Know When to Say When

Timing is key to successful outsourcing in logistics.


In the food industry, there are tell-tale signs that it might be worthwhile to at least consider outsourcing some supply chain functions to a third-party logistics provider (3PL).

To put it in the most basic of terms, customers will judge a company by how well its supply chain operates. "If you're getting an inordinate number of complaints about deliveries, product damage, errors, products arriving late, etc., and you've tried to make corrections but have not been able to resolve the problems, it may be time to look for a 3PL," says Aaron Miller, a principal with Raleigh, NC-based Tompkins Associates.

But, by that point, it might already be too late. When it comes to outsourcing, timing is everything, and a number of industry insiders agree that companies should especially look at their supply chains at a time of strong corporate growth and expansion into new markets. A company needs to know when its existing supply chain can no longer keep up with its rapid growth before customer service starts to deteriorate, not after, they say.

"As your market expands, it gets more expensive to ship to all your customers. You want to be able to move your central shipping points to your customers, and that is costly in terms of facilities and transportation," says Bill Tyng, a supply chain systems consultant at Forte Industries, Cincinnati.

On top of that, it could become difficult to predict just how much warehouse space the company will need from year to year. One year might see the need for 50,000 square feet of space, the next year could see 100,000, and the year after that could see a drop to 40,000.

That was a problem experienced by Red Bull North America, the energy drink maker. As the company grew, it looked at its logistics operations and decided recently that it was time to turn over its entire supply chain to Ozburn-Hessey Logistics, a 3PL based in Nashville, TN.

"Red Bull needed a premium logistics provider to help us achieve supply chain strategies," says Rob Steere, its director of operations. "We are experiencing explosive year-over-year growth rates. These growth rates are exciting, however, it makes forecasting your warehouse space requirements more challenging."

For that very reason, one of the primary attributes Red Bull sought in a 3PL partner was scalability. "OH Logistics makes it possible for Red Bull to leverage their national network of multi-client warehouses to flex with our space needs," Steere says.

Red Bull's decision to outsource at that moment in time is not uncommon. "Often, the decision to outsource is simply a location thing," says Bruce Meyers, vice president of Nebraska Warehouse and president of its LTL and truckload carrier Cannonball Express Transportation Co., both in Omaha, NE. "A small food company is located in Chicago and it just got business in Omaha. That's too far away for the company to handle it itself, and it may not be worth it to build a new operation there just for one customer."

When you've reached that point, you need to "do a network analysis to determine if you have the right number of facilities, if they are in the right locations, and if you have the right linkages between your suppliers, stores and other DCs," ad'vises Tom Sanderson, president and COO of Transplace, Plano, TX.

And when a company's strong growth takes it to international markets, it may be even more important to have a 3PL on board to handle the logistics. "You especially want to outsource anything international," says Richard Armstrong, president of 3PL consulting firm Armstrong & Associates, Stoughton, WI.

There are many 3PLs that specialize in international transportation management, he notes, citing very different cultures and languages, political and economic factors, building and labor issues, storage measurements and pallet sizes, insurances, customs regulations, border crossings, ocean and air freight handling and a whole lot more, as reasons to let a 3PL handle global logistics. "To some degree, you want to find one 3PL company that can integrate all the functions that go with it for you," Armstrong says.

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