Case Experience

• Perception

• The essay

• Prudent Assumptions

• Where's the Beef

• High Impact Writing

CODE COMMENT1 You are repeating the case facts2 Subdivide the paper for better impact3 Title / Charts should be complete4 I lost your logic trail about here5 Your conclusions are not supported by your logic trail6 Push the numbers!7 Underdeveloped concept / section8 These conclusions tend to be soft (unsupported by numbers)9 Plus other factors10 You have not convinced the reader that this is feasible or necessary11 What are the objectives of the firm?12 Use the information in the case13 What problems are you trying to fix?14 What will the program cost? How long will it take to implement?

15 or ? I don't understand what you are trying to say here

B. Mktg. 880

Spring 1999

Warehousing/ Outsourcing

BUD LA LONDE

Warehousing/ Outsourcing

• Some Strategic Issues

• Warehouse Operations: 101

• Outsourcing Overview

Some Strategic Issues

• Inventory Deployment

• Changing Functionality of

• Technology Integration

warehouse

ALTERNATIVES FOR INVENTORY DEPLOYMENT

InventoryDeploymentOptions

FirmDirected

ThirdParty

OtherStrategies

Centralized

Decentralized

Contract

Public

Flow ThroughCross-Docking

Floating Inventory

Postponement

Consignment

Three Example Strategies of Product FlowFast to market Waves of fresh Low cost assortments

Transportationfrom manufacturerto distribution center(DC)

Distribution centercost

Transportation fromdistribution centerto store

Store operation

Manufacturercost

Trade off some cost for speedand flexibility

Frequently usehighest costtransportation mode(airfreight) to gain speed

Look for speed

Small, fast, and expensivestore deliveries

Full service

Live with longerlead times in orderto drive lower purchase cost

Balance speed and cost using low cost transportation mode tosmall number of regional DCs

Balance speed and cost in handling new productwaves

More cost effectivesmall store deliveries

Full service

Drive lowest purchasecost and off-load as muchwork as possible tomanufacturers

Maximize use of lowestcost transportation modesby establishing many local DCs close to stores

Operate DCs to minimizework done in stores

Most cost effective fulltruckload delivery to stores

Self service

Source: McKinsey Quarterly 1996 Number 2

50

40

25

10

0

10

20

30

40

50

60

1996 1998 2000 2002

Assuming 100% is Completely Automated, Estimate

your Firm’s Level of Warehouse Automation

(median)

Source: 1998 OSU Career Patterns

PERCENTAGE OF SHIPMENTS WHICH ARE POOLED PRIOR TO DELIVERY TO THE

CUSTOMER - ALL INDUSTRIES (N = 196)

14.2

17.8

19.8

22.5

10

12

14

16

18

20

22

24

1994 1996 1998 2000

Source: OSU Career Patterns, 1996

PERCENTAGE OF OUTBOUND FREIGHT THAT WILL FLOW DIRECTLY FROM PLANT TO CUSTOMER - ALL INDUSTRIES (N = 196)

31.1

34.733.0

35.8

0

10

20

30

40

1994 1996 1998 2000

Source: OSU Career Patterns, 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

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

Typical Processes - Warehouses

Receiving Putaway Storage Letdown/Replenish Picking Loading/

Shipping

• Inventory management

• Qualityassurance

Inbound Outbound

Company-Operated Warehouse Activities

Receiving Area

Bulk Storage Area

Order PickStorage Area

Packaging Area

Staging Area

Shipping Docks

1

2

3

5

7

4

6

8

9

10

Source: Improving Quality and Productivity in the Logistics Process, Figure B-1. 142

Off

ice

Cost Structure ImplicationsThe 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

Equipment

Facilities

MiscellaneousSource: Andersen Consulting

The process of cross dock has received a great deal of attention recently

Cross docking is used in order to take advantage of transportation opportunitiesA

B

C

D

E

35 36 37 38 39 40 41 42 43 44 45 46 47

OUTOUT

ININ

Cross Dock

Source: Andersen Consulting

Source: Andersen Consulting

Outbound Consolidation

Crossdocking

Distributioncenter

Plant

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer

Customer1 5432

6

Source: Logistics Information Systems 170

Outsourcing Overview

• Why outsource?

• What are your options?

• What are future directionsfor 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 --

0

10

20

30

40

50

60

1992 1996 2000

$9B

$50-70B

$25-30B

1992

1996

2000

PotentialMarket

3PL Penetration

$350 B

$500 B

$700 B

2-3%

5-6%

8-10%

Source: Robert Delaney, Cass Logistics

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

Source: Ut Excel/ Ernest & Young, 1998

• 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

Current Future

Customer Evaluation of Outsourcing

Extremelysuccessful

29%

Somewhatsuccessful

54%

Neutral orsomewhat

unsuccessful17%

Source: 1997 Third Party Logistics: Key Market/Key Customer Study,

University of Tennessee’s Center for Logistics Research and Exel Logistics

Four out of five companies that use third-party logistics

providers are satisfied with the third parties’ performance.

Players Have Entered (and are continuing to enter) the Logistics Outsourcing Market from many Directions

Trucking

• Builders Transport• Burnham• CTI• Frans Maas• J.B. Hunt• Logix• Penske Logistics (Leaseway)• Pittsburgh Logistics• Ryder Integrated Logistics• Schneider

Air Freight

• DHL• FedEx LEC&C / Caliber• UPS - WWL

Ocean Carriers

• APL• Nedlloyd

Non-Traditional

• Andersen Consulting• CSC• EDS / A.T. Kearney• GE Capital• IBM

Industry

• Caterpillar Logistics• Fluor Daniel• GATX• W.W. Grainger

Logistics Management

• Menlo• TNT Logistics

Miscellaneous Logistics Services

• Circle• C.H. Robinson• Danzas• Fritz• Hub Group• Kuehne & Nagel• Schenker

Warehousing

• DSC• Exel• Tibbet & Britten• USCO

LogisticsOutsourcing

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 ChecklistA 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.

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

• Technology/ Information Integration

• Inventory Velocity Goals

Strategies

“Quality is when your

customers comeback and

your products don’t”