Opinion: Outsourcing "Points of Pain" in the Supply Chain

Third-party logistics providers are partnering with companies to handle global sourcing differences, improve product fill rates and eliminate other "points of pain" in the supply chain


"In-house logistics departments lack the flexibility to service special customer requests," said Maltarich, who spent much of his career in senior management at a Fortune 500 company before starting Tendeco. "They may attempt a special label, packing slip or order entry if important. But this invariably disrupts processes and ends up costing more than it's worth."

Outsourcing Pain in the Supply Chain

With the complexity of global supply chains, expense of updating warehouse management systems, and rigorous accounting and inventory oversight brought on by Sarbanes-Oxley, many companies are re-evaluating the wisdom of keeping critical supply chain management/customer fulfillment services in-house.

Instead, many companies are turning to third-party logistics (3PL) providers. These 3PLs do far more than just offload, store and ship product — the routine functions of a standard third party logistics provider. In many cases, the 3PLs literally partner with the company to protect the performance of its brand, ensuring that customers receive what they ordered, when and how they need it. And they do this transparently, so the company's brand receives all the attention. To achieve this, they integrate fully with customers at all the touchpoints of shipment, including invoicing, inventory management and reconciliation.

3PLs not only enable just-in-time (JIT) delivery, system integration and real-time Internet tracking, but also inventory analysis to maximize a company's fill-rates, inventory turns and return on investment (ROI). This is done in order that the company doesn't have to make its own ongoing capital investments in logistics, which can run an initial half-million dollars or more for sophisticated 3PL capability.

When Maltarich set the standard for fill rates on Tendeco's aftermarket automotive supply business at 95 percent within 48 hours, he relied on Kenakore Solutions, a Perrysburg, Ohio-based 3PL provider. He made his selection from a wide field of 3PL competitors based on cost, focus, flexibility, compatibility and technical infrastructure.

A 100 percent bar-coded environment now helps ensure investment-grade inventory accuracy for Tendeco, while real time processing delivers faster market response.

"Kenakore helps us consolidate bulk product from Brazil, Korea, Germany and Canada, as well as optimize inventory for shipment to hundreds of customers worldwide," said Maltarich. "Not only has our inventory shrinkage improved, but now we're filling more than 98 percent of orders within 48 hours. That's 5 to 8 percent higher than the average product fill rate of our competitors, which differentiates us in a very competitive market.

"If we need something special, Kenakore gets it done," continued Maltarich. "Our relationship is really a partnership."

To safeguard customer commitments and optimize inventory levels, 3PLs like Kenakore coordinate supply line variations from global, domestic and regional sources to ensure on-time production and shipment. They consolidate product from multiple sources so customers get a single, complete shipment rather than multiple partial shipments. They accommodate special requests such as kitting, assembly, labeling, packaging and private branding.

Dana Corp., a partner to automotive, commercial, and off-highway vehicle customers with employees in 28 countries, understands the importance of optimizing the supply chain to better service its customers, who made $9.1 billion in purchases in 2004.

"To succeed in the future, companies will have to master their supply chains," said Vicky Black, vice president of Dana Corp.'s Service Parts Division. "It's not just a matter of being efficient, but of satisfying the customer at the two main points of contact — at the point of sale and point of delivery. Since so many products are becoming commodities with global competition, product availability and on-time, error-free deliveries are becoming essential differentiating factors in making the sale."

Recently, Dana Corp. relied on third-party logistics for warehouse management, product consolidation, kitting and packaging. In analyzing order patterns and product in/outflow, Kenakore was able to identify Dana Corp.'s fastest selling items at a distribution center.

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