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

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

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

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

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

7. 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

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

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

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

11. 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?

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

13. 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
Receiving
Putaway
Storage
Letdown/ Replenish
Picking
Loading/ Shipping
Inventory management
Quality assurance
Inbound
Outbound

14. Company-Operated Warehouse Activities Order Pick Storage Area1
Receiving Area 2 3
Bulk Storage Area 4 5
Order Pick Storage Area
Office 6
Packaging Area 7 8 10
Staging Area 9
Shipping Docks
Source: Improving Quality and Productivity in the Logistics Process, Figure B-1.
142

15. 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

16. 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

17. 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
Source: Logistics Information Systems
170

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

19. 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.

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

21. 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

22. Outsourced Services: Current vs. Future
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

23. Customer Evaluation of Outsourcing
Extremely
successful
29%
Somewhat
54%
Neutral or
somewhat
unsuccessful
17%
Four out of five companies that use third-party logistics
providers are satisfied with the third parties’ performance.
Source: Third Party Logistics: Key Market/Key Customer Study,
University of Tennessee’s Center for Logistics Research and Exel Logistics

24. Miscellaneous Logistics Services
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

25. 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?

26. 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.

27. 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

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

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