Logistics 101 - RFI / RFP / Gets You ROI

Last post for January and Logistics 101 is all but done for the year…

So, you didn’t get what you wanted when you hired the last third-party logistics firm…hey, don't automatically blame the 3PL. It may be a matter of mixed signals, miscommunication, or lack of a collaborative atmosphere. The key to a successful relationship starts with a clear RFP and excellent communications between your company and the 3PL. Here are 10 tips to help you get exactly what you need from your 3PL relationship.

Send an RFI (Request for Information) before an RFP (Request for Proposal). The RFI will help you collect better data, define your true needs, and involve your 3PL candidates in developing a solution. It can also help you create a "short list" of providers who you think should receive your RFP.

Be open and honest about issues that could affect your logistics operation. When creating your RFP, and discussing your company with potential providers, include issues that don't necessarily make you look good or that are proprietary. You want, and need honest assessments.

Be specific. Give 3PL providers detailed information about what you want them to accomplish and be extremely careful about making sure the providers fully understand those expectations. Don't just tell them you want next-day delivery; tell them you want delivery by 10 a.m. If you want them to bring fulfillment costs down, give them a percentage. The 3PL then has a specific goal to meet.

Empower your 3PL personnel through training and sharing. Train your 3PL employees as if they were your own, or have them trained as your own! Have personnel at your provider's fulfillment center attend your proprietary quality training course. Give them extra systems training when you upgrade. Invite key members of the 3PL’s account team to the same conferences or training events your own management attends.

Treat the 3PL as a partner, not just a supplier. Be realistic about what you expect them to accomplish. Encourage them to be change agents instead of just order-takers, even if it means taking some calculated risks.

Don't rush responses to the RFP. Allow four weeks, at least, for a regional warehouse RFP, and six to eight weeks for a national or international RFP. Rushing this process doesn't give the provider time to run multiple iterations and evaluate what solutions will work best for you. Rush the process, and you will get a quick answer…not thorough analysis.

Ask the 3PL for solutions in your RFP, leaving room for creativity. Too many companies jump to a rigid solution model instead of putting their requirements and challenges in the RFP and asking the third party for the logistics solution. Experienced 3PLs can add valuable consulting strengths, creativity, and innovations to the equation. Don't miss out on a solution that might be more appropriate than the one you originally had in mind.

Be diligent about the process you use to collect data from internal locations or departments when putting together your RFP. Be conscientious about filtering and evaluating the results you receive to avoid a vague or inaccurate RFP that may lead the potential 3PL down the wrong path. A good litmus test to determine if your company has made its requests clear is to compare pricing responses. If there is a wide spread, something probably got lost in the translation. Using the RFI as gauge is also a good idea…

Take advantage of standard channels to maintain constant communication with your 3PL. Use e-mail, meetings, and phone calls to accomplish this. Hook providers up to your intranet and web site; invite them to internal meetings. In this day and age, maybe break out the "webex" platform, or create a logistics focused "wiki." There are plenty of collaborative platforms out there today...

Fix the problem instead of looking for a new partner. If your 3PL provider has been a good performer and has added value to your brand and it happens to stumble, help them fix the problem. Second chances bring out the best in a good logistics provider and that, in turn, will bring out the best in your logistics operations.

If you think you know it all, and are only going to outsource because you have too…think twice about doing it. The last thing a good collaboration needs is a “know-it-all.” That goes for the 3PL too…sometimes their reps have to be the smartest people in the room…if you get a feeling this is the case, then move onto the next 3PL.

Communication, collaboration, honesty, managed expectations, and realistic goals are essential to make this outsourcing challenge a success. Go for it!

To dip, or not to dip...that is the question!

STB: Rail fuel surcharges must be tied to actual costs

The U.S. Surface Transportation Board today concluded its inquiry into railroad fuel surcharge practices by issuing a final rule declaring it an unreasonable practice for railroads to compute fuel surcharges in a manner that does not correlate with actual fuel costs for specific rail shipments.

In its decision, the STB prohibits the assessment of fuel surcharges based on a percentage calculation of the base rate charged to freight railroad customers. The decision also prohibits “double-dipping” -- applying to the same traffic both a fuel surcharge and a rate increase based on a cost index that includes a fuel component.

The STB is also proceeding with a proposal to monitor the rail industry’s fuel surcharge practices by imposing mandatory reporting requirements on all large Class I railroads.

“Our decision today brings common sense and fairness to the railroads’ implementation of fuel surcharges,” STB Chairman Charles D. Nottingham said. “This new rule will preclude them from selectively imposing surcharges in a manner that bears little relationship to actual fuel use. It will also remove the possibility that railroads will view fuel surcharges as a profit center."

Yeah, that sounds good...but who is going to impose the same idea on the steamship lines and the conferences? One of you shippers or importers out there feel like opening that discussion during the 2007 Transpacific rate negotiations? HA! Good luck!

3PL 101 - Outsourcing Strategy

When deployed intelligently, an outsourcing strategy can add strategic advantage to your organization. Whether the value lies in asset efficiency, cost containment, speed to market, customer service, marketing strength, or technological advantage, many 3PL customers can show measurable improvement in one or more of these areas.

Customers dissatisfied with a 3PL, on the other hand, often cite unrealized service level and technological commitments, cost reduction goals, non-aligned culture understanding, and lack of strategic improvements as the primary reasons for their discontent.

Typically, outsourcers perceive these failures as a result of a flawed partner selection process. More often, however, these relationships fail because of a bad implementation plans and project management (scope creep).

Start-up right, use common sense during Implementation

The startup phase is tantamount to success and how a 3PL relationship will evolve down the road. Yes, the 3PL's implementation team is generally responsible for the start-up execution. However, the customer plays an absolute critical role in the partnership's initial success.

The customer's first responsibility is to commit to the relationship. A 3PL alliance is intended to last. It is a collaborative of strengths that benefit each partner, and like any successful relationship, trust is a fundamental element. During the initiation phase, the customer must show trust by committing to full disclosure of all requested information, and modifying objectives, timelines, and cost expectations as necessary.

For its part, the 3PL should assign a dedicated project manager, with implementation management experience, to coordinate tasks and work with the customer's project manager. If the 3PL does not appoint a dedicated person to handle these initiatives, the customer should ask for one.

The customer must also communicate the role of the 3PL and the objectives of the outsourcing decision. The most diligent 3PL implementation team calls on every department, including sales, accounting, IT, human resources, manufacturing, and purchasing, to gather detailed functional requirements. These internal resources must be available and prepared to offer information in order for the implementation to remain on schedule. The customer's staff should similarly be matched with their functional counterparts at the 3PL, and required to share openly.

Measure, Measure, and Measure Again

One of the most critical tasks during the startup phase is developing performance measurements and reporting methods. The customer must take initiative to design measurements that support the company's business goals for the outsourcing strategy. Basic areas to measure include:

• Service and Activity Costs
• Cost Reductions
• Customer Satisfaction
• Handling and Routing
• On-time Delivery
• Systems Performance
• Productivity levels per activity
• Staffing Levels (FTE versus part-time)
• Timelines (from Concept, to reality)

Depending on what functions of the supply chain are outsourced, companies should decide to tie 3PL performance to many of these strategic business measurements.

In fairness to the partnership, the customer should fully consider input from the 3PL on realistic targets, penalties, and incentives. These targets and metrics should be specific and clear to both sides so there are no gray areas during performance evaluations. Both sides must allow for appropriate flow of information in order to measure performance.

Conference Room Pilots / Dry Runs / Testing / More Measuring

Before the implementation can be fully operational, the customer must engage in conference room pilots. These sessions are critical to preparing the customer to understand how its partner will handle orders. The customer should bring representatives from all functions so they can learn how the partnership will impact their respective departments. To make the conference room pilot most effective, outsourcers should prepare scenarios that are anomalous to everyday business, and challenge the 3PL to illustrate how they will manage these exceptions, and create trust!

Outsourcing offers companies great advantages in business effectiveness, but it is difficult and sometimes impossible to recover from a sporadic, or an ill-conceived implementation plan. The greatest degree of success will be gleaned if the customer is genuinely active in the implementation plan, trusting of its partner's needs, and aggressive in designing measurements and questioning the readiness of the program before going live.

So, January 2007 is almost over…3PL 101 will conclude next week…and I will try to roll out some provocative thoughts for the New Year and beyond. So, are you gonna outsource or what?

Automate Your Warehouse!

Competitive business environments require companies to lower their operating costs and increase productivity just to survive. However, many companies are reluctant to upgrade their computer system, because of a past bad experience, and/or to not incur additional expenses.

Great tools and technologies exist, but fear of change prevents some Manufacturers, Distributors, and Retailers from making the cultural change that’s needed to use a new technology and to improve their operation. What they fail to realize is that having an aging platform will result in higher operating costs, along with excess inventory in the warehouse…this will decrease the bottom line profit of your organization.

The story goes like this…a company will not trust software houses due to previous bad experiences, and will inform most providers that the only reason they will see your organization is because a consultant recommended the meeting.

Discussing real business issues resulting from this outdated platform can be summarized via these three major issues:

1. Wrong credit issued: Rather then invoicing $1,000,000 to a major chain store, the computer issued a credit instead. The accounting department did not catch the mistake in time and it took nine months to get the money credited back, and the invoice paid.

2. Inventory issues: Having an un-automated warehouse resulted in poor inventory control, incorrect shipments, and massive returns. When new inventory was received, shelves were consolidated and the computer records were not properly updated. This resulted in inventory being misplaced and new inventory being bought. As a result of these issues, the company ended with $2,000,000 in excess inventory that cannot be sold. This inventory will have to be sold on the Web in a “fire sale,” trying to salvage as much as possible.

3. Charge backs: Its common to get $50,000 “charge backs” from major department stores due to incorrect shipments and EDI errors.

If any of the above business problems seem all too familiar to you, don’t worry there is light at the end of the tunnel. Poor invoicing, excess inventory issues, charge backs, and many other unnecessary business consequences can be a thing of the past. But, you must first learn to embrace a cultural technological change and invest for the future. This includes automating your warehouse.

Upgrade Your Warehouse – This will Reduce Operating Costs and Improve Your Bottom Line Profit

Computer software is the warehouse is one of the most crucial areas of investment, and opportunity for savings. Not having an automated warehouse will result in additional personnel, higher labor costs, misplaced inventory, incorrect shipments and high rates of returns. Often the misplaced inventory will not be found until the next physical inventory. This will result in excess inventory that may be obsolete when found, and will be bound for the outlet store or clearance retailer.

Positive aspects to automating your warehouse:

1. Newly received inventory is scanned and your computer files are updated in “real-time mode,” resulting in instant data availability.

2. Consolidating shelves will be easier and more efficient as your “real-time” computer files will reflect both the consolidated and new inventory location and quantity. Dynamic slotting…if you don’t know the term by now…you better read up.

3. You will be able to find misplaced inventory and prevent it from “collecting dust,” and get some inventory to the discounter quicker.

4. Shipping mistakes and returns will be reduced, as picked inventory gets scanned for accuracy. At the staging area, before being packed, it gets scanned and verified confirming that the correct products and quantities are being shipped to the right customer.

5. Labor costs will be dramatically reduced. Since automating your warehouse will create a more efficient and effective inventory environment, you can quickly reduce the size of your inventory management department.

6. Forecasting can finally be done, so your order quantities will be based on real historical data…not wild guesses.

Nobody likes change, but today’s reality dictates being as efficient as possible. As we have discussed before via this blog – the tools and technologies exist to make your business life easier. You must also add to this mix good people and solid processes.

Higher operating and labor costs, poor invoicing and mismanaged inventory operations, and other unnecessary business disruptions that affect your bottom line can be a thing of the past.

As we close out January 2007, we will move away from my “back-to-basics” posts and get into new stuff.

Back to Basics in 2007 - 3PL Defined

Organizations want to develop products for global markets. At the same time, they need to source material globally to be competitive. One of today's trends to solve this problem is outsourcing logistics or using third-party logistics (3PL) to manage complex distribution requirements.

Organizations have developed strategic alliances with 3PL companies all over the world to manage their logistics operations network. These alliances are also known as supply chain partnerships or contract logistics (that is Exel’s preferred category).

Levels of Outsourcing

• Transactional: Based on transactions, with no long term contracts and no bonding between the 3PL and the outsourcing company. Carrier affiliated organizations are common in this sector.

• Tactical: Outsourcing on a long term basis with negotiated contacts and integrated IT systems to facilitate free information flow and create supply chain visibility (The goal should be fiscal visibility, within the supply chain).

• Strategic: Based on long-term relationships with successful outcomes, 3PL companies become partners in supply chain management and establish transactional transparency in all facets of the international supply chain.

Why Choose to Partner with a 3PL?

• Save Time: Outsourcing the Logistics function can free up resources to focus on core competencies.

• Because Someone Else Can do it Better: Even if you have resources available, another organization within the supply chain may be able to do it better, because of its relative position in the supply chain, or they have a certain supply chain expertise, and the 3PL may have economies of scale.

• Share Responsibility and Risk: 3PL’s can share responsibility (and risk) for managing global supply chains, keeping customers and stores properly stocked, and delivering the perfect order every time.

• Re-Configure Your Distribution Network: 3PL outsourcing can be a quick way to re-configure distribution networks to meet global market demands and gain a competitive edge.

3PL Partnerships Are Growing

According to a 2005 Cap Gemini study, North American organizations planned to outsource 56% of their logistics expenditure by 2006 – 2008, with Western Europe planning 81% and Asia-Pacific 60%. The same report revealed that 78% of the respondents are outsourcing logistics activities in North America; 79% in Western Europe and 58% in Asia Pacific.

These organizations are outsourcing logistics activities and upgrading relationships with 3PL companies from transactional, to tactical and strategic relationships.

According to a 2005 survey, CEOs of 3PL companies operating in Asia-Pacific expected 17% average business growth over the upcoming three years.

Achieving Strategic Outsourcing

Unfortunately, only a few 3PL companies achieve strategic status with their customers. Exel is one of them. It is done by constantly innovating and maintaining operational integrity. Some use an open-book costing method to demonstrate their system's transparency, which is being embraced by many Fortune 500 companies.

If you are planning on implementing a 3PL partnership, read my tips about how to implement a 3PL game plan successfully…there are plenty within my blog from 2006 and 2005.

More later this January! Good luck in all of your 2007 endeavors!

Post Holiday Drag - Dig Out

Too much post holiday work to do...and I am still in the weeds...

I'll post soon...

All the best! MJS

Mountaineers Victorious on New Year's Day!

Happy New Year!












Mountaineers win the Gator Bowl with a huge comeback against Georgia Tech!

38 - 35

What a great way to start out 2007!

All the best...I'll start posting this week!

Good luck in 2007!