Going Global: 3PL or Solo?
As companies expand their global reach, they are increasingly leveraging the infrastructure, resources, networks and expertise of third-party logistics providers to enhance capacity while minimizing risk.
Going global is highly complex.
“In particular, globalization involves these considerations: Market expansion, new sources of supply, advanced security processes, continuous improvement initiatives, and redesigning logistics and supply chains for greater efficiency and effectiveness,” write the authors of Third-Party Logistics: Results and Findings of the 2004 Ninth Annual Study, sponsored by Capgemini, Georgia Institute of Technology, and FedEx Supply Chain Services.
Take System Design Advantage, a comprehensive service logistics provider that owns and manages service parts across a global network. Based in Bloomington, Minn., SDA is expanding the markets of its more traditional parts and repair business by implementing a new business model.
DA’s new operation is up and running in Canada, with inventory in 10 strategic stocking locations (SSLs) throughout the country. The company plans expansion next to Europe, with five SSLs slated for Spain, 10 for France, and six for Great Britain. These SSLs will be replenished from a European distribution center, to be located in England.
Rather than invest in its own network of stocking locations and regional distribution centers around the world, SDA built its business model on the worldwide network of New York-based third-party provider Choice Logistics. By leveraging Choice’s 240 strategic stocking locations and regional hubs, SDA is able to open up new markets quickly and with minimum investment.
SDA is also taking advantage of Choice’s area expertise and networks, notes Jim Sahli, president, founder, and CEO of SDA. Sahli is leveraging the regional and local knowledge and relationships of Choice and its partners to develop SDA’s business model for Asia. This real-world knowledge is crucial for companies doing business internationally, as different regions of the world may require unique supply chain strategies.
“Is there a true global provider?” asks Gary R. Allen, North American Distribution Sector Leader, Capgemini U.S. LLC, Detroit. “There are global 3PLs, but is there a global provider covering every single part of the world? The answer is no.”
A number of “larger, more capable 3PLs, however, have the ability to manage other partners in a lead logistics provider or 4PL environment. They can partner with others to cover the reaches of the world,” he says.
Companies that are looking for a 3PL to help expand their global reach should look for providers with top technical capabilities plus the ability to integrate and offer advanced technological solutions, Allen says.
In addition, look to the provider’s organization and staffing. “Does the 3PL have a global account structure in place to support customers’ global requirements?” he asks, noting providers organized that way are in the minority. “Most of the larger 3PLs are trying to build that capability, especially the asset-based companies or integrators.”
While they’re working to build the global account management structure, many are still segmented by geographic region. Establishing the global account structure requires an investment in people and time, as well as the development of a different skill set, according to Allen.
Another challenge to becoming a globally-focused provider is the fact that a number of large 3PLs grew through acquisition, “building capability around regional or sector constructs,” he says. “It’s a complex process for 3PLs to try to leverage a common structure across the globe.”
An additional hurdle for 3PLs as they go truly global “is to standardize their footprint as much as possible,” Allen says. Providers’ operations and technology often vary by region. A truly global 3PL will need to have standard systems, execute consistently, and manage or improve their profit.
While a truly global 3PL may not yet exist, many companies today are finding great success working with third-party providers to expand their global reach. Here’s a look at what three companies are doing.
In a move to take broader control of its supply chain while increasing price margins, price competitiveness, and inventory visibility, Office Depot established a private brand organization. To support the development of the private brand, the company invested in executive leadership and resources.
A core part of the program is Office Depot’s move to become more of a direct importer, says Dennis Cohen, Office Depot’s director of private brand operations, based in Delray Beach, Fla.
While Office Depot uses a combination of domestic and internal sourcing for its private brand products, most of the product is now sourced in Asia. But it hasn’t always been that way.
Until about four years ago, Office Depot was “highly dependent on U.S. vendors that either produced their product domestically or acted as a middleman to offshore manufacturing facilities,” Cohen says.
While Office Depot did a small amount of direct importing, and was familiar with the model, “the challenge was to scale the business and become efficient at it, so we would be able to deal more on a global basis,” he says.
Office Depot tapped third-party provider Kuehne + Nagel to support its global procurement program. Because the retailer is skilled at managing 3PLs in other parts of its business, “when we were getting into the international business, there was no debate as to whether to bring it in-house or outsource the work. We knew that we didn’t have the expertise we needed in-house, but thought we had the skill to find the right partner” to support the new business model, Cohen says.
Office Depot searched the market for a 3PL, issuing a detailed Request for Proposal in 2001 before selecting Kuehne + Nagel, which had served as Office Depot’s freight forwarder.
“We’d done business with KN, and felt comfortable turning over our global sourcing operation to them,” says Paula Messer, manager of import logistics for Office Depot.
Kuehne + Nagel today is responsible for the company’s consolidation/ deconsolidation, transportation, customs brokerage, port management, tracking, and customs consultation.
The relationship is paying off in multiple ways, including cost. “We monitor closely the cost of using our third-party providers,” Cohen says. “We continually weigh what we’re paying them vs. what we’d have to invest in terms of headcount, systems, and other infrastructure.”
Office Depot relies on Kuehne + Nagel’s in-country expertise and global reach. Messer depends on dedicated teams working on the Office Depot account locally to get the work done. “It means I don’t have to stay up until midnight solving problems in Asia,” she says.
Kuehne + Nagel’s on-the-ground knowledge pays off for Office Depot. “We continually change countries of origin,” Cohen says. “We need quick, efficient estimates and analysis to find out whether we should do business in a different country.” Once those decisions are made, Office Depot relies on its provider for flawless execution.
The relationship between the two companies is that of true partners. “We challenge each other frequently, always questioning,” Cohen says. “We have the same goal in mind: adding value to the customer. The relationship is built on an understanding that our consumer is the true customer, and that satisfying that consumer will drive success for both Office Depot and Kuehne + Nagel.”
The retailer, which currently sells office products in 21 countries outside of North America, is expanding its retail operation internationally.
“Global expansion is a bright spot for us,” Cohen notes. “As an offshoot of that, as we need to compete in the global marketplace, we’ll also continue our direct import expansion.”
Delivering global service
Avaya Inc. designs, builds, and manages communications networks for more than one million businesses worldwide. With about 500,000 maintenance contracts on a worldwide basis, Avaya has more than 7,000 services specialists around the world, augmented by 24 network operations centers, 13 technical support centers, and about 2,500 authorized or certified partners worldwide.
“We have a large, dispersed network, particularly in Central and Latin America, Europe, and Asia-Pacific,” explains Jeff Gardner, Avaya’s director of aftermarket operations.
Avaya handled parts logistics and supply chain management internally until about three and a half years ago. “Everything from repair, manufacturing, stocking, and distribution is now outsourced,” Gardner says.
While Avaya continues to own the planning strategy and process, the company works with several 3PLs to inventory, pick, pack, and ship product to service technicians or business partners from stocking locations or a regionalized distribution center. 3PLs have a direct feed into Avaya’s parts-planning tool, which provides visibility of parts availability around the world.
Working with providers “allows us to move into regions without making major capital investments,” Gardner notes.
For example, Avaya has recently leveraged its providers’ infrastructure and resources to move into Russia, Eastern Europe, Peru, Puerto Rico, Jamaica, Venezuela, Costa Rica, Chile, and Panama.
“I would love to have a single logistics provider who can do everything including central and forward stocking,” Gardner says.
But, so far at least, no single provider has had the scope or in-place network that Avaya needs to service its customers. The company uses Choice Logistics in the United States; DHL in Europe, Central America, and Latin America; and UPS Supply Chain Solutions in Canada and the Asia-Pacific region.
Welch Allyn is a leading provider of medical diagnostic equipment and patient monitoring systems. Based in Skaneateles, N.Y., the company exports products and equipment to distributors and hospitals around the globe.
While Welch Allyn has distributed throughout Europe since the 1970s, its approach has evolved over the years. In the beginning, all orders were processed through the company’s New York operation. Components were brought into New York from suppliers in North America and Germany, then were assembled and shipped to the customer. Customers had to pay in U.S. dollars and make their own arrangements to clear goods through customs.
Welch Allyn re- placed this slow, time-consuming process in 1987, when it established Welch Allyn UK. A similar operation was set up in Italy in 1996.
Around 2000, the company elected to centralize and streamline logistics operations by establishing a logistics hub in Europe. This hub was designed to provide access to the rest of the European countries, provide faster turnaround on orders, and enhance customer service. Rather than perform the job in-house, Welch Allyn outsourced the development and management of the process to a third-party provider.
“We design, manufacture, and market medical diagnostic and therapeutic devices,” explains Jon Soderberg, corporate director of global logistics and sourcing for Welch Allyn. “Logistics is not core to our business. We determined that if we were going to grow headcount in Europe, we weren’t going to grow it in a warehouse, but instead would deploy in terms of R&D or sales and marketing.”
Building on an established relationship with UPS, Welch Allyn tapped UPS SCS to set up a logistics hub at its European distribution center in Eindhoven, Netherlands. From there, UPS SCS manages deliveries from suppliers, controls stock inventory, and distributes product to customers, managing customs clearance procedures along the way.
“We place a lot of trust in UPS SCS,” Soderberg says. “They are the last people to touch our product before it goes to our customer.”
While Welch Allyn relies on UPS SCS for inbound and outbound operations, the company owns and controls its inventory. In addition, as a medical device company operating in a highly regulated environment, “there are certain things we cannot outsource, such as the configuration of our monitoring or therapeutic devices.” That may change, as 3PLs earn certification and licenses to perform such work.
Welch Allyn is continuing its global efforts, with a distribution center planned for Shanghai. “China has unique requirements for importing and exporting medical products into the country,” Soderberg says.
Who will be managing the facility is yet to be determined. “While there’s appeal to using the same third-party logistics provider globally,” he notes, “3PLs have unique strengths and weaknesses, which can vary by geographic region.”
“The better we understand our own requirements and growth goals,” Soderberg says, “the better we can partner with a 3PL to meet our customers’ needs.”