Supply Chain Remodeling

Tags: 3PL, Supply Chain Management

3PL blueprint illustration

When supply chains need a fresh look, 3PLs can draft a blueprint for renovation.

If you pick up your remote, and click through the TV channels, you're bound to hit a makeover show: Three style mavens transform a Plain Jane into the essence of chic. Fitness trainers help obese folks shed scores of pounds. A team of designers and builders turns a cramped cottage into a comfortable family home.

Sometimes a supply chain needs a makeover, too. It's not that the company is doing anything wrong; it just needs to evolve with the times. Sales soar, business models change, customers start making new demands, and suddenly the old, reliable infrastructure no longer fits the need.

In life, as on TV, when it's time to make big changes, it usually pays to call an expert. In the supply chain world, those experts are often third-party logistics (3PL) service providers.

Here's a look at four companies that worked with 3PLs to pull off a supply chain makeover—and ended up with stunning results.

Talyst: Closer to the Customer

You wouldn't buy a Mini Cooper to haul a 50-foot boat. Form needs to match function. And that's why, in 2009, management at Talyst in Kirkland, Wash., decided it was time to reshape their logistics operations.

Talyst sells pharmacy automation systems, used to dispense and manage medications in hospitals, nursing homes, and prisons. Along with new systems, the company ships consumable products such as labels and spare parts employed in maintenance and repair.

Talyst used to distribute all of its product from a company-owned, 15,000-square-foot distribution center in Preston, Wash. But given the shape of Talyst's customer base, this location was far from ideal.

"We identified that most of our customer density was on the East Coast," says Scott Currier, Talyst's senior director of logistics and supply chain management. Much of the company's product crossed the whole continent to reach customers. This was a particular disadvantage when it came to supplying critical spare parts.

Management also decided that the company-owned DC created too many fixed costs. "Our warehouses have a tendency to fill up and shrink down through the quarter," Currier says. No matter how much or how little product the company held in a given month, Talyst's costs to run the DC held steady. Talyst needed storage space and a labor pool that could expand and contract along with its inventory.

After considering several options, Talyst chose to outsource distribution to Flash Global Logistics, based in Mountain Lakes, N.J.

Flash's extensive network of DCs and forward-stocking locations made the 3PL particularly attractive. "As our density grows, being able to take advantage of putting critical spare parts closer to the installed base is our overall goal—as well as being able to save our East Coast customers some freight costs," Currier says.

Once Talyst and Flash forged their partnership, Flash chose its facility in Chicago as the best location for Talyst's main DC. Not only could Talyst move critical spares overnight from Chicago to East Coast customers, but it could meet service requests made later in the evening, because carriers in Chicago offer later pickup times.

"It was also a market that provided cost benefits," says John Miller, Flash's senior vice president of global business development. Flash serves multiple customers in its Chicago DC and moves large volumes in and out of that facility. "That gives our customers access to shared costs."

Flash also operates a second, smaller DC for Talyst in Kent, Wash.

Although Flash's standard offerings met many of Talyst's needs, the shipper also asked the 3PL to develop some custom services. One was the ability to "kit up" new pharmacy management systems before shipping them to customers.

A pharmacy workstation sold by Talyst might include a computer, monitor, keyboard, scanner, and printer, along with specialized equipment. When a customer orders 10 workstations—each with its own configuration—technicians meet the shipment at the customer's site to get those systems up and running. Rather than box up 10 of each piece of equipment, Flash packs together the components for each workstation. That approach simplifies the setup process at the customer's site.

Flash also developed a process for receiving finished goods that arrive from South Korea, unpacking them so a third-party quality assurance team can run them through tests, then repacking them for shipment.

"Our job is to make sure we're fully up to date on all vendor compliance issues. Then, together with our customer, we figure out the right way to comply flawlessly the first time." Michael Stark, President and CEO, Pacer

"In the past, Talyst would have all those products shipped to its corporate headquarters in Washington," Miller says. "They would be assembled, tested, broken down, shipped to a distribution point, then shipped out once the request for that equipment existed." By moving the testing process into the DC, Flash and Talyst removed several steps and touch points.

Flash could help Talyst reshape its logistics network even further in the future, as the vendor builds business in new markets. For example, as Talyst sells more of its Long-Term Care solutions in cities with many nursing homes, Flash can provide forward-stocking locations for spare parts near those markets.

Talyst has already gained a great deal from outsourcing distribution to a 3PL that can scale services up and down as needed. "We've been able to trim 10 to 15 percent of our overall operating costs by moving to a variable model," Currier notes.

Sakar: A Partner in the West

Sakar International sells consumer electronics and accessories under 40 well-known brand names, such as Vivitar, Polaroid, Nerf, and Hello Kitty. About a decade ago, two emerging trends convinced management at Sakar to re-think the way it managed North American logistics.

One trend was the growing allure of the Port of Los Angeles. "Los Angeles presented a huge opportunity," says Rafi Merl, Sakar's warehouse operations manager. Goods shipped from manufacturers in Asia could reach the West Coast faster than the East Coast, shortening the time it took to get product to retail chains.

A West Coast entry point put Sakar's incoming product far from company headquarters in Edison, N.J., but that posed no problem when it came to monitoring freight. "With our Web capabilities, we were able to see live data even though we were 3,000 miles away," Merl notes.

The second trend was the increased importance of vendor compliance. Big box retailers were imposing long lists of strict requirements dictating how to package products, what kinds of pallets to use, and how to label cartons.

"In order to win retailers' business, suppliers had to step up to the plate," says Michael Stark, president and CEO of Pacer Distribution Services, a third-party logistics provider in Carson, Calif. "A lot of companies such as Sakar couldn't do that on their own."

Also, retailers looking for leaner supply chains were asking vendors to hold stock until customers actually needed it for replenishment. "Many customers used to carry more product in their DCs," Merl says. But not today. "They're decreasing how much they carry, and they want faster transit times."

Given these trends, Sakar management decided they needed a logistics partner on the West Coast. They chose Pacer, and for the past 10 years the 3PL has been responsible for the freight Sakar imports through the Port of Los Angeles. The 3PL stores this product in its own DC, and manages Sakar's inbound and outbound transportation at that location.

One strength Pacer brings to the relationship is its ability to deliver shipments exactly as each Sakar customer requires. "Our job is to make sure we're fully up to date on all vendor compliance issues," Stark says. "Then, together, we figure out the right way to comply, and we plan to make sure we achieve that flawlessly the first time."

Pacer's knowledge and flexibility are especially helpful when Sakar takes on a customer with unusual requirements. "Pacer has been accommodating, and helped us reduce chargebacks and maintain the proper way to ship to demanding customers," Merl says.

Pacer also comes through when a shipment from Asia is delayed but customers need the goods right away. "Several times, goods have come out of the container at 11:00 a.m., and we had them on a truck going out to customers by 3:00 or 4:00 that afternoon," Merl says.

When a strike by clerical workers at the Ports of Los Angeles and Long Beach slowed shipments to a crawl for eight days in fall 2012, Merl sat down with Stark and his team at Pacer to devise workaround strategies.

"For example, we offloaded half a container and left the other half until the next day to offload, because we only needed half the goods," Merl says. Thanks to Pacer's quick reaction in an emergency, retailers got shipments, and Sakar's holiday season proceeded with barely a hitch.

In the relationship between Sakar and Pacer, one key to success is continual collaboration. "When Sakar plans its business, we're with its managers at the table, so we can help them achieve their goals," Stark says.

Sakar doesn't devise a strategy, then call Pacer at the last minute to put it into action. Rather, Pacer and Sakar share responsibility all the way—and they share in the rewards as well. "The more Sakar grows, the better we can grow," says Stark.

CentricsIT: A Bigger Footprint

CentricsIT opened for business in 2007 as a reseller of new and used computers, networking equipment, and other information technology (IT) hardware. Before long, customer demand sparked a second line of business: providing technical support.

"Companies were asking us to maintain the equipment we sold them," says Derek Odegard, president of CentricsIT.

When the company launched that new business, it made sense to store service parts at its headquarters in Atlanta. But as CentricsIT gained customers farther away, it grew harder to deliver parts fast enough. That was especially true for customers who wanted same-day repairs.

CentricsIT tried keeping spare parts at customer locations, but that strategy was not ideal. For one thing, it offered no sure way to track inventory.

"As a best-of-breed hardware provider, we wanted to make sure customers had the same experience with maintenance," Odegard says. That meant developing a top-quality logistics network that could deliver service parts within hours.

In 2011, CentricsIT outsourced parts distribution to New York-based Choice Logistics. Choice operates 400 stocking locations for parts, with another 400 available to occupy as customers require.

Starting with 15 Choice facilities, CentricsIT quickly expanded to more than 50. Most of those locations are in the United States and Canada, but CentricsIT also works with Choice in France and Germany. The company might soon take locations in the Middle East and Africa as well.

"We're investing heavily in this business, and we have aggressive growth plans," Odegard says.

Choice can provide new sites just about as fast as CentricsIT asks for them. Another advantage is that the two companies have been able to integrate their software systems, so that data flows between them seamlessly.

As CentricsIT and Choice started to design the new distribution network, one decision they faced concerned which parts to store in which facilities. "Because different customers have different equipment, CentricsIT doesn't need to stock the same spares everywhere," says John Baushka, Choice's vice president of business development.

"Choice did a great job of helping us analyze our spare parts network," says Odegard. "We examined our service level agreement needs, and considered how to leverage inventory at some of the other sites to make sure we cover all our bases. At the same time, we're making sure we're not popping up strategic stocking locations (SSLs) where we don't need to."

Today, when CentricsIT's customers need tech support, service technicians order parts from Choice Logistics through a Web portal. "The technician can request the fastest possible delivery or schedule a specific delivery time," Baushka says.

In each city where it operates, Choice uses a local courier service to transport parts to customer locations. If the necessary part isn't in stock in that market, Choice ships it from another SSL, using a next-business-day delivery service or putting it on the next available airline flight.

Along with the part, the courier delivers a return label. "All the technician has to do is take the new part out of the box, put the bad part in the box, and affix the label," Baushka says. The broken part goes either to Choice or directly to a CentricsIT repair center.

Within its SSLs, Choice tracks parts by serial number, providing inventory accuracy at close to 100 percent. Using its IT platform, Choice keeps CentricsIT updated on orders and shipments in real time.

"CentricsIT has access to inventory at each location," Baushka says. "So if a part is not available in Chicago, they know if it's available in Detroit."

That real-time window into parts inventory has been a big benefit for CentricsIT. So has the decentralized model for parts distribution, which helps the company deliver spare parts faster. And because Choice can provide new stocking locations to serve new customers, CentricsIT has been able to win contracts that otherwise would have been unattainable.

"To be able to win business and assure customers that we can deliver on a maintenance contract almost anywhere in the world—and do it very quickly—has been instrumental," Odegard says.

Odegard expects the relationship with Choice to pay off even further in the future. "We're going to see major growth in Europe, the Middle East, and Africa, then we're heading toward the Pacific Rim," he says. "We hope we can continue to work with Choice Logistics to grow our global footprint."

TalkingRain: Growing Pains

In 2010, consumers in the northwestern United States snapped up $10-million worth of Sparkling Ice, the top-selling product of the TalkingRain Beverage Company. By 2012, TalkingRain had extended its market nationwide, and annual sales of Sparkling Ice had soared to $200 million.

The rapid growth soon strained the company's distribution network. "We were engaged in several one-off warehousing agreements around the country, just to keep up with sales," says Kevin Klock, CEO of the Preston, Wash.-based firm. Trucks hauled cases of TalkingRain's product in all directions, while the company monitored inventories via fax and phone.

TalkingRain was also outgrowing some of its third-party warehouses, especially in the Southeast. "We couldn't get the appointment times we needed because of limited dock space," says Klock. "We wanted a logistics partner who could receive product around the clock, and ship it in the quantities we required."

The company also needed a 3PL to provide more space in the warmer half of the year when business boomed, and less in fall and winter.

"We couldn't get the appointment times we needed because of limited dock space. We wanted a logistics partner who could receive product around the clock, and ship it in the quantities we required." Kevin Klock, CEO, TalkingRain

In October 2012, TalkingRain asked Saddle Creek Logistics Services, a Lakeland, Fla.-based 3PL, about providing distribution space. Three business days later, Saddle Creek started receiving TalkingRain products in its Macon, Ga., warehouse, says Robert Pericht, Saddle Creek's senior vice president, warehouse operations.

Before long, the companies started discussing how to redesign TalkingRain's distribution network for a better fit.

TalkingRain needed a network of regional DCs to complement its regional manufacturing locations. "Our goal was to be within two shipping days of any customer in the United States," Klock says.

By spring 2013, Saddle Creek was handling all of TalkingRain's distribution. Along with its Macon DC, the 3PL provided space in existing facilities in Lakeland, Fla.; Charlotte, N.C.; Florence, N.J.;. and Chicago. It also took new space for TalkingRain in Ontario, Calif.; Fort Worth, Texas; and Seattle.

TalkingRain manages transportation in and out of these DCs, using Saddle Creek and other carriers.

Inside the warehouses, Saddle Creek's work includes value-added services such as reconfiguring product to meet individual retailers' needs. "We have bundling machines," says Pericht. "We provide rainbow packing for club store variety packs, mixing and matching flavors."

In addition, Saddle Creek enhances TalkingRain's operations with processes focused on Lean logistics, continuous improvement, and quality management. It also provides technology to inform TalkingRain about orders and shipments in near-real time.

Long discussions and careful analysis helped the two companies determine not only where to put TalkingRain's distribution centers, but which activities to conduct in each. One important decision focused on value-added services.

"It would have been easy to say, 'We're growing fast, but we don't know exactly where things stand. Let's purchase equipment and put it in all eight locations, and we'll make it work,'" Pericht says. But that would have been short-sighted and expensive.

After many rounds of volume projections and sales forecasts, the two companies decided to put the value-added services in just four of the eight facilities. "That will save both companies a lot of money in the long term," Pericht says.

Saddle Creek has been running TalkingRain's distribution for just a short time. But thanks to the makeover, the beverage company expects to save money, gain greater efficiency, and provide better service to customers.

Saddle Creek's transportation and warehouse management technology will provide particular advantages. "We will have instantaneous visibility into our inventory," says Klock. "We will never have to lose sight of inventory that's being transferred between locations."

The unified view that comes from working with a single 3PL will provide strong advantages as well. "We'll gain the analytics we need to drive costs out and better serve our customers," Klock says.

TalkingRain probably should have started its logistics makeover sooner, Klock says. But no one was sure how long—or how fast—the company would expand. "Partnering with Saddle Creek is our way of saying we're now looking at ourselves as a large business, considering business plans for the next two or three years, and putting systems in place to be ready."

That's the best kind of makeover—one that not only refashions your business for success today, but also puts you in great shape for the future.