March 2004 | Case Studies | I.T. Toolkit

Menlo Worldwide Logistics: Serving Up Technology a la Carte

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One 3PL offers software and technology services to companies that run their own supply chains.

Information technology is a major selling point for third-party logistics providers (3PLs). When companies outsource supply chain activities, they are often drawn to partners who can mobilize powerful logistics applications on their behalf.

What if a company loves a 3PL's technology but wants to keep running its own logistics operation? Would the 3PL agree to install the software but keep its hands off the warehouse or freight yard?

"Historically we've said no," says David Hushback, director for DirectTech, a new service offering from Menlo Worldwide Technologies.

Not long ago, however, Menlo and sister company Menlo Worldwide Logistics decided they could leverage their technical expertise to serve a wider range of clients. So Menlo launched DirectTech, allowing businesses that manage their own supply chain activities to pick and choose from a menu of IT solutions and services.

Currently, DirectTech provides solutions for warehouse management, order management, supply chain visibility and tracking, and mail handling and tracking. It includes software that Menlo Worldwide Technologies developed in-house and solutions the company licensed from third-party software vendors.

The menu could eventually expand to include more of the technology that Menlo Worldwide Logistics now uses internally.

"We may do more of our solutions out of our 4PL (fourth-party logistics) business, or some of our foreign activities," Hushback says.

Satisfying Two Groups of Customers

Menlo developed DirectTech to satisfy two kinds of customers. The first group consists of companies that haven't previously worked with Menlo but, while investigating its services, become interested in some of its software. The second consists of clients who use Menlo in certain operations and want to add its software to other facilities, which they run themselves.

One firm in the second category is Ricoh Corporation, the U.S. division of Ricoh Company. A leading manufacturer of copiers, scanners, fax machines, and other office equipment, Ricoh has grown through key acquisitions, purchasing Savin Corporation in 1995 and Lanier Worldwide in 2001.

In 2001, Ricoh began laying plans to consolidate five Ricoh distribution centers and three Savin DCs into three new facilities in California, Tennessee, and Pennsylvania. It chose Menlo Worldwide Logistics to run the DCs, which opened late that year.

In the fall of 2002, another Ricoh company, Ricoh Electronics Inc. (REI), came to Menlo with a proposition.

"They expressed an interest in acquiring Menlo's warehouse management system (WMS), which essentially resulted in having our technology installed in one of their facilities. REI did not need Menlo people to operate it," says Richard Tracchio, Menlo's senior logistics manager for the Ricoh Corp. distribution centers.

Ricoh Corp. is a sales, marketing, and service organization, while REI is a manufacturer, with several plants in Orange County, Calif., and one in Lawrenceville, Ga. Ricoh, Savin, and Lanier order their products from manufacturing plants overseas and from REI plants in the United States. But as it fine tunes its supply chain, Ricoh Corp. is using REI more and more as a way station for inbound products.

Reducing Risk

The new strategy helps Ricoh, Savin, and Lanier reduce their risk, explains Michael Duciewicz, vice president, supply chain management at Ricoh Corp. in West Caldwell, N.J.

For example, each business unit sells two variations of the same basic copier—a 35-copies-per-minute (cpm) machine and a 45-cpm machine. Each company used to order these products on its own. If customer demand didn't match forecasts, it ended up with too many copiers, or too few.

Today, REI orders enough 35-cpm machines from overseas to supply all three business units. Then, each unit places a weekly order for 35-cpm and 45-cpm machines. REI upgrades the 35 cpms to 45 cpms as required, adds accessories such as document feeders and staplers, and ships each business unit exactly what it needs.

"This creates a pooled inventory," Duciewicz says. "Even though each business unit has a forecast, the actual demand on a weekly basis directs REI to configure the product and ship to a business unit."

To manage this new process, REI needed a WMS. This system would have to handle electronic communications with manufacturers in the same way that Ricoh Corp.'s WMS did, and it would have to be integrated with the systems at Ricoh Corp. DCs. That made Menlo's WMS a clear choice.

But officials at REI did not want to turn their logistics activities over to the 3PL. They felt that operations at their plant lay too close to the heart of their core competencies to outsource. So they asked Menlo if it would simply implement its WMS in an REI facility in Santa Ana, Calif.

Modifying the Code

The WMS in question is a version of ViaWare, developed by Provia Software, Grand Rapids, Mich. Menlo recently signed an agreement to become a global reseller of ViaWare.

Under the terms of its agreement with Provia, Menlo can modify the code any time a client requires changes, and that's a plus. "Would I have gone to a 3PL who would have to go to a software provider to make changes? No, because then I'm losing flexibility," Duciewicz says.

Menlo can modify its licensed software to provide a range of custom features. "It could be anything from special reports all the way to how the customer integrates various systems. It could be how they process data, or actual, detailed feature functions they may want. One example might be yard management," Hushback says.

Once Menlo and Ricoh agreed to do business in Santa Ana, the companies assembled a team to plan the implementation. The team included representatives from Menlo, Ricoh Corp., REI, and Ricoh Logistics, the corporate-owned non vessel operating common carrier (NVOCC) that manages Ricoh's transportation from Asia to the United States.

"We brought REI and Ricoh Logistics into the fold to identify any unique requirements that did not fit into the core system," Duciewicz says.

Menlo then started customizing the system. Ricoh Corp. oversaw that process "because we have the IT and user experience," Duciewicz says.

Following tests and final implementation, the system went into full operation about a year ago, he says.

The warehouse systems at Ricoh Corp. and REI now share data such as advance ship notices (ASNs) and order status. The Santa Ana system has worked well and hasn't required any changes, Duciewicz says.

What's Next?

It's not yet clear whether Ricoh will ask Menlo to do similar implementations in other facilities, but the company continues to review how to manage various DCs and how to support the smooth flow of logistics information across multiple locations.

"I strongly feel the company needs an integrated system," Duciewicz says. "The question comes down to what type of facility should be company-owned, and what type should be operated by third-party logistics providers?"

In general, he says, the answer depends on each facility's mission. At Ricoh's "last mile" DCs, employees configure equipment for direct delivery to customers. Those work best when Ricoh retains control. But DCs that ship product to dealers or to the last mile locations could operate well under a 3PL, Duciewicz says.

While DirectTech can provide standalone software, its menu also offers total solutions, including whatever services a company needs to get its new processes running.

"For example, a company might come to us and say they don't just want a WMS," Hushback notes. "They want us to put the warehouse up, get it running, get everything in place, and then turn it over to them to run."

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