Today’s third-party logistics companies are more than just yesterday’s warehouses and trucks, storing and delivering products. These relationships are developing into highly sophisticated and collaborative strategies for operational excellence resulting in some pretty impressive cost reductions for all parties involved.
Food and beverage companies and their third-party logistics (3PL) counterparts together are discovering win-win successes being felt throughout the supply chain—right into the back offices of financials, sales, marketing and IT.
So how do you develop these win-win relationships? First and foremost, agree our experts, talk is not cheap and should not be taken for granted.
“There has to be open communication between the parties,” says Bruce Siberski, director of dry distribution for Pinnacle Foods Corp. in Cherry Hill, NJ. “For instance, we give our 3PL (DSC Logistics) a heads-up when we anticipate heavier-than-usual volumes—rather than blind siding them all of a sudden with customer promotions.”
He also advises giving your 3PL an accurate profile of your business, including your product line and volumes and whether you require pallet picks or case picks, the latter requiring more labor.
Establish your mutual expectations, suggests Chris Kane, vice president of sales and marketing for Kane is Able in Scranton, PA.
“Set clear expectations between yourselves. We sat down with The Topps Co. to discover what services they needed us to handle,” says Kane. “Then together we developed a strategy so each of us could live up to our respective responsibilities. We manage our part by measuring KPIs (key performance indicators) on a monthly basis to assure we are measuring up to Topps’ expectations.”
Determine if your potential 3PL is flexible enough to handle surges and special promotions. “One of the biggest values is being able to offer your customers product customization like building club packs, rainbow packaging, and pre-priced and pre-labeled packages,” says Tom Patterson, senior vice president of warehousing operations for Saddle Creek Corp. in Lakeland, FL. “Any time you try to do these things at the plant level, it could hurt production. It is a significant benefit to be able to have your existing inventory converted into promotional material so the existing inventory does not age.”
SHARED RISK MANAGEMENT
One of the more innovative alliances between RLS Logistics and Philadelphia Cheese Steak Co. is the captive insurance group the two companies are part of, along with about 50 other companies, some of which are friendly competitors to Philadelphia Cheese Steak. The company—Mac Casualty—was formed 13 years ago to take a more active role in the risk management, underwriting, and purchase of insurance coverage.
“We have the benefit of being self-insured without assuming the entire risk of being self-insured,” explains Jim Trivelis, president of Philadelphia Cheese Steak. “We each own one share in the insurance company. We are considered good risks as family-owned and family-operated companies. We are tied very closely from a risk control and risk management perspective.”
The group of 50 companies meets twice a year, sharing information on risk control and rates. “From an underwriting standpoint and a risk-control standpoint, we own the company,” says Trivelis. “If one in the group happens to have a bad year, we help underwrite that company by spreading the loss. This is a great way of being self insured without taking on the entire risk because we are pooling ourselves with some very well-run risk management companies.”
Philadelphia Cheese Steak has maintained its relationship for about 16 years with both RLS Cold Storage and RLS Logistics. As its business continued to grow, Philadelphia Cheese Steak required a tempering program.
“We were able to set up a program here to receive their frozen imported products and have them inspected by the USDA. We then put the products into our tempering facilities and deliver them based on production needs,” explains Kevin McVey, vice president of business development for RLS Logistics in Malaga, NJ.
The frozen meat is brought up to a temperature of around 28 degrees to 30 degrees Fahrenheit. “The meat is still in a semi-frozen state, but when they receive it at their facility, it is not frozen solid and the meat can be further manufactured without chipping, creating higher yields,” McVey explains.
A little over six years ago, The Topps Co. recognized it had several things in common with some of its regional competitors—which could effect benefits for all. Topps talked with Kane is Able (its 3PL) and another confectionery manufacturer warehousing with Kane about developing a unique co-loading program.
“We had a common customer base and we both utilized a unique national distribution network of independent regional temperature-control carriers,” says Ron Zaykowski, director of supply chain management for Topps in Duryea, PA. “We realized we could achieve economies of scale if we had Kane buying transportation collectively on behalf of both of us.”
Topps’ products, and those of its load consolidation partners, require temperature-control shipping to protect them from high heat and humidity.
So Topps began optimizing its order-flow process at the shipment planning stage, which reduced lead times by pooling freight with other participants in the program.
“Kane embraced this opportunity to morph itself into a provider beyond its traditional warehousing and distribution services because this concept made a lot of sense,” Zaykowski says. “This innovative idea has grown into an extremely successful national outbound temperature-control shipping program unique in today’s competitive environment.”
Even more noteworthy is the fact that Topps and the other participants recommended professionals they knew could effectively manage such a program. “These were experienced people who were self-starters who could really develop this kind of program,” continues Zaykowski. “So establishing the program was collaborative right down to who was going to manage the program.”
Topps eventually handed off the coordination of its outbound confectionery shipment planning and outbound transportation to Kane. “All their products are shipped to us from their manufacturing locations and we store the products in northeastern Pennsylvania,” reports Kane.
Kane handles all the inventory management software, sharing real-time inventory data with Topps via EDIs. Topps’ finance department relies on the data to review inventory levels, and Topps’ supply chain personnel use the data to service its customers.
“So that is a delicate balance, because financial wants inventory as minimal as possible and supply chain wants enough to fulfill orders,” Kane says.
SAVING WITH DROP-HOOK
Detention charges at intermodal yards are something DSC Logistics can handle effectively for Pinnacle Foods Corp. of Cherry Hill, NJ.
“A lot of Pinnacle’s products are very heavy and originate from the Midwest and East Coast, so they ship quite a bit intermodally,” says Joey Davidson, director of business development for Chicago-based DSC Logistics.
DSC operates two California DCs for Pinnacle—one in Tracy handling deliveries in northern California, Oregon, Idaho and Washington; and one in Mira Loma handling deliveries in southern California, Nevada, Utah and Arizona.
Shipments of seasonal products like pickles and cake mix created problems because of the surge in volume during those times. “It’s not like you can even out the flow of products during these seasons,” continues Davidson. “So they wound up paying detention charges at the ramp, especially during their surge periods.”
To overcome this, DSC began a drop-and-hook program to have a drayage company pick up the containers once they were dropped off at the rail yard in southern California.
“The dray brings the containers to our facility and even if we don’t have the capacity to unload trailers when they are dropped here, we store them in our secured lot until we can unload them into our DC,” says Davidson, noting that Pinnacle saves about 70 percent on its inbound costs since using the program that began last fall.
Pinnacle’s operational model is based on the seasonality of some of its products—like Vlasic Pickles whose shipments peak in the spring and summer months and Duncan Hines cake mixes and frostings with a fall and winter peak. For this reason, consolidation in a shared facility with multiple vendors allows Pinnacle to expand or contract its space requirement in DSC’s facilities, reducing its warehousing costs.
“If they didn’t have that additional capacity for me, I would have to go out and rent another warehouse in the area to accommodate that surge,” explains Siberski at Pinnacle.
Cost-Efficient Shared Warehousing
Seasonal and promotional fluctuations can be a headache for food and beverage companies’ financial departments and supply chain managers. On the one hand, they don’t want to commit to paying for too much warehousing space, especially during the times their surges diminish. On the other hand, they don’t want to be caught without the space those surges require.
Saddle Creek Corp. found an effective solution recently, balancing the requirements of a beverage manufacturer with those of a food manufacturer—each with surges happening opposite to the other.
When the beverage client’s requirements for space began to increase significantly, Saddle Creek suggested consolidating inventory for the sake of cost efficiency and increased control of inventory management. The beverage company had a production facility in Lakeland, FL, where it was also housing product, in addition to product in facilities on Saddle Creek’s campus. Clearly, its growth was pointing to consolidation.
“We analyzed what their space requirements would be, considering their peaks during the summer months,” reports Stephen Cook, vice president of marketing and business development for the Lakeland, FL-based company. As a base requirement, Cook and his team determined the client would need about 200,000 square feet of space, allowing for current needs as well as the flexibility to grow.
At about the same time, Saddle Creek began talks with a major food company in the process of conducting a network optimization study. “This company had purchased two other companies and they wanted to combine their inventories, housed in separate DCs,” explains Cook.
The study indicated they needed to be in the central Florida area and they needed a base requirement of 150,000 square feet of space. And they needed the flexibility to accommodate future growth and acquisitions.
With a commitment of 350,000 square feet of space for the combined requirements of the two clients, Saddle Creek went ahead and constructed a 486,000 square foot facility on its Lakeland campus for these two companies. The facility began operating this past January. Each company is located at opposite ends of the building so each can ebb and flow toward the middle as required. “We guaranteed both of them that when they require additional space it will be theirs, but they will only pay for the overflow space as they need it,” Cook says.
The three companies couldn’t have asked for a better solution to satisfy each of their needs. Saddle Creek has its commitment from its two clients, and each client is assured space will be there when they require it.
“The beverage company was able to consolidate and have inventory in one central location and Saddle Creek provides them with a transportation shuttle from the production site to our campus,” continues Cook.
“And the food company has combined the two inventories into one central location. The key point is each company does not have to commit to larger blocks of space to accommodate surges and future growth.” –A.T.
OTHER WINNING SERVICES
As 3PLs continue to build on their client relationships—acquiring a deeper knowledge of their partners’ businesses—they help discover hidden areas of optimization. Many 3PLs handle sample requests and special kitting orders for their clients’ large retailer customers. Here are a few other initiatives:
Charge-backs: Kane Is Able has assisted in reducing charge-backs and other penalties that its customer, The Topps Co., had been facing. “They told us they were getting a lot of charge-backs because more of their customers were requiring ASNs and some retailers were charging penalties if the notices were not sent at the time of shipment,” says Chris Kane, the company’s vice president of sales and marketing.
In-store displays: Third-party logistics companies help their clients’ sales and marketing initiatives. For example, 3PLs can manage a number of special promotional projects, including marketing efforts such as building in-store displays and special packaging arrangements like rainbow packs and club-store packages.
Seasonal displays: Food manufacturers can reap significant savings by using their 3PLs to handle some functions traditionally managed by co-packers. DSC Logistics builds special modular pallets for Pinnacle’s seasonal displays.
“For example, for holidays like Valentine’s Day and Christmas they might want us to build special pallets with tailored cake flavors and frostings,” explains Joey Davidson, director of business development for DSC Logistics. “We can provide these end displays for retailers, which drives additional sales for Pinnacle.”
Sharing transportation: Philadelphia Cheese Steak realized that competitors can be friendly. For example, a few other companies in the Philadelphia region manufacture similar products.
“Although we compete on the shelf, we realized that if we collaborate our shipments so together we can ship a full truckload to [various locations nationwide], we can all get better rates,” reports Jim Trivelis, president of Philadelphia Cheese Steak.
“Our objective at Philadelphia Cheese Steak is to have our products delivered throughout the country at least once a week at a lower transportation cost. RLS can match up our shipments with others going to the same place.”
He adds that RLS has become an integral and vital part of the company’s supply chain management operations. –A.T.