Case Experience

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Case Experience

• Perception
• The essay
• Prudent Assumptions
• Where's the Beef
• High Impact Writing

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(No Transcript)
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Warehousing/ Outsourcing
B. Mktg. 880Spring 1999
BUD LA LONDE
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Warehousing/ Outsourcing

• Some Strategic Issues
• Warehouse Operations 101
• Outsourcing Overview

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Some Strategic Issues

• Inventory Deployment
• Changing Functionality of
• Technology Integration

warehouse
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ALTERNATIVES FOR INVENTORY DEPLOYMENT
Firm Directed
Third Party
Inventory Deployment Options
Flow Through Cross-Docking
Other Strategies
Floating Inventory
Postponement
Consignment
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Three Example Strategies of Product Flow
Fast to market Waves of fresh
Low cost
assortments
Manufacturer cost
Trade off some cost for speed and
flexibility Frequently use highest
cost transportation mode (airfreight) to gain
speed Look for speed Small, fast, and
expensive store deliveries Full service
Live with longer lead times in order to drive
lower purchase cost Balance speed and cost
using low cost transportation mode to small
number of regional DCs Balance speed and cost
in handling new product waves More cost
effective small store deliveries Full service
Drive lowest purchase cost and off-load as
much work as possible to manufacturers Maximize
use of lowest cost transportation modes by
establishing many local DCs close to
stores Operate DCs to minimize work done in
stores Most cost effective full truckload
delivery to stores Self service
Transportation from manufacturer to distribution
center (DC) Distribution center cost Transpor
tation from distribution center to store Store
operation
Source McKinsey Quarterly 1996 Number 2
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Assuming 100 is Completely Automated, Estimate
your Firms Level of Warehouse Automation
(median)
Source 1998 OSU Career Patterns
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PERCENTAGE OF SHIPMENTS WHICH ARE POOLED PRIOR TO
DELIVERY TO THE CUSTOMER - ALL INDUSTRIES (N
196)
Source OSU Career Patterns, 1996
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PERCENTAGE OF OUTBOUND FREIGHT THAT WILL FLOW
DIRECTLY FROM PLANT TO CUSTOMER - ALL INDUSTRIES
(N 196)
Source OSU Career Patterns, 1996
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Warehouse Operations 101

• What are the warehouse functions?
• What's the difference between a warehouse/ DC/
  Cross Dock?
• How do you use technology in the warehouse/ WMS?

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Key Factors Affecting the D.C.

• Cycle compression
• Functional shiftability
• Customer driven requirements
• Technology

812
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Typical Processes - Warehouses
Storage is the primary differentiator for the
processes in warehouses, and many of the
activities encountered revolve around putting
products into storage and taking them out again,
driven by customer orders Controls are
typically applied on both inbound receipts and
outbound orders
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Company-Operated Warehouse Activities
Receiving Area
Bulk Storage Area
Order PickStorage Area
Office
Packaging Area
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Staging Area
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Shipping Docks
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Source Improving Quality and Productivity in
the Logistics Process, Figure B-1.
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Cost Structure Implications
The different cost structures for these operation
types mean that warehouses place more emphasis on
space and equipment investments, while
distribution centers place much more emphasis on
human resource effectiveness
Warehouse
Distribution Center
Labor
Facilities
Equipment
Miscellaneous
Source Andersen Consulting
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Cross Dock
The process of cross dock has received a great
deal of attention recently Cross
docking is used in order to take advantage of
transportation opportunities
Source Andersen Consulting
Source Andersen Consulting
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Outbound Consolidation
Customer
Customer
Customer
Customer
Customer
Crossdocking
Customer
Customer
Customer
Customer
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Distribution center
Customer
Customer
Customer
Customer
1
5
4
3
2
Customer
Plant
170
Source Logistics Information Systems
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Outsourcing Overview

• Why outsource?
• What are your options?
• What are future directions

for outsourcing?
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Definition
Outsourcing is the contracting of the management
operational control of logistics functions to
unrelated third party companies.
Companies providing contractual Logistics
services are referred to as Third Party
Logistics Providers or 3PL companies.
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The Market for Logistics Outsourcing Has and
Will Grow Rapidly-- U.S. Market for Third Party
Logistics --
Source Robert Delaney, Cass Logistics
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Activities that are not Core Competencies become
Candidates for Outsourcing

• Outsource if
• - Equal or higher performing providers are or
  will be available
• - Risks can be managed
• - Infrastructure is not available
• Insource continually improve performance if
• - Current performance is high
• - Good providers are unavailable
• - Outsourcing risks cannot be managed
• - Infrastructure is available

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Outsourced Services Current vs. Future
Future
Current

• Outbound Transportation 75 9
• Freight Bill Auditing/ Payment 68 11
• Warehousing 68 15
• Inbound Transportation 61 17
• Freight Consolidation/ Distribution 50 23
• Cross-Docking 38 11
• Selected Manufacturing Activities 33 9
• Product Marketing/ Labeling/ Packaging 29
  14
• Product Returns Repairs 22 10
• Traffic Management/ Fleet Operations
  19 16
• Information Technology 16 11
• Product Assembly / Installation 14 10
• Inventory Management 12 11
• Order Fulfillment 8 10
• Customer Service 6 2
• Order Entry/ Order Processing 4 8

Source Ut Excel/ Ernest Young, 1998
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Customer Evaluation of Outsourcing
Four out of five companies that use third-party
logistics providers are satisfied with the third
parties performance.
Source 1997 Third Party Logistics Key
Market/Key Customer Study, University of
Tennessees Center for Logistics Research and
Exel Logistics
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Players Have Entered (and are continuing to
enter) the Logistics Outsourcing Market from many
Directions

• Non-Traditional
• Andersen Consulting
• CSC
• EDS / A.T. Kearney
• GE Capital
• IBM

• Warehousing
• DSC
• Exel
• Tibbet Britten
• USCO

• Miscellaneous Logistics Services
• Circle
• C.H. Robinson
• Danzas
• Fritz
• Hub Group
• Kuehne Nagel
• Schenker

• Trucking
• Builders Transport
• Burnham
• CTI
• Frans Maas
• J.B. Hunt
• Logix
• Penske Logistics
• (Leaseway)
• Pittsburgh Logistics
• Ryder Integrated
• Logistics
• Schneider

Logistics Outsourcing

• Industry
• Caterpillar Logistics
• Fluor Daniel
• GATX
• W.W. Grainger

• Ocean Carriers
• APL
• Nedlloyd

• Logistics Management
• Menlo
• TNT Logistics

• Air Freight
• DHL
• FedEx LECC / Caliber
• UPS - WWL

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Many Firms Use a Multiple Source Selection
Criteria

• Technology, quality, expertise, leverage - Is
  this function or business their core competency?
• Responsiveness, delivery, cost, price - Can this
  firm improve our performance (e.g., customer
  support /or our bottom lie?
• Reputation, references, track record - Is this
  firm already expertly performing this function
  for other firms?
• Balance sheet, access to capital, resources -
  Does this firm have the wherewithal drive to
  invest in itself the partnership over the long
  term?
• Corporate culture fit, prospects for partnership,
  commitment flexibility - Can we work
  comfortably smoothly with this firm to achieve
  our joint strategic objectives?

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What to Consider a Checklist
A contract logistics provider takes on strategic
as well as functional responsibility, therefore,
the task of choosing the right provider demands
particular care. These are some criteria which
should be used in evaluating contract logistics
providers

• Financial Strength
• - Total annual revenues
• - Annual revenues in contract
• - Logistics services
• - Total assets
• - Assets employed contract
• logistics services
• - Financial rating
• Business experience
• - Years providing contract logistic
• services
• - Depth of management experience
• - Strength of operating management
• - Quality of workforce
• - Labor/management relations

• - Leading accounts
• - Trends in business development
• - Accounts lost
• Support services
• - Can human resources be phased
• in out?
• - Is the insurance program
• adequate?
• - Does the safety program support
• the insurance strategy?
• - Are information systems robust?
• - Are communications state of the
• art?
• Business arrangements
• - Open book cost disclosure

Source Robert V. Delaney, Executive Vice
President of Cass Logistics, 1996.
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Successful Contracts

• Focus on performance and value
• - employ specific measures
• - specify performance objectives based on the
  measure (the what - not the how) value
• Emphasize flexibility
• - written cooperative to balance risk
• - contain contract adjustment mechanisms
• - often provide rewards penalties tied to
  performance
• - incentive contracts
• Are simple contractual relationships for
  long-term involvement
• - simply contracts
• - active process involvement by both parties

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Drivers for Change

• Asset Based vs. Non-Asset Based
• Technology/ Information Integration
• Inventory Velocity Goals

Strategies
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Quality is when your customers comeback
and your products dont