Know When to Say When

Timing is key to successful outsourcing in logistics.


With growth, though, often comes the need for changes in employees, facilities, material handling systems, IT, technology and more. Prior to any changes in these areas, it would make absolute sense for companies to explore furloughing their distribution operations and hiring a 3PL, say the experts.

Among these factors, labor is usually the most important. In the course of negotiating a new contract or a contract extension with existing employees, "you may get the word that your workforce is feeling overworked. As you look at how you can fix that, it may mean simply bringing on more people or additional shifts," Forte's Tyng says, "or that may be the time to start exploring your 3PL options."

In fact, the labor issue is one of the major factors leading the charge toward 3PLs, observes Richard Kochersperger, director of the Food Marketing Group in Wallingford, PA, and a professor of food marketing at St. Joseph's University in Philadelphia. "Human resources costs, like healthcare, benefits and taxes, are going up. Healthcare costs alone are going up 40 percent a year. With a 3PL, that's a controlled cost," he says.

"It's usually an earth-shaking situation within a company, but it can be a matter of cost; better use of manpower, equipment and technology; uncovering business restraints, like labor agreements or geographies; or just an opportunity to free up capital," says Bob Poduch, vice president of business development at Transervice Logistics, Des Plaines, IL.

Merger Mania

And while the experts agree that it is a good idea to benchmark your logistics operations against the 3PLs every few years, some companies are hit with a situation that requires more immediate action. The Food In-stitute in Elmwood Park, NJ, recorded 351 mergers and acquisitions within the food industry in 2004. For many, that is the starkest of realities that it is time to look at outsourcing, and time is of the essence.

Such was the case for drink maker Sunny Delight, based in Cincinnati. Its parent company, Procter & Gamble, put the company on the block in May of last year and wanted to transfer ownership by August. After that, it had six months to divest itself from P&G entirely.

Sunny Delight operated its own plants and warehouses in New York, Georgia, Texas and California, but had relied on P&G's extensive in-house supply chain capabilities to move its products to its customers. It was sold to Boston-based private equity firm J.W. Childs Associates, a firm which certainly had no logistics infrastructure in place.

"P&G did our transportation management, and now we would not have the logistics functions that came with being a part of such a large company," says Jim Glendon, Sunny Delight's supply chain manager. "We looked at what logistics capabilities and staff we had in house and decided it was a function we did not want to develop ourselves. We wanted to concentrate on building our business away from P&G and did not want to have to develop the function ourselves.

"We asked ourselves what skill sets we had. We couldn't find people in such short time and bring them into the fold. We had four warehouses, but no trucks. There would have been too much involved in trying to acquire IT, assets, etc. It also would have meant bringing in ordering systems."

So, in November, Sunny Delight selected Transplace to handle all outbound freight. The 3PL also negotiates contracts for Sunny Delight with a core group of refrigerated carriers, handles freight payments and arranges loading appointments for customer pickups.

"It was a thorough process, and our selection was based on cost, demonstrated results, clients, ease of startup and scale," Glendon says. "It's been working out very well. We had contracts in place with our carriers and started up Feb. 1 without any real issues at any of our plants. Transplace has been right on with all our targets."

Core Competency Focus

Sunny Delight's situation is not unique under those conditions. Con'sultants at Tompkins Associates "see a lot of interest in outsourcing when there is an administrative change within an organization," says Miller. "The organization was comfortable working within its own supply chain, but now there's a shakeup and the new leaders are trying to further maximize delivery to customers," he relates.

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