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Case Experience

Case Experience. Perception The essay Prudent Assumptions Where's the Beef High Impact Writing. Warehousing/ Outsourcing. B. Mktg. 880 Spring 1999. BUD LA LONDE. Warehousing/ Outsourcing. Some Strategic Issues Warehouse Operations: 101 Outsourcing Overview. Some Strategic Issues.

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Case Experience

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  1. Case Experience • Perception • The essay • Prudent Assumptions • Where's the Beef • High Impact Writing

  2. Warehousing/ Outsourcing B. Mktg. 880Spring 1999 BUD LA LONDE

  3. Warehousing/ Outsourcing • Some Strategic Issues • Warehouse Operations: 101 • Outsourcing Overview

  4. Some Strategic Issues • Inventory Deployment • Changing Functionality of • Technology Integration warehouse

  5. Centralized Decentralized Contract Public ALTERNATIVES FOR INVENTORY DEPLOYMENT Firm Directed Third Party Inventory Deployment Options Flow Through Cross-Docking Other Strategies Floating Inventory Postponement Consignment

  6. 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 Transportation from distribution center to store Store operation Source: McKinsey Quarterly 1996 Number 2

  7. Assuming 100% is Completely Automated, Estimate your Firm’s Level of Warehouse Automation(median) Source: 1998 OSU Career Patterns

  8. PERCENTAGE OF SHIPMENTS WHICH ARE POOLED PRIOR TO DELIVERY TO THE CUSTOMER - ALL INDUSTRIES (N = 196) Source: OSU Career Patterns, 1996

  9. PERCENTAGE OF OUTBOUND FREIGHT THAT WILL FLOW DIRECTLY FROM PLANT TO CUSTOMER - ALL INDUSTRIES (N = 196) Source: OSU Career Patterns, 1996

  10. 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?

  11. Key Factors Affecting the D.C. • Cycle compression • Functional shiftability • Customer driven requirements • Technology 812

  12. Inbound Outbound Storage Receiving Putaway Letdown/Replenish Picking Loading/Shipping • Qualityassurance • Inventory management 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

  13. 1 2 3 4 5 6 7 8 Company-Operated Warehouse Activities Receiving Area Bulk Storage Area Order PickStorage Area Office Packaging Area 10 Staging Area 9 Shipping Docks 142 Source: Improving Quality and Productivity in the Logistics Process, Figure B-1.

  14. 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

  15. 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

  16. Outbound Consolidation Customer Customer Customer Customer Customer Crossdocking Customer Customer Customer Customer 6 Distribution center Customer Customer Customer Customer 1 2 3 4 5 Customer Plant 170 Source: Logistics Information Systems

  17. Outsourcing Overview • Why outsource? • What are your options? • What are future directions for outsourcing?

  18. 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.

  19. $50-70B Potential Market 3PL Penetration 1992 $350 B 2-3% $25-30B 1996 $500 B 5-6% $9B 2000 $700 B 8-10% The Market for Logistics Outsourcing Has and Will Grow Rapidly-- U.S. Market for Third Party Logistics -- Source: Robert Delaney, Cass Logistics

  20. 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

  21. 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

  22. Neutral or somewhat unsuccessful 17% Extremely successful 29% Somewhat successful 54% 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 Tennessee’s Center for Logistics Research and Exel Logistics

  23. Players Have Entered (and are continuing to enter) the Logistics Outsourcing Market from many Directions • Warehousing • DSC • Exel • Tibbet & Britten • USCO • Non-Traditional • Andersen Consulting • CSC • EDS / A.T. Kearney • GE Capital • IBM • 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 LEC&C / Caliber • UPS - WWL

  24. 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?

  25. 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 • Business development • - Corporate commitment to contract • logistics • - Overall corporate strategy • - 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 • - Incentives for performance • - Recapture of excess profits • - Provisions for replacement • - Independent financial audits Source: Robert V. Delaney, Executive Vice President of Cass Logistics, 1996.

  26. 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

  27. Drivers for Change • Asset Based vs. Non-Asset Based • Technology/ Information Integration • Inventory Velocity Goals Strategies

  28. “Quality is when your customers comeback and your products don’t”

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