When Toys “R” Us had to recall thousands of toys after learning Chinese manufacturers had violated U.S. lead paint regulations, the company faced a supply chain nightmare. Quickly, the retailer had to pull millions of products off store shelves, circumvent shipments already en route, and halt the fulfillment and delivery of new orders. In short, Toys “R” Us needed a plug in its pipeline-a feat made significantly more difficult these days to the high cost of fuel surcharges.

So what are companies to do to stay afloat in these tough times?

“It’s now more important then ever to work effectively with your third-party logistics provider (3PL),” advises C. John Langley, Jr., Ph.D., professor of Supply Chain Management, Georgia Institute of Technology. “When times get tough it underscores the need to identify your company’s objectives and how to meet them. Shippers who cannot afford the higher cost of fuel should rethink what they are doing.” His collaborative study with Capgemini U.S. LLC entitled “The State of Logistics Outsourcing: 2007 Third-Party Logistics” points to how most companies outsource traditional services like transportation and warehousing, but basically ignore customer-facing activities and other more strategic services. The reason: many companies see logistics as their own core competency and where, if outsourced, they would not save costs. In fact, the study indicates that those who employ 3PLs realize 13 percent cost savings.

But even the mostly bigger companies using 3PLs are under-utilitizing available services.

“The longer I’m in this business, the more jaded I’ve become about customers,” says a frustrated Langley. “Shippers want to outsource activities that are more routine and repetitive rather than customer-focused. As long as this continues, shippers are not exploiting the full range of services they can benefit from.”            

So what are these under-used services available that can help companies in hard times? “First and foremost, engage logistics suppliers and transportation providers into your business as partners to jointly find viable, sustainable and creative solutions,” Dr. Langley urges. 

3PLs to the rescue

Companies that employ strong supply chain competencies tend to have 7 to 26 percent higher market capitalization than competitors who do not. For such high cap enterprises in many a sector, a reduction of even 5 percent in total distribution cost can have the same impact on profit as a 30 percent increase in sales. And, there are many functions a 3PL can perform to save companies money.

For one, 3PLs can manage imports, reduce lead times to customers, and ship the right quantity of products at the right time to the right place.

ODW Logistics provides East Coast and West Coast 3PL distribution services via its five strategically located shared logistics centers and four contract logistics locations. Among its offerings are pick and pack fulfillment, labeling, point-of-sale displays, assembly/kitting, product inspections/quality assurance, bundling, international import/export logistics services, special product handling, packaging, and cross docking. 

Some suppliers like Ralston Foods, which sells brand cereal to Wal-Mart, use ODW to meet Wal-Mart’s demand for radio frequency identification tags (RFID). Instead of investing in the technology themselves, they share the expense with ODW, a bill that shows up as an incremental charge on the cost of shipping each case.

DHL Exel Supply Chain, part of the Logistics Division of Deutsche Post World Net (DPWN), offers its customers functions that span a wide range of industries. For Toys “R” Us dot-com customers, it implemented a system whereby each product is weighted and scanned by UPC code while being picked to verify proper fulfillment rather than finding errors later in shipment. In addition, orders are bundled by same zip code to save shipping costs.

Elsewhere, Exel works with vendors to maximize tote capacity being shipped to specific stores. For example, it’s consolidating tote shipments of five optical suppliers for delivery to Wal-Mart. 

It also operates call centers that link shipments to customer service, funneling some 20,000 retail orders six days a week out of one in Ohio. Its Client Services department addresses issues regarding inventory, defective products in network and recalls. The operation is the single largest home delivery transportation service provider in North America, dispatching some 150 trucks across the United States daily.

“By using high technology like GPS, we are able to determine not only the driver’s location, but the speed at which the driver is traveling, and when deliveries will be made,” says John Cox, head of the center’s routing and scheduling group.

Fuel consumption can also be determined. “That’s especially important because if 20 percent of the fleet is running incorrectly, your profit is gone,” Cox adds. 

           

Liner options

Another route to the value-added services of 3PLs is through affiliated steamship lines that offer airfreight and ocean freight forwarding services, arrange ground transportation, and provide warehousing, distribution and supply chain management services. To meet specific industry needs, some 3PL services target specific industries.

That’s the case for Maersk Logistics’s SupplyChain HealthCheck™. It was applied to assist a leading food and beverage manufacturer under pressure to cut logistics costs. The company imports 6,000 containers of raw materials and exports 13,000 containers of finished product from Thailand per year.

Maersk Logistics suggested that the client exploit synergies between Maersk Line’s reefer service and Maersk Logistics, which would help redesign the import and export warehouse network; implement cross docking service; replace less-than-container load (LCL) trucking with back-haulage of reefer containers; and introduce a warehouse management system to improve visibility.  The end result: $2.4 million savings per year in addition to a more streamlined supply chain.

APL Logistics, the logistics arm of Neptune Orient Lines, offers guaranteed services. Its OceanGuaranteed™, a port-to-door, day-definite transportation service from APL Logistics and Con-way Freight, combines premium ocean LCL service with high-performance LTL transportation. It guarantees delivery of imports from Asia to the U.S.

“These are shipments that would usually go by air,” says Tony Zasimovic, vice president, International, APL Logistics.

The shipments receive handling and stowage priority on vessels destined to Los Angeles and Seattle. Once the containers arrive the U.S., they are among the first to be discharged and loaded onto trains heading for the East Coast. The service achieves 99 percent on-time accuracy. 

APL Guaranteed Continental™ guarantees delivery times from Hong Kong, Shanghai, Chiwan, and Yantian, China to any zip code in the continental U.S., Canada and Mexico. Customers receive a 20 percent refund if APL fails in this contract. The service offers two crucial advantages: speed-that’s unmatched in the full container load market-and reliability normally associated with airfreight delivery.

“The beauty is it’s about 75 percent discount off the cost of airfreight,” says Zasimovic. “The combination can result in better-performing supply chains that are also more cost efficient for shippers.”

This year, APL Logistics also rolled out a full container load guaranteed service that expedites movement of containers from ship to truck on APL-owned roadworthy chassis. Here shipments can be quickly moved out by truck and delivered anywhere in the U.S.

“An electronics firm that normally ships by air out of Shanghai recently gave us a shipment that was to go to their Chicago distribution center. They didn’t believe we could do it,” Zasimovic says. APL Logistics performed, and the next week the company canceled two 747s of shipments valued at over $2 million.

APL also just launched a service for ocean-capable 53-foot containers, a move that observers believe could significantly alter the U.S. import market. For now, they are only coming out of South China and Qingdao, but 53-footers are fundamental to domestic intermodal transportation in the U.S. APL executives believe the premium big-box service on a regular, weekly basis could make a significant difference to shipping options on the trans-Pacific.

“The bigger box offers greater loadabilty and reduces per unit costs on imports,” Zasimovic says. 

Other programs include changing the terms of sale to Freight On Board (FOB). This helps shippers control the import process so that they are just dealing with the product’s cost.

“Many importers will buy via Hong Kong to go more direct to the source,” states Zasimovic. “We help them manage the vendor from origin.”

Now APL Logistics takes a step further by implementing Free Carrier Alongside (FCA). This shifts cargo responsibility from the seller to the buyer when the goods leave the factory.

“If you buy out of the factory, the cargo is treated like an export,” he explains. “Then we help manage the costs from the factory to the port. This helps reduce transportation costs and duties.” 

Rail is becoming a cost-effective and environmentally friendly option (one fright train typically keeps 200 trucks off the road). And, it is another place where 3PLs can help.

“We see customers attracted to intermodal because it allows them to more effectively control their fuel costs,” says Steve Van Kirk, vice president, Intermodal Commercial Development, Schneider National.

In general, intermodal is most cost efficient for shipments exceeding five hundred miles and involving hauls from the West Coast to central distribution points like Chicago and Atlanta. But given current fuel surcharges, intermodal is increasingly being used for intermediate moves from Chicago to the Northeast or Florida. Another new development, shippers are increasingly comfortable using intermodal directly to a customer’s facility.

Trucks are typically needed to finish the move, which is where Schneider differs from other trucking intermodal providers by using its own trucks so shippers do not need to lease their own.

“This means we can drive empty miles and drop off containers near drayage operations,” Van Kirk says. “This helps customers with their cost points.”

Mike Miller, general manager for intermodal supply chain for Norfolk Southern, concurs that intermodal offers shippers various strategies for maximizing freight loads. These include using same-size boxes when loading box cars, minimizing dead head or empty miles, planning appointments of delivery, and minimizing the dwell and idling of assets. 

Recently, Norfolk Southern saved a forest products customer $1 million on one lane in one year by converting backhaul shipments of scrap paper to intermodal rail.

“In this business, transportation costs determine from where a company sources scrap paper,” Miller says. “Better asset utilization meant a direct contribution to their bottom line.”  

Depending on the network, Miller suggests that shippers can save between 8 and 12 percent by using intermodal. “But after other factors are added, in reality they realize four to six percent,” he says. Still, the savings add up.

The biggest contribution is on mode shifts. “You must make sure you’re integrating service requirements in the most efficient way,” he says. “For example, if a shipper switches from LTL to intermodal, the shipment might take an extra day. However, a customer might be fine with that.” 

Speed-to-market can be critical, however, for some industries. “This warrants a strategy that emphasizes speed as opposed to greater levels of held inventory,” comments Matt McGee, UPS vice president of supply chain solutions. “For consumer and industrial goods, building the most efficient shipment load is of paramount importance, particularly with fuel and other ancillary charges now greatly narrowing the cost differential between different container sizes.”

Consequently, integrated carriers like UPS are actively providing customers with service across a spectrum from multi-modal transportation to complete end-to-end supply chain solutions. 

“Customers rely on us for small package transportation, airfreight, for full container load and less-than load container ocean freight, and for LTL and LTL truck load service,” states McGee.  “From within each of these modes, we provide our customers with options that can meet their needs for lower cost or high performance.”

Within North America, UPS operates one of the largest deferred airfreight networks that provides a more cost effective alternative to next day air freight with the same handling, security, convenience and reliability advantages. In addition, it ties these formerly disparate modes together into cohesive shipping, routing and tracking solutions to maximize both effectiveness and efficiency.

Then there’s the matter of trade compliance. “For international shipments, it’s no longer sufficient to be just efficient and effective,” he states. “It’s now paramount to be compliant.”

That’s because over twenty-six new security requirements are now in place that regulate international shipments. UPS provides International Trade Services, in conjunction with international transportation, to prevent loss, delay, diversion, and regulatory penalty.

“All of our solutions are designed to holistically manage flows of goods, funds, and information,” he says. Most certainly, of all the cargo modes air cargo is the most challenged for its high expense.

Concerning everyone is escalating fuel costs, particularly fuel surcharges that get passed on to shippers via their intermediary freight forwarders or 3PL provider. In response, AF-KLM Cargo just introduced a new fuel surcharge mechanism that takes into account the current realities of key external parameters: jet fuel price and the euro-U.S. dollar exchange rate.  

“In order to increase stability and prevent changes due to short-term peaks, a monthly moving average will be used for the jet fuel price,” says Michael Wisbrun, chairman, Joint Cargo Management Committee, Air France-KLM Cargo.

Supply chain management is a complicated business that changes with the economic tide. Shippers, who even do a good job of handling their logistics, will miss the quick and ever-changing nuisances that 3PLs and logistics providers bank their business on staying on top of.  wt