14 th Annual Third-Party logistics Study, 2009
Since its inception, the Annual Third-Party Logistics study has documented the growth and evolution of the third-party logistics (3PL) industry. To date, the focus has been on identifying and tracking key trends and views of the 3PL industry largely from the perspective of 3PL customers (shippers) and others who currently choose not to use 3PLs. This year, however, the study scope was expanded to include the views of 3PL providers on these topics.
The 2009 3PL study includes three streams of research: a web-based survey, workshops with shippers leveraging survey content and the Capgemini Accelerated Solutions Environment ® (ASE) and focus interviews with industry executives. Respondents represent a broad range of industries and hail predominantly from North America, Europe, Asia Pacific and Latin America, in addition to other locations throughout the world such as South Africa and the Middle East.
Discovering and exploring 3PL industry trends, issues, and opportunities is the overall objective of the 2009 Third-Party Logistics Study. Each year, the study results as well as greater industry developments suggest trends that warrant closer examination. Included in the 2009 study are special topic reports on economic volatility, the IT capability gap and supply chain orchestration.
What’s So Special about Special Ops?
The U.S. military’s elite training programs offer a model for the strategic deployment of human capital and for building effective teams.
Illustration by Lars Leetaru
During the fall of 2001, a small task force of U.S. military special operations forces arrived in Afghanistan. It was named Task Force Dagger, and its mission was to work with the Northern Alliance to overthrow the Taliban and uproot the terrorist training camps they were harboring. In just a few months, fewer than 200 Army Special Forces, Navy SEALs, and Air Force Special Tactics operators expelled nearly 100,000 entrenched Taliban and al Qaeda forces. It was an extraordinary success, and one that drew heavily on the multifaceted capabilities of special operations forces, who can build alliances with local fighters (all Army Special Forces must learn a second language, for example), infiltrate enemy lines, and bring to bear intense firepower in small, mobile units. Many Americans remember the now-iconic photograph, taken during that operation, of a U.S. special operator on horseback, holding the reins of his horse in one hand and a satellite phone in the other. In that picture, he is wearing long hair, a beard, and traditional Afghani robes. It’s a portrait of a modern-day, high-tech warrior equally at ease with Kevlar and leather, comfortable both launching a commando raid and helping local villagers improve their water supply.
The post–9/11 world has brought U.S. military special operations into the limelight as never before. For many observers, there is something inspiring and even mysterious about these highly trained teams of men (like all frontline U.S. combat troops, they are all male) who are motivated to achieve their mission at any cost. In business, we talk about being willing to “walk through walls” to achieve our goals, but special operations teams really do things like that.
So what’s the secret? What’s so special about special operations? Can business professionals learn something from them besides the obvious truisms about the importance of focus and discipline? In fact, the effectiveness of special operations forces is rooted in a carefully designed and comprehensive system of recruiting, training, infrastructure support, leadership, and organizational culture.
Can private-sector organizations emulate these techniques in the same consistent and integrated manner? They can, although we must acknowledge the significant differences between the private sector and the military. For example, in the military you make a long-term commitment (often four or six years in special operations) and cannot just quit because you find a better job. You have a legal requirement to follow the orders of your superior officers. Service members are also, explicitly or implicitly, willing to risk their lives to defend their country.
For the moment, however, let’s set these differences aside and look at what we can learn from the key elements of this high-performance system. As we’ll see, in fact, many special operations practices can be and have been adapted to the corporate world.
Elite Magnetism
The term special operations forces (SOF for short) refers to a wide variety of specialized forces in all four of the armed services. The lessons that follow are based primarily on a study of three major groups of SOF: the Army Special Forces (also known as Green Berets), the Navy SEALs, and Air Force Special Tactics units. Their fame is disproportionate to their numbers: There are only about 15,000 special operations servicemen in a military of more than 2 million active-duty and reserve personnel.
Although their missions overlap quite a bit, each of these special operations groups receives slightly different training and has a slightly different focus. Army Special Forces are often used to help train indigenous forces, for example, whereas Navy SEALs tend to be used more for direct action engagements. Air Force Special Tactics forces include Pararescuemen, a specialized group of search-and-rescue trauma paramedics, and combat controllers, who call in airstrikes from the field.
Special operations forces use an attraction strategy to get access to the best raw talent in the military. Their elite status is a magnetic draw for young men who want to prove themselves and be among the best. The average education level of special operations recruits is above that for conventional forces, and it is not uncommon to find individuals with advanced degrees from top colleges or managerial experience in a corporation. The exclusive branding of special operations draws many recruits at the front end, where a high percentage are turned down before even being given a chance in the selection program.
When it comes to recruitment, SOF units are not unlike highly desirable employers in their ability to attract the best. Their selectivity has another positive effect: It is well documented that the steeper the hurdle to get accepted into a group, the more loyalty and commitment you have to it once you’re in. This certainly motivates the bankers at elite firms like Goldman Sachs, where the prospective status, pay, and influence that go along with being a partner propel them to work long hours and develop extraordinary loyalty to the organization if and when they do reach that elite inner circle.
Haiti and the Role of Logistics in Disaster Relief
The images and stories coming out of Haiti in the aftermath of the earthquake that struck on Tuesday are simply heart wrenching. Tens of thousands of people are feared dead and upwards of 3 million people are in need of medical, housing, or other assistance. The only silver lining in these types of disasters is to see the outpour of support from other countries around the world. At a time when terrorism and wars occupy the headlines, it’s nice to see the world community rally around a common cause, seeing countries that are usually at odds with each other uniting to help a neighbor in desperate need.
Logistics plays a critical role in disaster relief. Getting the “right product, to the right place, at the right time” takes on new meaning when roads, airports, bridges, and other logistics infrastructure are severely damaged or destroyed. The immediate spike in demand for food, water, clothing, and medical supplies is an order of magnitude greater than most supply chains are equipped to handle. In short, disaster relief is a unique and specialized type of supply chain and logistics problem.
Militaries, with their specialized equipment and experience in large-scale logistics, play a critical role in disaster relief. But so does the private sector, as was evident in past disasters like Hurricane Katrina and the Thailand Tsunami.
Yesterday, UPS announced that it was donating $1 million in cash and in-kind support to earthquake relief efforts in Haiti through its charitable arm, The UPS Foundation. According to the press release, “In addition to providing financial and in-kind commitments to Haiti relief, UPS is a member of the World Food Programme’s Logistics Emergency Teams (LETs) and anticipates the activation of those teams. The LETs initiative involves providing ‘loaned’ logistics experts to oversee on-site disaster response, normally for a deployment of three-to-six months.”
FedEx also issued a press release saying, “[We are] working with our designated charitable relief organizations to help ensure aid is on the way to Haiti. We plan to provide transportation services for the American Red Cross, Heart to Heart International, Direct Relief International and Water Missions as soon as conditions allow.”
Preparing for disasters and improving the relief process is an ongoing initiative for the logistics industry. In August 2009, for example, DHL and The United Nations Development Programme (UNDP) launched a new disaster preparedness initiative called GARD, which stands for “Get Airports Ready for Disaster.” In the press release, Matt Hemy, Vice President Security & Crisis Management at DHL Express Asia Pacific and head of the GARD program, says, “When the DHL Disaster Response Teams arrive in the aftermath of a natural disaster, we realize that most airports are overwhelmed with the surge in relief aid cargo and other support. Besides managing the disaster, these airports have to cope with the coordination of the massive support from other countries. Hence, delivering aid to the affected communities would be faster and more effective if airports were well-prepared for the sudden onset of natural catastrophes and this is a key driver for our GARD program.”
In the aftermath of Hurricane Katrina and the challenges encountered in distributing donations, a group of logistics industry professionals launched the American Logistics Aid Network (ALAN). Its mission is to “engage the supply chain community to support and assist humanitarian relief efforts.” ALAN is a volunteer, non-profit organization supported by leading supply chain associations, including:
- AFFI – American Frozen Food Institute
- APICS – The Association for Operations Management
- CSCMP – Council of Supply Chain Management Professionals
- Feeding America – formerly Second Harvest
- FMI- Food Marketing Institute
- GMA- Grocery Manufacturers Association
- IARW – International Association of Refrigerated Warehouses
- IRTA – International Refrigerated Transportation Association
- MHEDA- Material Handling Equipment Distributors of America
- MHIA -The Material Handling Institute of America
- IWLA – International Warehouse Logistics Association
- WERC – Warehousing Education and Research Council
- WFLO – World Food Logistics Organization
The days, weeks, and months ahead will be difficult for the people of Haiti. Our hearts and prayers go out to everyone affected by this disaster, and our thanks go out to everyone providing logistics and front-line support to the victims.
Fulfillment house overview
Fulfillment, also known as order fulfillment or product fulfillment, is the process where by a person or company fulfills their obligations to send a person an item or product that the person has ordered, purchased, or requested from the organization.
Fulfillment typically will refer to the services provided by a company that offers to store, receive the orders, package, and then ship the ordered item to the end consumer.
Standard fulfillment company services
Storage and warehousing
A fulfillment company stores items until an order for the item comes in. Storage facilities can be prepared for perishable items requiring refrigeration, temperature sensitive items requiring air conditioning or heating (such as certain types of chemicals that can break down due to extreme heat or cold), or typical warehousing protection from the elements.
Third party fulfillment services will often charge a storage fee based on the product storage requirements and any special handling that may be required.
Inventory Control
A fulfillment company will typically maintain and publish inventory counts as goods are shipped. Reporting systems can vary by company and range from simple excel spreadsheets to web-based systems.
Pick and pack services
Pick and Pack is the process of selecting items currently being stored by the fulfillment company to prep for shipping. Companies have employees known as “pickers” that will receive an order manifest. These “pickers” will then wander the warehouse to the location (known as a BIN or INTERNAL SKU) of the individual items, and pull them from the warehouse shelves to prep for shipping. With the “picker” taking the items in the order manifest back to the packing station, another employee known as a “packer” will then check to make sure all items in the order manifest are present and then begin the packaging process. Packaging of the product according to its type is then performed, optionally, a packaging slip may be attached, and the product is labeled with address identification of where the item is to be shipped.
A packaging slip may not always be required to accurately pick the contents of an order. Other methods of product identification exist, such as Pick to Light, and BINQTY strings, that allow for accurate picking of items. Such newer methods, allow for an increase in productivity. However, systems of picking items for shipping will vary based on variables such as the number of items, and sku diversity of the goods to be shipped.
Shipping
It is rare for a fulfillment company to provide its own courier services due to the size of courier companies. In most cases, the shipping is outsourced to courier or delivery companies. However, often fulfillment companies are able to provide larger shipping discounts than smaller retailers may be able to negotiate on their own merit. This is because fulfillment service providers ship a high volume of orders every day. Because of this volume, small parcel carriers such as UPS, DHL, and FedEx will negotiate a better discount. For smaller, light-weight parcels, USPS will often be used (typically 1 pound and under).
Fulfillment Companies Offer Benefits
“Most of our ecommerce customers are shocked at how little third-party fulfillment services cost,” says Chris Haunton Operations Manager of CDC Fulfillment in Anaheim California. “This is especially true when they compare it against what they already spend to warehouse, package and ship their products. We operate transparently and the purchasers of our customer’s products never know a fulfillment center was involved.”
Eliminates investment in software and equipment
Indeed, for many ecommerce companies, third-party fulfillment houses offer benefits that they could never afford themselves. “Outsourcing provides the ability to virtually eliminate up front investment in software, equipment, facilities and personnel,” says Haunton. “This is particularly key for a young, growing organization.”
Import files from ecommerce customer
Gone is the time when an ecommerce firm faxes or phones an order to their fulfillment company. These days, the ecommerce firm’s shopping cart or accounting system automatically integrates to the order management system of the fulfillment company. An ecommerce firm downloads electronic files from its shopping cart and sends those files to the fulfillment house via FTP or email. It’s almost always in batch mode, every day.
Focus on core of business
The biggest benefit to third party fulfillment, many ecommerce operators believe, is that it frees them to focus on the core of their business, such as marketing, product selection and customer service. It’s the expertise in these areas, the owners frequently say, that will grow their business, and not shipping and fulfillment.
Supply Chain 2010: Building on the lessons learned
The recession may be coming to a close-at least officially. But the effects of that painful period linger on. Supply chain managers need to learn from the lessons of the past as they rebuild the foundation for a brighter future.
Sean Murphy, Associate Editor — Logistics Management, 12/22/2009
With the recession in full swing, 2009 was a wild ride for some companies-and their supply chain managers. In a survey of more than 500 CFOs conducted by Basware in cooperation with Indiana University’s Kelley School of Business and the University of Navarra’s IESE Business School in Spain, 64 percent cited “reducing direct costs” as their top priority. It was, for many companies and their supply chain managers, the year to stay alive.
Fortunately, while many who are out of work would dispute word that the economy is improving, statistics from monthly reports from the Institute for Supply Management (ISM) have pointed to growth in the non-manufacturing sector, and even stronger growth in manufacturing. Findings like these have prompted many analysts to declare that the economy has not only finally ended its downward slide, but is on the way to recovering.
Founder of Third-Party Logistics Study Discusses 2009 Annual Report
John Langley, Professor of Supply Chain Management at the Georgia Institute of Technology, discusses a number of important topics related to the recently published annual report:
•What strategies are shippers and 3PLs using to deal with the economic downturn?
•Why does a gap continue to exist between what shippers expect from their 3PLs IT capabilities and their satisfaction with those capabilities?
•Are we at a critical juncture in the evolving relationship between 3PLs and shippers?
10 Steps to Developing a Successful Third-Party Fulfillment Partnership
Here are ten steps to take toward making a third-party fulfillment partnership successful and profitable:
1. Developing a successful 3PL partnership requires a significant amount of time, effort and follow-up by from the client company. It is important to immediately identify to all personnel that you have relinquished only the physical handling of your product to the 3PL and not the responsibility for managing your business.
2. Identify the client contacts and decision-makers who will be issuing direction to the 3PL. The 3PL group needs to clearly understand from whom they will receive direction and who their “go to” is to resolve problems.
3. Remember that the 3PL is proud of how it has chosen to manage its business. Conversing with the 3PL requires the same consideration you would extend to your most valued associates inside the client company. Never ignore issues or problems, but be firm and respectful. The 3PL is normally quite aware of who is paying the bills and who owns the inventory. The 3PL exists to serve; be a gracious ruler.
4. Communicate daily with 3PL management and visit the site as frequently as travel restrictions permit. Discuss the basics of the previous day’s operations: receiving, shipping, inventory management. Always inquire what you can do to assist them to achieve their goals and objectives. If possible visit monthly, but no less than quarterly. This sort of relationship can be a classic case of “out of sight, out of mind.” Your being involved maintains your status in the 3PL’s thoughts as a client who is on top of what they are doing and following their performance.
5. As a client you have to be diligent in managing the 3PL through daily reporting. You are now managing a remote location, even if it’s in the same community, and therefore your best source of information is the 3PL’s daily reporting and invoices. This is no different than managing your own operation. Master the information reporting so you can identify trends and immediately spot issues as they appear.
6. Inventory management is the most important reporting needed to manage a 3PL. The client has to know where to look for such issues as lost or damaged inventory, or out of stock when the inventory records indicate adequate supply. These are indications of performance issues requiring the client’s follow-up and resolution.
7. Receiving performance and inbound scheduling are next in importance for daily follow-up. The client has to know if there are vendor delivery issues or 3PL receiving issues which will negatively impact customer service level.
8. Normal daily shipping follow-up is important, but the most important thing to know is what did not ship.
9. Returns reporting is a critical trend report that enables you to identify not only client satisfaction with your product, but also 3PL performance issues. Detailed reason code reporting is imperative, and cumulative graphing is also valuable in discussions with the 3PL.
10. As a client you have to remain objective and aggressive in your efforts to manage your business reputation through the 3PL. A 3PL by nature of its activity now has more influence over the client’s customer’s perspective than the client has. Do not become a passive or uninvolved/uninformed client.
With the proper project definition and research you can make this a positive and profitable business decision for you and your customers.
The Logistics of Consumer-Direct Fulfillment
” Establishing a sustainable e-Commerce position is as much about using the right order-fulfillment strategies as it is about having the right product at the right price.” Fred R. Ricker and Ravi Kalakota
Order Fulfillment: The Hidden Key to e-Commerce Success
In July 1995, a young Wall Street computer whiz named Jeff Bezos opened a bookstore offering more than one million titles yet virtually no inventory.His brainchild—Amazon.com—has grown since then from four employees operating out of a 400 square-foot garage in Seattle into an online company with a stock valuation greater than most Fortune 500 companies. His initial concept—a virtual bookstore designed to do business exclusively on the Internet—was obviously brilliant and well executed, as evidenced by Amazon.com’s success in gaining and keeping customer attention and generating orders. Yet the company’s success to date is dwarfed by the potential of its apparent ambition— to build the world’s most efficient consumer- direct order fulfillment system. Amazon.com envisions a “killer” supply chain that can deliver virtually any product—not just b o o k s — directly to customers better than its competitors.
In fact, it took Amazon.com only one quarter after adding music to its offerings to become the Net’s leading music seller. The company currently is targeting the $150 billion pharmaceuticals market with a 40-percent stake in Drugstore.com. Today, the emphasis among more mature Web retailers like Amazon.com is shifting from marketing to fulfillment logistics—what happens after the order is placed. Good fulfillment—taking the right product, putting it in the right box, shipping it, and gaining the customer’s approval on arrival—is a demanding task. We believe it is here—in the down-and-dirty details of consumer direct order fulfillment—that the epic battles for domination of the e-Commerce marketplace will ultimately be won or lost. The emergence of the e-Supply chain, a group ofstrategically aligned companies focused on delivering differentiable value, signals a shift in the nature of online competition. It involves rethinking traditional supplier relationships and the role of informationdriven fulfillment logistics. In the new network economy, establishing a sustainable e-Commerce position is as much about using the right fulfillment strategies to get your products or services to buyers as it is about having the right product at the right price. The key to success is being able to give customers what they want, when they want it, and how they want it—all at the lowest cost. That requires “real-time fulfillment” solutions. These rising demands have driven a three-phase evolution. First the e-Corporation, which focuses on creating and maximizing the potential of internal supply chains, evolves into e-Business communities, where distributors, suppliers, customers, and others are linked but not fully integrated. These communities then become the e-Supply chain, which requires business-process and technology synchronization across the entire chain. Unfortunately, much of the start-up planning for e-Commerce ventures applies old models to new enterprises. It assumes, for example, the existence of a brick-and-mortar support infrastructure for the fulfillment or the spontaneous development of that infrastructure. Like it or not, most e-Commerce retailers place their initial emphasis on the “exciting” areas: Web product development, traffic generation, dynamic or customized Web pages, transactions, and so on. Often, e-Commerce retailers give little thought to order fulfillment and distribution—a capability critical to the success or failure of Web commerce. Our research shows that the lack of an integrated supply chain infrastructure or weaknesses in integrating multiparty logistics components can undermine the benefits of e-Commerce and hinder innovative responses to the competition.
CDC Fulfillment 