Extreme Outsourcing: Tales from the 3PL Wild Side
When mere execution is not enough to accomplish extraordinary logistics challenges, companies turn to a special breed of 3PLs to deliver extreme results. What makes them special? Stellar leadership, plenty of resources, effective communications, precise project management, a deeply committed team, a passion for achieving a common goal, and sometimes the ability to function well on little sleep. Welcome to extreme outsourcing.
NASCAR's Busch Series, the second most popular motorsport in the United States, is a massive undertaking. This year, the series includes 35 stockcar races held at 26 different tracks in 22 U.S. states and Mexico.
The race in Mexico City—the first NASCAR Busch Series championship points race held outside the United States—"came into being at the last moment," says NASCAR Director of Administration George Silbermann.
"We embarked on serious negotiations with the Mexican promoter in 2004 and were talking about trying to stage an event there in 2006-2007," Silbermann recalls.
But thanks to a window of opportunity and a series of circumstances, NASCAR suddenly found itself on the drawing board to do the event in 2005.
"We signed the agreement in July 2004, which left us roughly seven months to actually get it done," Silbermann says.
The NASCAR Busch Series starts each year in early February, running through November with little time off in between.
"Once the series starts, it's non-stop," Silbermann explains. "So, to have this new event in July—right in the midst of the busiest part of our season—meant we had to reassign some of our own resources to deal with the project."
The project was rife with unknowns, so NASCAR sought a partner to handle the race's complex logistics. After evaluating several potential 3PLs, NASCAR selected UPS Supply Chain Solutions for the project.
The Mexico City Busch Series race was scheduled as the third race of the 2005 season. It was sandwiched between an event in Fontana, Calif., and another in Las Vegas, which meant cars and equipment had to be transported from California to Mexico to Nevada.
Unlike the other two events, the Mexico City race was held on a road course, which meant the race cars had to be modified before and after the race to deliver optimum performance on both types of tracks.
"The race was set for a Saturday, but the cars can't just show up the day of the race," notes Keith George, a principal with UPS SCS Consulting Services and the provider's San Francisco-based manager of the NASCAR project.
Cars that raced in California the previous weekend had to be retooled, transported to Laredo, Texas, then across the border. Next they had to be prepared for pre-qualifying runs at the Autodromo Hermanos Rodriguez road course in Mexico City the following Thursday.
A Winning Effort
The journey to and from Mexico City was an ambitious project that involved advance coordination between U.S. and Mexican officials; more than 150 people; caravans of more than 80 large—and expensive—transport haulers traveling nearly 1,500 miles on largely four-lane roads; and more than 500 international documents, including import and export documents, visas, and manifests.
Complicating the effort was the fact that the racing teams' transport drivers work for the individual teams, not for NASCAR. And many of the teams had never traveled outside the United States before.
A joint project team consisting of representatives from NASCAR, UPS SCS, and OCESA (the Mexican race promoter) began weekly meetings last fall to map out the project's processes, identify potential gaps, and develop solutions and contingency plans. They worked closely with the project steering committee, which included officials from NASCAR's logistics organization and their assigned Mexico resources.
Imperative to keeping the project on track and on time was the multi-step process the team employed. These steps included:
1. Planning, preparation, and practice. A detailed project plan was one of the initiative's critical success factors. The project plan laid out strategies on how best to communicate, coordinate, document, educate, and train all parties involved. The team also laid out contingency plans.
As part of its rigorous preparation, UPS SCS met several times with the various government organizations involved in getting the stockcars across the border, including the U.S. Embassy in Mexico, the head of customs for Mexico, and the U.S. Consulate's office in Nuevo Laredo, Monterrey, and other cities along the proposed travel route.
In addition, to test the streamlined border-crossing processes it had developed, UPS SCS set up a trial run with the Richard Childress Racing Team as it headed to Mexico City to check the redesigned race track. This trial run assessed UPS SCS's processes going in and out of Mexico, and ensured that the three designated rest stops were set up in optimum locations.
2. Training the teams. "Of the several hundred people involved from the racing team, probably five had ever traveled outside the United States," says Silbermann.
To allay transport haulers' concerns about crossing the border and traveling in Mexico, the UPS SCS team put together detailed outbound and inbound driver handbooks and conducted training at races in Daytona Beach, Fla., and Fontana, Calif., and at the staging area in Laredo.
Training topics included courtesies, road conditions, procedures, and Mexico City traffic conditions. The sessions also taught drivers what to expect, provided explanations of the documents they needed, and highlighted the various checkpoints along the way.
The team walked drivers through a variety of scenarios and discussed contingency plans for incidents such as medical emergencies or mechanical breakdowns. They also explained that drivers could seek assistance from readily identifiable UPS personnel posted at each major function in the border crossing process.
3. Handling documents. Each racing team was responsible for taking inventory of all the equipment in its trailer, and preparing detailed documentation. Because the cars and supporting equipment were classified as temporary imports, whatever traveled into Mexico had to return to the United States.
"Everything within the trailer had to match up with submitted documentation or Customs would impound the hauler. We had to be very careful, because we didn't have time for any delays," recalls George.
UPS SCS used the team-supplied information to prepare specific border documents. It was responsible for ensuring that tractor and trailer vehicle identification numbers on the paperwork at the border matched the actual equipment crossing the border.
To further complicate matters, many of the transport drivers, who had never traveled outside the United States, needed to obtain passports. UPS SCS required that all teams obtain immigration documents at least one month in advance of the race. But some teams changed drivers at the last moment, creating very tight deadlines.
"I received two passports just minutes before the last convoy left, verified them, checked the immigration work, and handed them to the individuals three minutes before they departed," recalls Tom Page, director of solutions for UPS Supply Chain Solutions Latin America.
4. Staging team haulers, official trailers, emergency and safety vehicles, and media trucks. After the myriad equipment needed for the races arrived from multiple points across the country, UPS staged it at its Laredo logistics center.
In addition to transporting the race teams and support groups—which included emergency and safety vehicles, technical scoring and template devices, and media trucks loaded with expensive equipment—across the border, UPS was responsible for staging specialty equipment as well, Silbermann explains.
Jet dryers—jet engines that are towed behind pick-up trucks to dry race tracks after rain—was one such item. The jet dryers had to be moved on flatbed trucks from race tracks in Ohio, New Hampshire, and the Carolinas, then staged in Laredo before crossing the border.
On Monday, Feb. 28, 2005, an initial convoy of trucks hauling Goodyear Tire and other primary support equipment left for Mexico City. Beginning at 7 a.m. the following day, carefully scheduled convoys of 10 to 15 haulers rolled out in 45-minute increments to make the 18-hour drive. Federal and private security escorts accompanied each convoy.
On Sunday afternoon, driver Martin Truex Jr.—the 2004 NASCAR Busch Series champion—won the inaugural Mexico City event, which was the most-watched NASCAR Busch Series event in history outside of Daytona races.
In the midst of the post-race celebration, the cars and myriad parts and support equipment were loaded back on the haulers so the convoys could retrace their route and return to Laredo.
"The race ended at 6 p.m. The first convoy going back to Texas left at 11 p.m.; the last one at 1 a.m.," George says.
As manager of the complex project, it was fitting that George was the last person to cross the border at 6:30 p.m. on Monday. Only at that point did NASCAR and UPS SCS officially declare the project a winner.
The Night the Lights Stayed on in Georgia
Keeping electric transformers executing in white-knuckle situations—such as hurricanes and severe power outages—comes with the territory for Georgia Power. With its 3PL partner Averitt Dedicated, the utility strives to keep bringing power to the people.
Atlanta-based Georgia Power, the largest of five electric companies that make up Southern Company, has provided electricity to Georgia for more than a century. The utility serves two million customers throughout the state, including 275,000 commercial, industrial, and retail users.
Keeping industrial and commercial customers operating can require replacing the transformers that help distribute electricity to hospitals, schools, manufacturing plants, shopping malls, and restaurants. The utility relies on its third-party logistics provider, Averitt Dedicated, to deliver and set electric transformers—which can weigh as much as 35,000 pounds each—during emergency situations.
Transformers can go out at any time, but summer, with its high temperatures, is peak use time, explains Steve Wilson, senior analyst for Georgia Power. "The transformers get very hot because of all the voltage running through them, and sometimes they fail," he says.
In emergency situations such as this, a transformer may have to be replaced on short notice—at any time during the day or night.
Georgia Power strives to exceed expectations for its customers. "If a customer contacts us, our goal is to provide whatever material they need to their location within three hours," explains Pat Hudson, asset disposition and logistics manager for Georgia Power.
To help accomplish that goal, Averitt uses a staff of four drivers who provide the power company with 24/7 service. The drivers are on-site at Georgia Power's materials distribution center in Forest Park, Ga., during normal working hours, and they rotate responsibility for carrying an emergency beeper during off hours.
When a problem transformer is reported, a member of Georgia Power's Supply Chain Management emergency response team simultaneously sends an alert to a company storekeeper—who has to get the transformer—and to an Averitt driver. The drivers use specialized flatbed trucks equipped with "knuckle boom" cranes to pick up, transport, and set the transformers.
Because transformers are often located in very tight quarters with little room for maneuvering, the drivers have to be extremely proficient with the knuckle boom cranes to remove the old transformers and position the new ones on concrete pads.
In some cases, drivers may need to use the cranes—which extend to 25 feet—to lift the transformers up and over a fence or other obstruction.
When extreme situations occur—such as when Hurricane Ivan hit last year—an Averitt driver may also be responsible for hauling a portable command center into the field to facilitate emergency response and support restoration efforts.
These types of emergencies call for fast, consistent response in short turnaround, high-impact situations.
"You need solid planning, constant and excellent communications, and continued incorporation of lessons learned to ensure that performance and response time are the best they can be," Hudson says. Georgia Power customers count on it.
From Zero to World Class, Overnight
How do you plan a supply chain for a company that doesn't exist? No, it's not a trick question. It's the dilemma Phoenix Brands experienced going to market as a startup. Menlo Worldwide helped concoct a solution.
Phoenix Brands, LLC, started up less than two years ago, acquiring four brands from consumer products giant Unilever. The company's executives were looking to "create a business that scaled from zero to world class overnight," recalls Sanjiv Mehera, chief administrative officer of Phoenix Brands.
The company, based in Stamford, Conn., was formed when the principals of the new organization—including Mehera and president Mark Landry, both former Unilever executives—secured financing from Lehman Brothers and acquired the RIT Dye, SunLight, Niagara Spray Starch, and Final Touch fabric softener brands.
While the agreement to acquire the brands wasn't signed until December 2004, planning began in mid-2003.
"We knew we couldn't take these brands out of Unilever to the same customers without delivering the same level of service," Mehera says.
With the goal of matching or exceeding prior service levels through business process outsourcing, Phoenix Brands began its search for a logistics service provider as well as partners to handle IT, sales, and production.
"Our philosophy is to invest resourcesin what we do best, and outsource in areas where others can deliver a competitive edge," Mehera explains.
Phoenix Brands executives knew how important logistics and supply chain management was to the company's launch, so they had high expectations for a logistics service provider.
The search for a strategic logistics partner was complicated by the fact that the provider would be supporting a business that didn't yet exist. "The conversations we had with potential providers were unlike ones an existing business would have," Mehera says.
The first challenge was having no historical data to draw upon. "These products had never been ordered by a customer as a single set of brands—we had no accurate basis to assess the economics or the baselines," Mehera says.
So, rather than evaluate cost proposals from service providers, Phoenix Brands went with its gut and evaluated the relationship it would have with a potential provider.
The company sought a strategic partner with strong logistics capabilities and expertise, a high-level commitment to the relationship, and the ability to invest in the business.
"We knew we were getting into a long-term relationship," Mehera notes, "so we wanted to be sure the terms we set out would always make sense economically, and that the partner had both the resources to invest and the willingness to do so."
In late 2003, after evaluating a handful of leading providers, Phoenix Brands selected Menlo Worldwide as its strategic logistics partner. Menlo, headquartered in Redwood City, Calif., had in place an existing infrastructure—including staff, systems, and a network of available distribution centers—that enabled the operation to get up and running in short order.
Phoenix's deal with Unilever was finalized in January 2004, and the transition was targeted to take place in three months. Phoenix Brands and Menlo moved quickly to build an infrastructure of people and assets.
The two partners built on preliminary plans they developed when preparing for the acquisition of the new brands. Precise project planning was one of the factors critical to the launch's success.
Menlo appointed a single owner charged with driving activity, who had the authority and resources required to ensure that milestones were met.
Complete and ongoing communication was also key. The two companies used daily status updates, including daily calls for IT and operations as well as senior-level officials.
In addition, Menlo utilized daily calls internally to address operational issues. This coordination was crucial to orchestrating an ambitious start-up effort operating on multiple tracks simultaneously.
In pre-acquisition work, Menlo modeled a new logistics network for Phoenix Brands. The modeling indicated that three distribution centers in North America would be optimal once certain demand levels were met.
Because the demand level didn't call for three DCs initially, Menlo set up facilities in New Jersey and Tennessee for the initial phase of the start-up, explains Claudell Germain, Menlo's director of operations.
Determining which enterprise resource planning system was best suited to manage the brands was a critical decision. Phoenix Brands selected the proprietary system used to manage the RIT products, and planned a company-wide implementation.
The two partners' information technology services then established connections between the Unilever and Menlo distribution centers, and began work on transitioning the remaining brands to this system.
Phoenix Brands also had to create a customer list virtually from scratch, because it could not transition one from Unilever.
Simultaneously, Menlo was working to put the distribution centers in place, sign leases for and outfit the new facilities, and receive product. It also signed agreements with carriers, and established operations and processes to manage Phoenix Brands' transportation and demand planning strategies.
Finally, Menlo completed back-room IT work, which included providing Phoenix Brands with e-mail services and hosting the AS-400 computer that handles customer orders.
The transition was accomplished in three waves, occurring only two weeks apart. Phoenix Brands began shipping to its first wave of customers on the third Monday in April, and to the final wave in May.
"We didn't want to go 'big bang,' and ship to our largest customers from a system that wasn't ready," Mehera explains. "We wanted to ramp up the warehouses and our own resources, so we took the smallest retailers first. Two weeks later, we took on the mid-size companies."
The final wave included Phoenix's largest U.S. customers as well as customers in Canada. Initially, product shipped from Unilever's warehouses, with new production moving directly into Menlo's two new facilities.
Curing the Hiccups
Not surprisingly with a start-up of this magnitude, some hiccups occurred, especially as the largest customers came onboard. Service issues had to be resolved literally in hours—and with extra effort and long hours, they were. Overall, Phoenix Brands says the startup process went smoothly.
"Working through the various issues together strengthened the relationship between Phoenix Brands and Menlo," says Mehera. "To get problems resolved immediately, Menlo committed a lot of resources and had senior-level executives involved. Because of this, we felt even more comfortable once the issues were resolved."
Today, one year after the company's launch, "we are in the improvement stages," Mehera says. "Now that we're getting year-over-year data, our constant goal is to keep taking costs out of the supply chain."
Continual improvement is a critical component of Phoenix Brands' business model, which is built around adding brands and volume into the network to leverage economies of scale. Phoenix and Menlo are focused on inventory reduction and demand planning to "reduce the warehouse footprint and freight costs, so when Phoenix adds brands, it can benefit from those synergies," Germain says.
The company now receives scorecards from customers, and Mehera says Phoenix Brands ranks at the top with some of the best consumer products companies in the world.
An Extreme Relief Effort
When a giant earthquake triggered a tsunami that battered coastlines along the Indian Ocean on Dec. 26, 2004, coastal villages and towns from Asia to Africa were washed away. Left behind were millions of survivors who lost loved ones, homes, and communities.
To speed critical supplies to areas hard hit by the tsunami, the United Nations World Food Programme (WFP) immediately launched a massive relief and rebuild operation.
"This disaster presented WFP with one of its most logistically challenging operations yet—working in places where much of the infrastructure was damaged or destroyed, where existing capacities were already limited, and where many areas are remote and cut off from normal supply lines," reports WFP.
As it delivered life-saving food to tsunami victims, WFP simultaneously worked to establish a logistics support system that enabled the agency and its partners to mobilize an extensive rebuild operation that would be in place for many months.
Since that time, WFP and its partners have provided food aid to nearly 2 million tsunami survivors. WFP used military and civilian helicopters, fixed wing aircraft, cargo ships, landing craft, and trucks to deliver more than 60,000 metric tons of food where it was needed.
Relief and Rebuilding
While 30 transportation/procurement professionals make up WFP's core staff at its headquarters in Rome, many workers are located in the field. In emergency situations, the organization relies on partners—government, quasi-government, and volunteer organizations—to swiftly supply seasoned, experienced logistics staff. This initial surge capacity helps WFP speed relief to affected regions while mobilizing its own staff.
"It's a huge effort," notes David Morton, the agency's director of transport/procurement. "For the tsunami, we eventually mobilized 300 people."
One partner providing critical logistics support throughout the tsunami relief operation is TNT N.V., a global mail, express, and logistics company that joined forces with WFP in 2002 as a leading corporate partner.
Using in-place emergency operational procedures and its existing infrastructure, TNT moved rapidly to transport emergency response goods, staff, and food to assist the six countries most affected by the tsunami.
Hardest hit was Indonesia, where nearly 80,000 people were confirmed victims of the disaster. TNT's Indonesia operations director David Stenberg and his team worked full-time with WFP for weeks after the tsunami struck, coordinating TNT's response and providing logistical support.
One of the team's first jobs was to open a road corridor from Medan to Banda Aceh on the island of Sumatra. Located close to the earthquake's epicenter, Banda Aceh had suffered great devastation, and deliveries to the city could not get through.
To open up the supply route so food and drinking water could be delivered, "we had to source the vehicles, scout the roads, work with Indonesian officials, and send the convoy through," says Stenberg.
On New Year's Day, a convoy of 25 trucks loaded with rice, high-protein biscuits, and water began its journey to Banda Aceh. The trip, which under normal circumstances requires about eight hours, took more than 24 hours.
In the weeks following the disaster, TNT provided daily road convoys consisting of 120 trucks delivering 4,000 metric tons of food and supplies. In addition, TNT staff in Indonesia procured and provided other critical transportation services, such as leasing and supplying a helicopter and two bulk carrier vessels to assist with relief efforts.
TNT worked closely with WFP in other countries as well, to:
- Provide transportation capacity and know-how.
- Deploy staff in air operations.
- Provide warehouse space, management and staff.
- Outfit an emergency response center with furniture, equipment, telecommunications, and information technology.
- Provide import clearance services.
In addition to offering experienced staff and logistics capacity, TNT donated significant financial resources to WFP.
While not a traditional outsourcing arrangement, the success of the WFP/TNT relationship can be traced to the same core elements that are required between customer and 3PL.
For example, "communication, preparation, and training were keys to WFP and TNT's ability to work together in a high-intensity situation," says Morton. "Because the two organizations knew each other, we were able to work together swiftly and seamlessly."
Disaster recovery efforts were facilitated by the fact that the WFP/TNT relationship was already well-established, starting about a year before the tsunami hit, notes Ludo Oelrich, TNT's program director for the partnership, formally called Moving the World.
When key players convened for an organizational meeting in Bangkok in winter 2003, they established relationships that would "make it easy to pick up the phone and call" for assistance when the disaster struck, he says.
Another critical success factor was the preparation that enabled the two organizations to swing rapidly into action. "We had contact lists of people and understood the lines of communication," Oelrich says.
In addition, TNT created a catalog of services it could offer WFP in the event of a crisis. The catalog detailed warehouses, space availability, transportation capabilities, and skill sets available in the 80 countries in which TNT operates. It also provided similar information for the additional 120 countries where TNT works through agents and associates.
TNT CEO Peter Bakker and the company's executive leadership team provided full support to the tsunami relief effort from the first moments. Stenberg says he had the go-ahead from TNT headquarters "to do whatever needed to be done" in Indonesia.
He was expected to give corporate leadership a heads-up in situations involving extraordinary expenditures—as when leasing a helicopter for relief material distribution. But whenever that occurred, "I got immediate approval," he says.
While different in many respects, the two organizations share highly compatible cultures. WFP has more than 40 years of experience mobilizing resources for relief operations. TNT companies similarly operate in a world where rapid response and problem-solving are a part of everyday life.
WFP and other agencies are still working to help the affected areas rebuild and recover from the tsunami damage. As for the partnership with TNT, it stands ready to answer the next call for help.