3PL Change Agents
Trying to plot a different course? Figuring out how to spread your wings? A third-party partner might offer…just the kind of help you need.
When you need to make a change, sometimes it takes a push from outside to steer you in the right direction.
That’s frequently the case with shippers and their supply chains. A company might need to upgrade its processes to meet new customer requirements. It might have to scale up its logistics operations to accommodate growth. It might need to move product faster without incurring unsustainable costs. And if it doesn’t have the knowledge or resources to implement those changes on its own, it calls in a third-party logistics (3PL) provider.
When a 3PL has deep experience, extensive market connections, and effective technology, it can foster change in ways that a shipper can’t when it operates solo.
“We probably couldn’t do that if we hadn’t been managing logistics for the past couple of decades, and we didn’t have deep vertical expertise in the community of suppliers that ultimately serve the same end customer,” says Frank McGuigan, president and chief operating officer at Transplace, a 3PL based in Frisco, Texas.
But Transplace works with more than 20,000 carriers and a host of technology providers, it operates powerful technology of its own, and it helps many shippers meet the same requirements for mutual customers, such as the instructions laid out in retail routing guides. “Our market and operations knowledge is probably greater than an individual shipper’s knowledge,” he says.
So, for example, when a major retailer changes a service performance metric from “must arrive by date” to “on time, in full,” Transplace manages that change for its customers who serve that retailer. “The customer asks us to help dissect that metric’s major components, and to lead the change conversation with the carrier community on how we’ll work together to achieve that new way of measuring,” McGuigan says.
The situation is similar when a retailer asks suppliers for better status updates. “Transplace works with freight visibility solutions developers MacroPoint, 10-4, and other companies to provide the technology that allows us to get a better, cleaner, more timely status update,” McGuigan says.
Those initiatives involve incremental change. In other situations, when a company engages Transplace for the first time, the 3PL plays the classic role of change management agent, talking with stakeholders throughout the shipper’s organization to explain the vision that’s driving the change.
“Nobody is better at articulating the vision than the people who are coming in to do it for the company,” McGuigan says. Top management introduces the vision, and then the 3PL fills in the details on how the change will occur and the benefits it will bring.
Owners Get Back to Growth
Pura Vida Bracelets, an e-commerce and business-to-business (B2B) company that sells bracelets, clothing, and accessories, called on a 3PL to help with changes it required to keep pace with rapid growth.
Griffin Thall and Paul Goodman started small when they first imported handmade bracelets from Costa Rica in 2010. While enjoying a post-college graduation trip, the two friends met a pair of bracelet artisans and liked their work so much, they commissioned 400 units to take back to California for sale.
Displayed in a bowl at a boutique, the string bracelets sold out in days. Based on that success, Thall and Goodman founded Pura Vida. Today, the company provides income to more than 150 artisans in Costa Rica.
For nearly three years, Pura Vida fulfilled all its orders from its headquarters in La Jolla, California. But the enterprise wasn’t so small anymore, and success brought growing pains. “Everyone here was unhappy because of the amount of work,” says Goodman. “Every day, we focused on how to ship products instead of how to market and get more orders.”
It took a 3PL to handle the growing volume of shipments, freeing Pura Vida’s owners to concentrate on promoting further growth.
In 2014, Pura Vida outsourced its fulfillment to Saddle Creek Logistics Services, based in Lakeland, Florida. When Saddle Creek took over the operation, Pura Vida was shipping about 200 orders a day, Goodman says.
“Pura Vida was able to handle that. But as they saw business starting to grow, especially during the holiday season, they just couldn’t do it anymore,” says Charles Puzder, director of fulfillment at Saddle Creek’s San Diego facility. “And they didn’t have space to stock inventory or for people to work.”
Saddle Creek now handles all of Pura Vida’s inventory management and order fulfillment in San Diego. The 3PL receives shipments of products from Costa Rica, puts them into inventory, processes e-commerce and B2B orders, and ships them to customers via DHL or FedEx. The team also assembles orders for a subscription service Pura Vida recently launched.
IT Links Up
Before Saddle Creek could take over, the 3PL and Pura Vida had to link their information technology systems so Saddle Creek could receive orders.
“We worked with Saddle Creek to barcode all our products and decide how they would pick, pack, and ship them,” Goodman says. “Then we packed up our facility and brought everything to the San Diego DC. It was a big job.”
Today, when Pura Vida receives an order, its e-commerce site transmits the data to its enterprise resource planning system, which takes the purchased items out of inventory. The process then pauses for one hour, giving the customer time to make a change or update the shipping address.
“Then the order is automatically transmitted to Saddle Creek,” Goodman says. “Saddle Creek’s system decrements their inventory, and they pick, pack, and ship the order.” Orders received before noon go out the same day.
Because a single string bracelet is too small to hold a label, Saddle Creek developed a method for affixing a barcode. “We ship them bundles of 100 bracelets,” Goodman says. “On the outside of that bag is the barcode and the SKU number.”
Pura Vida currently has about 1,200 SKUs. The difference between two multi-colored bracelets might be a matter of a single color, so keeping track of those SKUs when filling orders is no easy matter. But Saddle Creek’s accuracy rate for Pura Vida is 99.995 percent, Puzder says.
Along with the number of SKUs, fulfillment volume has grown tremendously since Pura Vida started working with Saddle Creek. “We average about 2,000 orders on a normal day,” says Puzder.
Demand for the subscription service is pushing those numbers up quickly. “We hit 25,000 orders in May 2017, just for the subscription service,” he says. “We’ve had to expand our labor pool and start a regular second shift.”
Volumes go even crazier during the holiday season. In 2015, Saddle Creek shipped about 40,000 orders for Pura Vida during the five days that started on Black Friday. “In 2016, we did nearly 100,000 orders,” Goodman says. “This year we could see close to 170,000 orders.”
As holiday volume increases each year, Pura Vida and Saddle Creek have learned the value of early preparation.
“In the past, we started talking to Pura Vida in September,” Puzder says. “Last year, we backed that up one month to August. This year, we began discussing Black Friday preparations in May.” With so many orders expected, the companies need more time to bring in product, shipping materials, and marketing inserts and to prepare and train additional workers.
The efficiencies that Saddle Creek brings to the partnership help Pura Vida provide better customer service. “It used to take up to three days to ship every order,” Goodman says. Now, most orders go out within 24 hours, and many on the same day. Shipping accuracy has also improved, thanks to the addition of barcodes.
Moreover, outsourcing leaves Pura Vida free to concentrate on mission-critical activities. “It has allowed us to focus on marketing and growing the business, rather than growing our fulfillment and warehouse logistics,” Goodman says.
Like Pura Vida, European Wax Center (EWC) in Hallandale Beach, Florida, has enjoyed the sort of rapid success that’s hard to keep up with on your own. But unlike Pura Vida, EWC is a brick-and-mortar operation—a national chain of salons where customers enjoy skin care treatments. As EWC rapidly adds franchise operators and customers, a 3PL provides the logistics power to put beauty products into their hands.
EWC was founded in 2004 and started operating franchises in 2008. Today, it operates more than 600 centers, with another 200 franchise locations under development. “For the past several years, EWC has grown at more than 25 percent, year over year, and has averaged more than 80 store openings annually,” says Jon Biggert, the company’s vice president of supply chain.
Customers who frequent EWC’s centers may also purchase products for at-home grooming and skin care.
In 2015, EWC contracted with XPO Logistics of Greenwich, Connecticut, to manage the distribution of product to its salons. XPO first started the operation at two DCs, a multi-tenant facility in Portland, Tennessee, and a single-customer facility in Sparks, Nevada. In May 2017, XPO added a 40,000-square-foot facility for EWC in Camp Hill, Pennsylvania, a move that cut transit times to wax centers in the Northeast and Mid Atlantic by one day, reducing the need for safety stock at these locations.
EWC migrated to XPO from another 3PL because it wanted additional services, including freight audit, parcel consolidation, promotional activity execution, and an ordering portal for franchisees. XPO impressed company officials with its focus and investment on technology, Biggert says.
Each of the three XPO DCs performs receiving, storage, picking, packing, kitting, and shipping. “XPO also provides a dedicated transportation team that negotiates our carrier agreements, audits fright bills, and investigates any delivery exceptions,” Biggert says.
XPO helps to strengthen EWC in several important areas. For example, the custom-designed order management portal promotes brand consistency.
“We felt that XPO’s platform would provide Amazon-like simplicity when franchisees placed their product orders, while maintaining the elegance and beauty of our new Strut 365 product portfolio,” Biggert says. “While the freight and audit services provide EWC with a cost control instrument, the parcel consolidation allows us to deliver savings to our franchise network.”
Also crucial is XPO’s ability to build product kits to support various promotional campaigns.
XPO’s scalable systems support EWC’s rapid growth by helping the company manage its business in real time. “XPO’s order management system and reporting module provide the necessary transparency into DC operations to properly manage inventory and improve distribution of our products to our franchise network,” Biggert says.
Fit, Frugal, Fast
For Core Health & Fitness, a close partnership with a 3PL opened the way to a new transportation option that has helped the company win new business.
Based in Vancouver, Washington, Core Health & Fitness produces four well-known brands of exercise equipment: Star Trac, StairMaster, Nautilus, and Schwinn. Founder Michael Bruno acquired those brands over several years and then, in 2015, merged them into a company that provides equipment for all modes of exercise commonly found in a commercial gym, including cardio, high intensity, strength training, and group cycling.
Core Health & Fitness makes its products in a 1-million-square foot facility in Xiamen, China, and a smaller plant in Independence, Virginia. It ships product to distributors and fitness clubs around the world from distribution centers in China, the Netherlands, and the U.S. east and west coasts. Most of the freight that moves from a factory on one continent to a DC on another travels by ship. But customer needs don’t always mesh with the pace of ocean travel.
“Our lead times coming out of Asia run 95 to 105 days,” says Jon Little, vice president of operations at Core Health & Fitness. Unfortunately, health club owners who place orders often require a much faster turnaround, with delivery in as few as 30 days.
“We combat that by making sure we carry safety stock in all our distribution locations,” he says. But when a customer needs a product made to order—perhaps with the gym’s logo on the equipment—that safety stock doesn’t fill the need. In the past, the only other alternative was to ship the equipment via air, which is an extremely expensive way to move bulky exercise equipment.
This was the dilemma that Core Health & Fitness faced not long ago, when the company teamed with a distributor to bid on a contract to supply made-to-order equipment for a large chain of health clubs in Denmark.
“Ocean transportation from Xiamen to Rotterdam takes about six weeks,” says Little. “We needed the equipment there in three.” Air transportation for this order probably would have required two planes, driving the cost sky high.
As the logistics team weighed the alternatives, Little recalled a conversation with the company’s account representative at UPS. Core Health & Fitness first worked with UPS in 2011, when the logistics company’s finance arm, UPS Capital, provided a way to secure a loan with collateral that included product in transit and product in inventory outside the United States. The relationship has since expanded to include several other logistics services.
“UPS is a strategic partner for us,” says Little. The two companies get together every quarter to discuss the state of their relationship, evaluate performance, and look for continuous improvement opportunities.
At a recent meeting, the account rep had mentioned a new UPS service called China-Europe Rail. UPS started offering this intermodal option in 2013, taking advantage of cross-continental rail service that the Chinese government introduced in 2011.
“We started out with full containerload service from China to Europe,” says Michael White, international marketing manager at Atlanta-based UPS. “Then in 2014 and 2015, we evolved the service to go in both directions and also to support less-than-containerload shipments.”
UPS’s China-Europe Rail service currently connects six rail stations in China with two in Germany and two in Poland. “From those rail stations, we connect into multiple trucking networks to facilitate the pickup and final delivery of goods,” White says.
Finding Middle Ground
The transit from one end to the other takes about half as long as ocean transportation. “And we’ve seen this service represent up to 65-percent savings versus air,” White says. “It’s a nice middle ground for customers.”
With this service in mind, Little booked an intermodal trip from China to Denmark. “We made the date,” he says. “And we won the account.”
Given the cost per unit to move its product, Core Health & Fitness won’t use China-Europe Rail to replace ocean for most of its shipments. But the new option gives the company a little more leverage in competitive negotiations.
“We now have three options versus two: air freight, which is exorbitantly expensive, ocean freight, which is slow and cheap, and now rail, which is right in the middle,” Little says.
Whether your products are made to tone the muscles, smooth the skin, adorn the wrist, or attend to any other need, the time may come when you want to make a change in your supply chain. In many cases a 3PL can provide the right systems, processes, and expertise to make it a change for the better.