The Mechanics of 3PL Partnerships

Tags: 3PL, Retail, Distribution, Supply Chain Management, E-commerce

Two hands comprised of gears grasped in a handshake

How do you keep a shipper-3PL relationship running smoothly? Learn the tools of the trade.

A logistics outsourcing relationship should run like a well-constructed machine. You need gears that turn smoothly; electronics that hook up correctly; and moving parts that never rattle, squeal, or jam. You also need tools to keep all the parts in good repair, so you never have to worry about breakdowns.

Just as machines come in every size and shape—from coffee grinders to Super-post-Panamax cranes—so do partnerships between shippers and their third-party logistics (3PL) providers. Let's examine the nuts and bolts of four successful 3PL relationships, and see what keeps the apparatus running.

Birchbox & OHL: Getting the Gears to Mesh

Peer into the machinery that connects e-retailer Birchbox and its third-party logistics provider OHL, and you'll find two teams that have put some concentrated effort into getting their relationship in gear.

"When you bring two companies together, you have to bridge a culture gap," says Dave Johnson, vice president of operations at OHL, in Brentwood, Tenn.

Birchbox sells beauty and grooming products through its website, and recently added a new channel: its first permanent store in Manhattan's SoHo district. Besides traditional shopping, customers can subscribe to a service that sends them a box of sample-sized products each month. One subscription is designed for women; another one for men.

OHL is Birchbox's third 3PL since the retailer launched in 2010. In February 2014, New York City-based Birchbox started moving some of its fulfillment business from a previous partner in New Jersey to an OHL facility in Mount Juliet, Tenn. "Birchbox is an exceptionally high-growth business," says Matt Hertz, the retailer's director of logistics. "The previous 3PL did a great job, but couldn't scale its operation to accommodate future growth."

By May, OHL had taken over all of Birchbox's fulfillment, including receiving, putaway, replenishment, picking, packing, kitting, shipping, and transportation management.

Now that the ramp-up is mostly complete, here's how the process works: Four times each day, Birchbox sends an order file to OHL via EDI. OHL employees pick and pack the orders, and prepare them for shipment—often with the U.S. Postal Service, but sometimes through UPS or a consolidator.

A Weighty Process

As workers label the boxes, software determines how much each box should weigh. Just before the box is ready to ship, workers put it on a scale to measure the actual weight. "If a box that should weigh two pounds comes in at five pounds, or one pound, workers know there's too much or too little product in that box, and they reject it," Hertz says. This new quality control function has helped reduce shipping errors.

Subscription orders come to OHL in two files per month—one for the women's boxes and, on a different date, one for the men's. First, OHL gets a bill of materials file, specifying the number of kits it will build, and the variety, because different subscribers receive different product combinations. The actual order file arrives several days later. "We get a jump on being able to kit the raw product and put the kits away," says Dave Johnson, vice president of operations at OHL. "When those orders drop, we pick the kits and attach them to the orders."

OHL has just a few days to hand over all the subscription orders to carriers. Orders that ship late trigger a penalty.

To help keep all this activity on track, Birchbox assigned one of its own employees to the Mount Juliet center. "He works closely with the management team on the ground at OHL," Hertz says.

That relationship has worked out well. "We engage him often with tasks as simple as checking out a load on our dock, and asking if he wants to receive it or refuse it," says Johnson.

Each weekday morning, the OHL team, the Birchbox rep, and Hertz and his team in New York hold a production control meeting via conference call. Birchbox's CEO, and representatives from the procurement and marketing departments, might join as well. "We go over priorities, and evaluate yesterday's performance," Johnson says. "And we might look ahead a few weeks, or even months."

Throughout the ramp-up, Birchbox and OHL also held weekly core team meetings to monitor progress. The partners have conducted one quarterly business review to date, and plan to establish monthly reviews.

Birchbox uses about one dozen service level agreements (SLAs) to monitor OHL's performance, focusing mainly on timing and quality. Although OHL charges Birchbox for its work on a cost-plus basis, a "pain share/gain share" contract provision incents the 3PL to hold down costs.

As in most new implementations, Birchbox and OHL have experienced some hiccups in their work together. But open communication goes a long way toward keeping progress on track. "We are only a few months into a five-year contract, but transparency in this relationship has already stood the test of time," says Hertz.

Belk & Performance Team: The Nuts and Bolts of Deconsolidation

Third-party logistics provider Performance Team has helped retail chain Belk with domestic freight for approximately 20 years. In 2006, the Belk organization that handles imports decided it wanted to outsource to a 3PL partner as well.

Based in Charlotte, N.C., Belk Inc. currently operates 299 stores in 16 states across the U.S. Southeast, plus an e-commerce business. It maintains distribution centers in Blythewood, S.C., and Byram, Miss., and e-commerce fulfillment centers in Pineville, N.C., and Jonesville, S.C.

Belk wanted a partner to receive ocean containers with consolidated freight from overseas suppliers. The 3PL would transload the contents onto trailers for shipment to the Blythewood and Byram DCs.

The existing relationship made Performance Team an obvious starting point in the search for a partner to handle that operation, says Diane Hartjes, Belk's vice president, private brands and customs compliance officer. So she started talking with Cliff Katab, president of Performance Team, in Santa Fe Springs, Calif., and eventually awarded his company the contract.

From then, it took four years of discussion and planning before Performance Team transloaded its first container for Belk. "It was a completely different network for us," Hartjes says. "We had to figure out if it was actually cost effective to move to this model."

Before Performance Team got involved, both distribution centers received inbound containers. Staff there unloaded those boxes, separated the product according to which DC would use it to service stores, and loaded it onto outbound trailers.

Today, all the containers go to a Performance Team facility at the Port of Charleston for transloading. "After deconsolidation by Performance Team, our trucker picks up the loads and distributes them to our two distribution centers," Hartjes says.

To help keep the partnership's machinery humming, members of Hartjes' and Katab's teams hold a conference call every morning to go over the day's agenda.

As a shipment reaches port, an advance ship notice (ASN) gives Performance Team information about the incoming containers. "Once we get the details about what's coming in, we pick up that container and have it delivered to our facility," says Katab.

Performance Team opens each container, verifies that the contents match the data in the ASN, scans bar codes on the cartons, sorts the product for outbound shipment, and loads it onto trailers. "Then we create a new ASN for the outbound trailer, so Belk knows specifically what's on that trailer, versus what was on the inbound container," says Katab.

When necessary, Performance Team also provides value-added services. "If we have product that is not floor-ready, Performance Team can correct that before it hits our crossdock," Hartjes says.

Key employees at Belk and Performance Team receive automated reports from one another's management systems via e-mail. And when the unexpected happens, the executives reach out by phone. Katab recalls the time an overseas vendor warned Hartjes that a shipment was arriving in the United States with the wrong price tickets on the product. Hartjes called Katab to ask for a solution.

"We segregated that container, and got a team to repair the problem," says Katab. Then they shipped the product to the DC. "Throughout the process, Performance Team, Belk, and the manufacturer were all in communication to make sure we could salvage the product and get it to Belk's stores on time."

The partners hold quarterly business reviews, and Belk uses a set of key performance indicators to evaluate Performance Team's work. Many of the metrics involve timing—how quickly Performance Team gets containers from incoming vessels to its facility, how long containers sit in the yard, and how long it takes to transload and move product back out the door.

"We also need to look at quality," Hartjes adds. "We have to make sure that the cartons are being delivered to the right DC. And we have reporting against other types of errors."

To promote the best possible performance, Belk and Performance Team have built both gainsharing and chargebacks into their contract.

One key to building a solid shipper-3PL partnership is to consider it a long-term solution. "It takes time to understand each others' businesses, how the process flows, and how we can improve," says Hartjes. "The relationship must be profitable for both companies, and they need to communicate to keep it going year after year."

James W. Crawford Company & PGL: Breakdowns are Unacceptable

For James W. Crawford Company of Tucson, Ariz., the mechanics of logistics outsourcing revolve around a single principle: failure is never an option.

"If our 3PL doesn't deliver, it doesn't get the next job, and can be fired," says company president James Brackensick.

That might sound harsh, but Brackensick considers that attitude crucial to his business, which serves high-end hotels and resorts. Crawford procures, fabricates, and installs furniture, fixtures, and equipment for hospitality companies such as Rosewood Hotels, Four Seasons Hotels and Resorts, Ritz-Carlton, and Hyatt. It also keeps customers stocked with soaps, towels, napkins, and other operating supplies.

Raj Sobhani, president of Perimeter Global Logistics (PGL) in Irving, Texas, agrees that serving Crawford leaves no margin for error. "The hospitality industry operates under stringent demands," he explains. A delay in the renovation of even one suite in a luxury property might cost the owner thousands of dollars per night, plus the hotel's reputation.

Brackensick worked with PGL for years when he was senior vice president of Rosewood Hotels, before striking out on his own under the James W. Crawford name in 2009. He and PGL then adjusted their relationship to accommodate a smaller company with more focused needs.

Whatever it Takes

PGL manages Crawford's logistics from the time Crawford places an order with an overseas manufacturer. The 3PL arranges transportation by ocean or air—most often to the U.S. West Coast—and receives the product in one of its warehouses. "We also do fulfillment once or twice each week—whatever frequency the customer requires," Sobhani says.

Along with shampoo, towels, and other amenities, PGL holds furniture and fixtures for Crawford until the hotel needs them for new construction or a renovation project. Installations typically proceed one floor at a time, and can go on for months. So on any given day, PGL might dispatch beds, sofas, chairs, TVs, carpeting, and other products for, say, 20 rooms. "Throughout the life of the project, we stage product in our warehouse and release it to the hotel site, based on the rules and timetable set by Crawford Company," Sobhani says.

Those projects require careful advance planning. "Crawford Company, the hotel owners, and the other parties involved conduct many all-hands-on-deck meetings, with PGL as the glue in the middle to make sure it all comes together," says Sobhani.

Planning usually starts long before the actual project launch. "I often work with PGL three to four months before it even sees a dime's worth of the business," says Brackensick.

To keep it up to date on the status of shipments and inventory, PGL gives Crawford access to data in its transportation management and warehouse management systems. Crawford also receives status updates via e-mail. In addition, PGL has access to Crawford's purchase order management system. "That way, PGL staff has current information on what Crawford Company is ordering, in what part of the world," Sobhani says.

Along with providing data access, staff at Crawford and PGL stay in touch via e-mail and text, and particularly by phone. "We talk constantly to PGL," Brackensick says.

PGL makes a special point of communicating proactively—for example, to advise Crawford and other customers on how to avoid shipping delays around holidays such as Ramadan and the Chinese New Year, says Sobhani.

In April 2014, Crawford received a message from a PGL employee warning of a possible dock strike that could affect West Coast ports as of July 1. It turned out that Crawford had no ocean freight expected to hit the West Coast at the time, but Brackensick was grateful for the warning.

He also appreciates that if PGL staff consider a proposed delivery date unrealistic, they speak up. "I may not want to hear it, but they give it to me straight," Brackensick says. "No sugar coating."

Pratt & Whitney and UPS Supply Chain Solutions: Purring Like a Well-tuned Engine

Pratt & Whitney (P&W) and UPS Supply Chain Solutions share a long history. In 2004, UPS took over distribution for the aircraft engine manufacturer's spare parts business, working from a facility in Atlanta. Today, UPS also serves P&W from facilities in West Palm Beach, Dallas, and Venlo, the Netherlands.

Processes that UPS performs for P&W include parts inspection, measurement, and kitting; and logistics support for manufacturing facilities. P&W's parent company, United Technologies Co., has recognized UPS with its Supplier Gold Award for superior performance every year since 2009.

That track record, plus a competitive bid, made UPS the leading choice to take on a new challenge for P&W: building and running a distribution facility in Londonderry, N.H. Scheduled to open in June 2015, the Northeast Logistics Center (NELC) will receive engine components, and ship them to five engine assembly and test centers in North America and Europe.

Another point in favor of UPS was its ability to meet an aggressive implementation schedule. "Awarding the business to UPS was a low-risk decision, based on our experience with them," says Earl Exum, P&W's director of global material and logistics.

Establishing a central distribution center for multiple engine assembly plants is part of a P&W strategy called Line Back Logistics. "We start with the engine assembly requirements, then build a logistics program around that to ensure timely distribution and provisioning of material," Exum says. With few exceptions, all components needed to assemble an engine will flow through the NELC, then out to the assembly plants.

Those items will come from P&W manufacturing sites and third-party suppliers. "We'll use automation to support our putaway and pick processes," says Stephen Hydrick, vice president of operations for aerospace and high tech at UPS Supply Chain Solutions. "We'll build kits based on the bills of materials that we receive via P&W's system. Then we'll segregate and ship those kits to the appropriate engine assembly centers."

Domestic shipments will travel via a dedicated UPS fleet. Shipments to the plants in Germany and Japan will move on commercial airlines or UPS-owned aircraft.

UPS's warehouse control system (WCS) will pull data from P&W's enterprise resource planning (ERP) system and WMS. Also, UPS will integrate with P&W's material management systems, allowing both companies to track and measure material flowing in and out of the NELC.

Staying on Track

To plan for the new center, and keep the implementation on schedule, Pratt & Whitney and UPS project teams have been holding daily meetings, and members of senior management have been talking at least once weekly. When the NELC goes live, P&W managers will be stationed on-site to work with their UPS counterparts. The companies will also hold a business review at least quarterly, to "examine the critical metrics we're using to validate that the business and the process are performing to expectations," Exum says.

Both P&W and UPS also monitor performance daily, using "control towers"—clusters of dedicated staff and information systems that monitor performance against established metrics. "It's the people who track the shipment- and order-level detail, ensuring that committed pickup and delivery times are hit," says Hydrick. If any sort of interruption occurs, the control tower sends an alert to the affected groups so they can make adjustments.

In P&W's control tower, each metric is assigned to a particular employee. "If it's an on-time delivery metric, for example, Pratt & Whitney has an owner to ensure that it's being fulfilled and, if it's not, to initiate appropriate action," Exum says. The partners will launch an investigation into the root cause of the problem, then correct it.