m
S everal years ago, a leading automotive
supplier decided to close its network of
I 5 distribution centers and turn over its
order fulfillment activities to a third-party logis-
tics provider (3PE). On paper, the strategy made
sense. Manulactudng, and not distribution, was
the supplier's core competency.
Unfortunately, the relationship fell apart faster
than a celebrity marriage, with hoth sides playing
the blame game.
What went wrong? "The parts manufacturer
thought they could just hand-off their business
and forget about it,'" says John Sidddl, principal
with TranSystems | ESYNG (419-842-2210, www.
esync.com). "TTiey never took the time to properly
define their requirements or establish metrics to
determine the success of the relationship."
mmh.com
Ihe result was missed deadlines, project over-
runs and poor customer service. The lesson:
Turning over your order fulfillment activities
doesn't mean you wash your hands of the man-
agement of those activities. A manager may no
longer worry about whether the lift trucks are in
good working order or if enough workers showed
up that morning to get product out the door. But
the management responsibilities don't go away
Just because someone else is running tbe show.
To outsource or not to outsource
in tact, the best 3PL relationships are a partner-
ship, according to Bruce Mantz, vice president of
operations for ADS (864-902-0540, www.adslp.
com), a 3PE with a number of large retail (www,
mmh.com/articIe/CA6497742.htmI} clients. "We
MODERN MATERIALS HANDLING / M A R C H 2 0 0 8 5 9
MODERN BEST PRACTICES

Whether your operation requires pallet storage, piece picking or value

added services, the relationship you establish with your provider is the
most important component to a successful 3PL strategy.

want to treat your business as if its our
own," says Manl?. "Each of our cusloin-
ers has an account manager who works
with the customers management and
reports to our directors, and most of
our customers assign a liaison to work
directly with us."
The first step in building that kind
of partnership is to decide at the cor-
porate level whether a 3PL is right for
your company. That often comes down
to a question of whether distribution is
a core competency. "Companies that
outsource usually fall into two buckets,"
says Siddell. "In one bucket you have
manufacturers who just don't get dis-
tribution. In the other bucket, you have
companies with a new business unit,
'Hiey don't have time to build out a dis-
tribution network, so they outsource to a
3PL as an interim step."

SMALL INVESTMENT

Peter Minuft knew o deal when he saw one.
Although on a somewhat smaller scale, Aigner
Label Holders offer tfie same opportunity. These
little gems pay you back in less than 12 months and
contribute to your bottom line ever after
The oost of materials is 50% less than self-adhesive
labels, And there's ho time-consuming scraping to
renTove them, jusf slip in a re|:±icement insert in
seconds. They apply wtth self-adhesive, magnetic
or hook-and-loop backings. Plus, labels are protect-
ed by clear, matte plastic that aliovi^ accurate
reading and scanning. Aigner labels can be
AIGNER
imprinted irvhouse with a laser or ink-jet pilnter for
INDEX
professional iooking signage at virtually no cost, Aigner Index Inc.
Fa information, a full-line catalog or the dealer 216 MocArthut Avenue
New Windsor, NY 12553
nearest you, contact us today. 800.242.3919 Fax: 845,562.2638
holde>:@fror^flernet.net
www,holdex,com
MODERN BEST PRACTICES

Other companies turn to a 3PL when
they are entering a new vertical indus-
try or region. "A 3PL with experience
can hring the hest practices, capabilities
and technology specific to that industry,"
says Tony Zasimovich, vice president of
international services for APL Logistics
(510--272-800(), www.apllogistics.com).
Those different approaches explain
why some relationships last only a few
months, while others go on for years.
Once a decision to outsource has heen
made, "the 3PL process has to he embraced
hy all elements of a company," says Mantz.
"They have to get the manufacturing team
on hoard, along with the sales organization
and the executive suite."
Establishing metrics
With management on hoard, the next
step to huilding a 3PL relationship is
to carefully document your processes
and to benchmark your present internal
costs. The idea is to provide the 3PL with
a history of your performance, including
the metrics you're interested in track-
ing and improving. "You're not hiring
a 3PL to get worse, you're hiring them
to get better," says Ron Cain, president
and CEO for TMSi Logistics (603-422-
0777, www.tmsilog.com). "To do that,
we have to understand your operation."
The prohlem is that too often com-
panies looking to outsource are doing
so because they don't know their costs
heeause distrihution is treated like a step-
child. "In those cases, we'll put an engi-
neer in their operation to establish a hase-
line and educate the customer on how
theyVe currently performing," says Cain.
Once those first steps arc completed,
the next step is to create a functional spec-
ification document that outlines what is
expected from hoth parties, "That details
what kind of warehouse management sys-
tem will be in place, what type of materi-
als handling equipment and systems will
be used, what type of inventory levels will
be maintained and what type of service
levels will be provided," says Mantz. "U
we've all done our work up front preparing
that document, we'll limit the surprises."
What's it worth to you?
3PLs are not non-profits-—they charge
for their services. Several different pricing
models are common in today's 3PL world.
The first is transactional pricing, or
traditional unit pricing. The 3PL and
the customer agree on a flat fee for each
service that's going to he performed. In a
warehouse or distribution center, those
services will include all of the touch-
points in an operation, from receiving
and putting away inventory to loading
the truck to ship the product out the
door. Labor-intensive operations, like
reverse logistics, might use a variation of
transaction-based hilling, with a charge
by the piece, case or pallet, which incor-
porates all of the ser\'ices.
A second model is activity-based

STORAGE SPACE PROBLEMS

Is a shortage of storage space a problem in your facility? Do you:
» Store loads at off site locations or outside in containers or trailers?
• Temporarily store loads in stacking aisles? i
~ Have congested docks and passageways? v.
Constantly move loads around to make room for more? :(
- Have storage aisles 9' (2.7M) or larger? '
, • Have too many underused specialized forklifts?
• Need to add more space for consolidation or increased storage needs?
• Need more manufacturing space?
If the answer to any of the above is YES, Landoil can solve your space problem
^, with its Proven Narrow Aisle Forklift Solutions. Landolt's Bendi and Drexel
"^ >ery narrow aisle forklifts store loads from aisles as narrow as 56" (1.4MI to lift
heights of 433" (11M). Electric, LP Gas and Diesel models are available witb tbe
latest technology in controls and fuel systems. Since 1993 Landoll's Narrow Aisle
Solutions bave paid for tbemselves with space savings and increased productivity.
Look to tbe Proven Landell Solution to solve your space problems.
For more information call us at 800-428-5655,
e-mail mhpsales@landoll.com See Us At NA 08
or visit our web site at www.landoll.com/mbp/. Booth 2600
^ ^ ^ ^ ^ ^ ^ _ Very narrow 64" (1.6M)
Aisles vs wide
^=s=s=s=;s=:=s= 8O'(24M) ^ ^ = ^ ^ ^ = : = ^ 144" 13.7M) Aisles =
s = ^ ^ ^ ^ ^ 12 rows vs 8 rows =
507o More Storage

62 MARCH 2008 / MODERN MATERIALS H A N D L I N G mmh.com

MODERN BEST PRACTICES

Working witb a 3PL still means

carefully documenting processes,
benchmarking costs and establishing
metrics tc measure success.

good bandle on tbeir current costs.

costing, Usually the customer agrees to
pay the 3PL a flat fee to cover the fixed
costs of running a dedicated facility. In
addition to the fixed costs, the customer
also agrees to a second fee that covers
the variable costs, like labor, fuel, pack-
aging supplies atid lift trucks.
Tbe third model is cost-plus pricing.
In this model, the customer pays tbe 3PL
a fee based on the actual costs for the ser-
vices proxided, plus an agreed upon profit
margin. 3PLs may require cost-plus pric-
ing with customers wbo can't predict tbe
volume of business or wbo don't bave a
Gain-sbaring is tbe final example. In
tbis model, tbe 3PL puts tbeir Fee on tbe
line by agreeing to be paid based on tbe
improvements tbey can deliver in key
areas tbat are important to the customer.
Gain-sharing works best in long-term rela-
tionships where the goal is to provide sig-
nificant cost and service improvements.
For large users of 3PL services, it's
not uncommon to use a combination of
all four models, says TMSi's Gain.
You stiU have to manage
Many novices to tbe 3PL industry tbink
tbey can turn tbeir logistics over to some-
one else, and forget about tbe problem.

Universal Controller
... for 24V Conveyor Solutions

•Sss

Download our Primer at

conveying solution wJtii www-holjefon.com/pfimef
our new, universal
Micforoller Driver
Module.

Experience easier management of electronic and mechanical braking with enhanced controls for all
of your powered roller applications. Master your material handling with smarter solutions that are
built upon an unparalleled level of service quality and application support.
For more information,
visit Holjeron online
at www.holjeron.com. Holieron • smorl. moves,
9524 SW Tualatin-Sherwood Road
Tualatin, OR 97062 • 503,582,0820 • Fax 503.582,9166
A Matlhawi Innrnalional Company

64 MA«CH 2008 / MODERN MATERIALS H A N D L I N G mmh.com

MODERN BEST PRACTICES

The truth is that just because you're
now outsourcing warehousing or order
fulfillment to someone else doesn't mean
that a warehouse, materials handling or
logistics professionals job goes away. It
merely changes.
How thai happens varies from com-
pany to company.
Often it includes a logistics man-
ager who works directly with the 3PL.
"In the best arrangements, there is a
primary contact who we talk to every
day. and about 75% of our customers
install someone on site or very close
to the facility," says Cain. "Their main
role is to be the coordinator between us
and their purchasing and transportation
departments as well as senior manage-
ment." Whether that person is on site
or not, it's critical to have someone rep-
resenting your company that a 3PL ean
access on a daily basis,
In addition to managing day-to-day
operations, the best relationships also
Modern's Top 20 3PLs •'During quarterly meetings, we look at
For a closer look at North America's what weVe just done and discuss what
largest third-party logistics provid- adjustments might need to be made."
ers, go to www.mmh.com/article/ Finally, as with any other business,
CA6497741.html SPLs are expected to deliver continuous
improvements and year-over-year sav-
include inlormatinn sharing in a struc- ings. At an annual review, this year's cost
tured way. "You have to be willing to savings set the baseline on which the
continually update goals, share strategy next year will be judged.
and review metrics to make sure you're "I'm working with a large food manu-
all still on the same page," says APL facturer now that outsources a significant
Logistics' Zasimovieh. portion ol their logistics," says Siddell.
Typically, that involves weekly, monthly "Ever\' year, they go back to their .-^PLs
and quarterly reviews. In the short term, and look for ways to do more with less.'
those sessions are an opportunity to dis- At the end of the day, when a 3PL
cuss any changes in business or require- relationship works best, a manufacturer
ments, or to address any immediate prob- or retailer concentrates on what they do
lems. Other meetings are used to review best, and allows the 3PL to focus on the
metrics and compare how the SPL is per- services where it excels.
forming compared to the contract. "When my team is in synch with my
"During monthly meetings, our customers' requirements, we can deliver
senior management meets with the cus- real value," says ADS's Mantz. "That's
tomer's senior management to set and why we've had some customers with us
review short-term objectives," says Cain. for 12 years," ©

Air Quality, Does it Matter?

Big Fans are the Clear Cool Move

PLEASE JOIN us AT
WESTEC, BOOTH 4433

&
NA200B BOOTH 2603

» Highest Air Flow, up to 376,804 CFM

» Has Variable Speed Control with Forward & Reverse Efficiency

» Run in Reverse to Exhaust Heat and Fumes

» Move and Mix Air Corner to Corner to Improve lAQ

» Air Flow Promotes a Safer More Productive Work Space

^ a n Sizes are 6 to 24 Feet in Diameter

Fans Operate for Pennies an Hour

MacroAir
T £ C H N O L O G 1 E:S
866 668 3247 MacroAir has AMCA Certified Products

www.macro-air.com