warehousing, transportation management, and reverse logistics."
View of the Pipeline
Third-party logistics providers engaged in this function-by-function approach use visibility tools to attain a seamless view of products throughout the entire PLM pipeline.
"Some 3PLs have created a complete supply chain management database to track products from manufacturing inception right through to their end of life," Christensen adds.
In this regard, product lifecycle management appeals to some 3PLs because it encompasses services they already offer. Growing acceptance of PLM as an outsourcing strategy is also reflected in how the 3PL industry is diverging.
"At one end, in the majority, are low-cost, low-service 3PLs," says Benjamin Gordon, managing director of BG Strategic Advisors, a global outsourcing and supply chain strategy advisory firm in Palm Beach, Fla.
"They might be truck brokers, single-location public warehouse companies, or other basic logistics services providers. These companies historically compete on price and their market share is declining."
3PLs that have achieved the most success, however, are those that have expanded their offerings—services that are most likely to embrace PLM capabilities.
"Most 3PL growth has been in value-added services, such as subassembly, kitting, freight forwarding, truck brokering, crossdocking, and other complementary services," notes Gordon. "A handful of companies are making aggressive investments in those areas, and PLM fits within that context."
Dallas-based Greatwide Distribution Logistics (GWDL) provides a brand of PLM capabilities that comes close to encompassing a product's entire lifecycle.
Vin Gulisano, president of GWDL, defines PLM as "raw material management—from middle management to finished product to end consumer delivery—for a specific product line."
For several years, GWDL has provided end-to-end product lifecycle management to beverage can maker Rexam, a major supplier to Coca-Cola, Anheuser-Busch, Pepsi, and other bottlers in the United States.
The beverage industry isn't only seasonal, it's also extremely sensitive to quality control. One ongoing challenge for vendors such as Rexam is creating a seamless distribution pipeline that maintains both cost and quality consistency while matching swings in volume due to demand variability.
Rexam approached GWDL to help manage existing production operations at its plants, rather than finished product and raw materials storage. Total visibility and inventory control were essential to making this happen.
GWDL began working toward a solution that delivered total visibility of both raw materials and finished product inventories while also imposing quality standards to meet the stringent demands of Rexam's bottling facilities. The solution also had to address space allocation and labor flexibility to accommodate the vendor's peak season demands.
The companies worked together to create a single supply chain solution that incorporated raw materials, finished product (can bodies), filled product, and transportation.
Top of the Pops
GWDL presented Rexam with a customized package of distribution and transportation solutions specifically designed to meet the requirements of the beverage industry.
The process begins when GWDL receives raw aluminum coils from manufacturers such as Alcoa, Logan Aluminum, and Alcan Aluminum. These materials generally are delivered via railcar, then crossdocked to Rexam's facility using a kanban process.
Rexam manufactures the cans and palletizes the product, which is then loaded onto dedicated GWDL trailers and delivered to the 3PL's warehouse for storage and distribution.
GWDL receives orders from the can manufacturer for just-in-time delivery to the brewery or to a soft drink producer for filling. Prior to delivery, GWDL staff visually inspects the cans for damage, a process that has significantly reduced chargebacks for quality issues. It returns defective cans to the manufacturing plant for recycling.
To reduce transportation costs and boost plant productivity, GWDL delivers can bodies to the filling plants in a 57-foot roller-bed trailer. Through the use of the large trailer, GWDL increases the number of pallets it can deliver per truck, and allows for specialized unloading direct to production lines at the plant.
"We're the conduit," says GWDL's Gulisano. "We work with the aluminum manufacturer, the bottling company, and the beverage manufacturers. We bring everything together for Rexam, including transportation and warehousing."
In addition, GWDL has instituted a dunnage sortation program with Rexam and Coca-Cola in which specialized, 44-inch by 56-inch plastic beverage pallets and plastic protection sheets placed between layers are sorted and reused if they meet quality criteria. GWDL manages, inspects, and sorts all dunnage and delivers it back to the can manufacturer via dedicated transportation equipment.
To further complete the supply chain cycle and save additional round-trip transportation costs, GWDL provides finished goods distribution for several customers, bringing the filled product back to separate warehouses nearby with the same dedicated transportation equipment. Product then ships to major distributors and customers throughout the region.
To handle large seasonal builds wrapped around major holidays and promotions, GWDL leverages a multiple warehouse network, providing maximum space and labor flexibility to its beverage-producing clients, along with increased visibility and service levels.
A PLM Partnership
GWDL has also been able to centralize Rexam's customer service functions, further reducing overhead and costs.
"This partnership is unique because it requires a deep understanding of another company's operations," says Gulisano. "This is at the opposite end of the continuum where trucks back up to the delivery dock and simply offload pallets for storage in a warehouse facility. Rexam's supply chain is deeply woven into GWDL's organization, requiring specialized knowledge of its business."
Trend in Reverse
As Gulisano points out, GWDL's comprehensive PLM service offerings are the exception, not the rule, in the 3PL industry.
Some industry observers such as Doug Christensen, however, believe that soon "3PLs will be expected to provide this kind of service—and will do so efficiently, effectively, and quickly."
One primary factor driving the growth of PLM services is that third-party logistics providers now recognize that the reverse logistics cycle exists.
"Logistics service providers no longer view PLM as a cost center, but rather as a potential profit center and certainly as a customer-service function," says Christensen. "From a technology standpoint, reverse logistics focuses on reusing parts—through cannibalization of defective units and harvesting of good components or through product testing and repair."
ATC Logistics and Electronics (ATCLE), based in Fort Worth, Texas, provides this type of PLM service to consumer goods customers.
"We focus on high-end electronics and serialized devices with velocity demands," says ATCLE President Bill Conley. "For one electronics customer, we're involved in removing component parts from its products, such as batteries, when they reach the end of their useful life.
"We make sure that the ferrous and non-ferrous metals are reused or recycled, and the remaining elements are disposed of in accordance with EPA standards."
This service adds up to considerable time and cost savings for ATCLE customers. "We are taking a step out of the customer's supply chain," Conley continues. "In this case, it also means creating an additional source of revenue for the customer. A few years ago, we were paying people to take these products away. Now they're paying us, on behalf of our customers, to pick it up. We've turned what used to be a cost center into profit."
ATCLE's reverse logistics program may not be an end-to-end solution, but it's this kind of innovative thinking that is helping 3PLs mine new opportunities for developing services that cover more areas of a product's lifecycle.
"As cycle times get shorter and shorter, it will be paramount for 3PLs to provide PLM services," Christensen says. "For 3PLs, PLM is in its infancy and the demand for it will only increase.
"It's difficult to know for sure what PLM activities might look like in five years, but certainly they will continue to expand and change as time progresses," Christensen adds.
And if history is any indication, third-party logistics providers will grow and adapt to meet their customers' PLM demands.