15 November 2011
Going the extra mile
Tough economic conditions mean manufacturers want more bang for their buck from third party transport and distribution suppliers. Robin Meczes reports on a raft of added-value services
Here's a silly question: what does a manufacturer use a third party transport and logistics firm for?
The answer – obviously – is for the storage and transport of goods. But increasingly, it can involve a lot more than that, from product finishing and packaging to managing the manufacturer's suppliers and dealing with its customers.
Added-value services are nothing new to transport and logistics firms or their customers, of course. But the scope of services and the degree to which they are being requested have both grown over the last three years, as the economic squeeze forces manufacturers to operate more efficiently.
One of the upshots of this pressure is that many manufacturers are now actively looking for opportunities to collaborate logistically with their customers and competitors.
Perhaps the best example of this has been Nestlé's collaboration since 2007 with arch rival United Biscuits. The partnership involves the two firms sharing each other's transport resources and suppliers to reduce empty running and cut down on wasted mileage.
"Customers are looking for the opportunity to get into collaborative relationships and are looking for third party logistics firms (3PLs) to be more agile and more flexible now," confirms Chris Kingshott, MD of the manufacturing division at Wincanton.
Such collaboration isn't just about transport, either: Kingshott says more and more of his customers are now looking for shared user, rather than dedicated warehousing.
"Lots of manufacturers are looking at their cost to serve, the range of stock-keeping units (SKUs) they hold and where they hold them, which has resulted in them reviewing their supply chain strategy and often freeing up space," he explains. "Then they need someone to broker that and fill that space."
It's not all about collaboration, however. The economic squeeze has also led to much greater use of 3PLs when it comes to coding and packing finished products as well as end-of-line handling, says Kingshott.
Paul Brooks, sales director for Unipart Logistics, says his firm is also experiencing much greater demand for broader services from clients. Requests range from order management to running customer service desks. And the way clients are selecting 3PL partners is also changing as a result of financial pressures. "Previously, people would decide if they liked the cut of our jib. These days, it's about how much more value you can add, how quickly you can add it and how flexible that is," he says. "Many firms who weren't thinking of outsourcing previously are finding they have a compelling imperative to consider it now."
Flexibility is perhaps the key thing manufacturers now want from a third party distribution arrangement, he suggests. Many firms seek to avoid long-term commitments on vehicles or warehouses and turn to third party suppliers to do so – perhaps committing to a relatively small core resource with the flexibility to add more should requirements dictate.
For the same reasons, more customers are also seeking shorter contracts, says Brooks, frequently on a six or 12-month rolling basis.
The cost of a contract, of course, remains of paramount importance to customers and on this score, manufacturers have put growing pressure on 3PLs to come up with more for less.
One thing this has led to, says Brooks, is his firm offering some customers a discount for accepting deliveries earlier or later in the day than they would otherwise. The trend allows the 3PL to smooth out its delivery patterns, do more with fewer assets and thus make savings which can ultimately be shared with the customer.
"In one recent example, we took 14% of our assets off the road, gave the customer a better on-time delivery service and gave them an 18% cost reduction – all from shifting delivery times," he says.
Another change Brooks cites is a growing interest from manufacturers in contracting out inbound as well as outbound logistics. "I'd say inbound logistics is increasing more quickly, because that helps manufacturers get better flow through manufacturing and obviously, the manufacturing operation is their biggest prize," he says. "We've launched a whole area of lineside and supplier management in the last year and it is going very well. In most inbound supply chains, if you haven't already got a lean manufacturing operation, there's a 10-20% efficiency opportunity available to you."
Mick Wilson, director of the high cube business unit in the logistics division at Norbert Dentressangle (ND), agrees that cutting costs remains one of the major drivers when it comes to manufacturers contracting out their distribution and that 3PLs are in a good position to deliver this.
He cites a collaboration between Kellogg's and Kimberley Clark which ND helped to put in place. This involves the latter's products being stored in the former's Trafford Park warehouse, with collaborative deliveries taking place in both the south east and north west. On transport costs alone, this has resulted in a 7% saving, he suggests.
Like others, he says manufacturers now want much shorter lead times than in the past, with day one for day four becoming day one for day two, or even day one for day one.
First-time outsourcers should typically be able to make savings of 8-15% by contracting out the basic distribution function, suggests Wilson – more if they start contracting out other parts of their operation. And there is still a lot of potential for outsourcing, he believes. "I'd say there are still plenty of manufacturers that could take advantage of lower costs, were they to outsource," he says.
A survey conducted earlier this year for DHL Supply Chain in conjunction with Works Management certainly underlines this. It revealed that just 44% of the UK manufacturers surveyed currently outsource transport while just 13% contract out warehousing, with figures of 1% for inventory management, 2% for packaging and order fulfilment, 5% for inbound procurement and 7% for lineside delivery.
Yet at the same time, when asked what supply chain improvements their customers were looking for, 72% of those participating in the survey said shorter lead times, 75% said agility and 83% pointed to right time/right quantities.
Ian King, business director for engineering and manufacturing in the industrial business unit at DHL Supply Chain, says there has been significant uptake over the last few years in what he terms the "lean logistics type model, where you are orchestrating their supply chain, rather than just providing services". He attributes this to manufacturers becoming more focused over time on their core production activities – at least in part due to economic pressures.
"These aren't normal times we're living in, they are extraordinary times," he explains. "Manufacturers are now looking at opportunities they previously haven't thought worth chasing. They feel they need to make the savings and make the change, or else they won't survive."
Supplier management, inventory management and lineside activities are all a growing part of the DHL service offering, he says. And looking ahead, he sees little change in the outlook.
"The economic climate probably isn't going to improve that dramatically in the next couple of years and I think people will be forced to continue to take the opportunities out there to improve service and reduce costs," says King.
"There are opportunities in every manufacturing sector [for more outsourcing]," agrees Kingshott of Wincanton. "I think it is being driven by the state of the economy, which is making more people start to think outside the box – both at 3PLs and their customers."
DHL Supply Chain
DHL Supply Chain
Norbert Dentressangle Logistics
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