Case Experience
• Perception
• The essay
• Prudent Assumptions
• Where's the Beef
• High Impact Writing
CODE
1
2
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5
6
7
8
9
10
11
12
13
14
15 or ?
COMMENT
You are repeating the case facts
Subdivide the paper for better impact
Title / Charts should be complete
I lost your logic trail about here
Your conclusions are not supported by your logic trail
Push the numbers!
Underdeveloped concept / section
These conclusions tend to be soft (unsupported by numbers)
Plus other factors
You have not convinced the reader that this is feasible or necessary
What are the objectives of the firm?
Use the information in the case
What problems are you trying to fix?
What will the program cost? How long will it take to implement?
I don't understand what you are trying to say here
Warehousing/
Outsourcing
B. Mktg. 880
Spring 1999
BUD LA LONDE
Warehousing/ Outsourcing
• Some Strategic Issues
• Warehouse Operations: 101
• Outsourcing Overview
Some Strategic Issues
• Inventory Deployment
• Changing Functionality of
warehouse
• Technology Integration
ALTERNATIVES FOR
INVENTORY DEPLOYMENT
Inventory
Deployment
Options
Firm
Directed
Centralized
Third
Party
Contract
Decentralized
Public
Flow Through
Cross-Docking
Other
Strategies
Floating Inventory
Postponement
Consignment
Three Example Strategies of Product Flow
Fast to market
Manufacturer
cost
Waves of fresh
assortments
Low cost
Trade off some
cost for speed
and flexibility
Live with longer
lead times in order
to drive lower
purchase cost
Drive lowest purchase
cost and off-load as much
work as possible to
manufacturers
Frequently use
highest cost
transportation mode
(airfreight) to gain speed
Balance speed and
cost using low cost
transportation mode to
small number of
regional DCs
Maximize use of lowest
cost transportation modes
by establishing many
local DCs close to stores
Distribution center
cost
Look for speed
Balance speed and cost Operate DCs to minimize
in handling new product work done in stores
waves
Transportation from
distribution center
to store
Small, fast, and expensive More cost effective
store deliveries
small store deliveries
Most cost effective full
truckload delivery to
stores
Store operation
Full service
Self service
Transportation
from manufacturer
to distribution center
(DC)
Source: McKinsey Quarterly 1996 Number 2
Full service
Assuming 100% is Completely Automated, Estimate
your Firm’s Level of Warehouse Automation
(median)
60
50
50
40
40
30
25
20
10
10
0
1996
Source: 1998 OSU Career Patterns
1998
2000
2002
PERCENTAGE OF SHIPMENTS WHICH ARE
POOLED PRIOR TO DELIVERY TO THE
CUSTOMER - ALL INDUSTRIES (N = 196)
24
22.5
22
19.8
20
17.8
18
16
14
14.2
12
10
1994
Source: OSU Career Patterns, 1996
1996
1998
2000
PERCENTAGE OF OUTBOUND FREIGHT THAT
WILL FLOW DIRECTLY FROM PLANT TO
CUSTOMER - ALL INDUSTRIES (N = 196)
40
31.1
33.0
34.7
35.8
1998
2000
30
20
10
0
1994
Source: OSU Career Patterns, 1996
1996
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?
Key Factors Affecting the D.C.
• Cycle compression
• Functional shiftability
• Customer driven requirements
• Technology
812
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
Inbound
Receiving
Putaway
• Quality
assurance
Outbound
Storage
Letdown/
Replenish
Picking
• Inventory
management
Controls are typically applied on both inbound receipts
and outbound orders
Loading/
Shipping
Company-Operated Warehouse Activities
1
Receiving Area
2
Bulk Storage Area
3
Office
4
Order Pick
Storage Area
5
6
Packaging Area
10
7
8
Staging Area
9
Shipping Docks
Source: Improving Quality and Productivity in the Logistics Process, Figure B-1.
142
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
22%
Distribution Center
15%
10%
8%
18%
31%
37%
Labor
Facilities
Equipment
Source: Andersen Consulting
Miscellaneous
59%
Cross Dock
The process of cross dock has received a great deal of attention recently
OUT
35
36
37
38
39
40
41
42
43
44
45
46
47
E
Source: Andersen Consulting
D
C
B
A
IN
Cross docking is used in order to take advantage of transportation opportunities
Source: Andersen Consulting
Outbound Consolidation
Customer
Customer
Customer
Customer
Customer
Crossdocking
Customer
Customer
Customer
Customer
Customer
Customer
Distribution
center
Customer
6
Customer
1
2
3
4
5
Customer
Plant
Source: Logistics Information Systems
170
Outsourcing Overview
• Why outsource?
• What are your options?
• What are future directions
for outsourcing?
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.
The Market for Logistics Outsourcing Has
and Will Grow Rapidly
-- U.S. Market for Third Party Logistics -Potential
Market
3PL
Penetration
$50-70B
60
50
40
1992
$350 B
1996
$500 B
2-3%
30
5-6%
10
2000
$700 B
8-10%
$25-30B
20
$9B
0
1992
Source: Robert Delaney, Cass Logistics
1996
2000
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
Outsourced Services: Current vs. Future
Current
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Outbound Transportation
Freight Bill Auditing/ Payment
Warehousing
Inbound Transportation
Freight Consolidation/ Distribution
Cross-Docking
Selected Manufacturing Activities
Product Marketing/ Labeling/ Packaging
Product Returns & Repairs
Traffic Management/ Fleet Operations
Information Technology
Product Assembly / Installation
Inventory Management
Order Fulfillment
Customer Service
Order Entry/ Order Processing
Source: Ut Excel/ Ernest & Young, 1998
75
68
68
61
50
38
33
29
22
19
16
14
12
8
6
4
Future
9
11
15
17
23
11
9
14
10
16
11
10
11
10
2
8
Customer Evaluation of Outsourcing
Neutral or
somewhat
unsuccessful
17%
Extremely
successful
29%
Somewhat
successful
54%
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 Tennessee’s Center for Logistics Research and Exel Logistics
Players Have Entered (and are continuing to enter) the
Logistics Outsourcing Market from many Directions
Warehousing
•
•
•
•
Non-Traditional
•
•
•
•
•
DSC
Exel
Tibbet & Britten
USCO
Trucking
•
•
•
•
•
•
•
Builders Transport
Burnham
CTI
Frans Maas
J.B. Hunt
Logix
Penske Logistics
(Leaseway)
• Pittsburgh Logistics
• Ryder Integrated
Logistics
Logistics
• Schneider
Miscellaneous
Logistics Services
Andersen Consulting
CSC
EDS / A.T. Kearney
GE Capital
IBM
•
•
•
•
•
•
•
Logistics
Outsourcing
Management
• Menlo
• TNT Logistics
Circle
C.H. Robinson
Danzas
Fritz
Hub Group
Kuehne & Nagel
Schenker
Industry
Ocean
Carriers
• APL
• Nedlloyd
•
•
•
•
Caterpillar Logistics
Fluor Daniel
GATX
W.W. Grainger
Air Freight
• DHL
• FedEx LEC&C / Caliber
• UPS - WWL
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?
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:
•
- Total annual revenues
- Annual revenues in contract
- Logistics services
- Total assets
- Assets employed contract
logistics services
- Financial rating
•
•
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 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
Financial Strength
•
Business development
- Corporate commitment to contract
logistics
- Overall corporate strategy
Source: Robert V. Delaney, Executive Vice President of Cass Logistics, 1996.
Business arrangements
- Open book cost disclosure
- Incentives for performance
- Recapture of excess profits
- Provisions for replacement
- Independent financial audits
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
Drivers for Change
• Asset Based vs. Non-Asset Based
Strategies
• Technology/ Information Integration
• Inventory Velocity Goals
“Quality is when your
customers comeback and
your products don’t”