1© 2000 Expeditors

Global Distribution Services

Distribution Services

A How to Discussion when Considering your Outsourced Options

2© 2002 Expeditors

Agenda

• Discuss outsourcing objectives and considerations

• Highlight typical services outsourced• Develop framework for understanding provider

methodolgy for developing cost structures• Understand the technical aspects an outsourced

provider is offering• Discuss terms of conditions vs. contracts

3© 2002 Expeditors

What You Will Take Away From This

• Identify situations where outsourced activity is conceivable .

• Define the typical services outsourced providers may offer and the level of complexity for those services.

• Identify potential service offerings that concur with objectives

• Describe Development of the scope of services and rate structures for proposed services.

• Identify key system offerings and technical tools that correlate to strategic advantage and efficiencies

4© 2000 Expeditors

Global Distribution Services

Sourcing Objectives

5© 2002 Expeditors

Why Outsource?

• Knowledgeable work force

• Outsourced services allow one to focus on core competencies

• Logistics solutions customized to fit specific needs and criteria

• Convert fixed costs to variable costs, capital re-investment

– Note: see example

• Achieve technology gains and quicker return on investment

• Flexible space and labor

• Global presence and expansion

• Start-up

• Special projects

6© 2002 Expeditors

Considerations when sourcing Distribution Services

• 3 S’s of sourcing– Service– Systems– Solutions

• Location(s)• Flexibility• Terms and conditions vs. contract• Scope of work• Price

7© 2002 Expeditors

Considerations when sourcing Distribution Services – 3 S’s

• Service– What is your perception of providers ability to provide true

service– Do you need high level of “customer service”– Will provider “do what it takes”– Longevity – relationship is costly to change

• Systems– WMS vs ERP– In-house vs. over the counter vs. customer system– Warehouse set-up, custimization– Peripherals– Technical support– Compatibility and EDI

• Solutions– Custimizable or standard

8© 2002 Expeditors

Considerations when sourcing Distribution Services - Location

Location(s)• Local – “Mom and Pop”

• Regional

• Major domestic markets

• Global

• Wherever you need to be

9© 2002 Expeditors

Considerations when sourcing Distribution Services - Flexibility

• Space– Fixed or variable models– Equipment– DC Set-up– In-house– Peaks and valleys

• Labor– Flex up or down– Hourly vs unit based– Management

• Solutions– System integration– Outside the box– Customized for you– Value add

10© 2002 Expeditors

Considerations when sourcing Distribution Services – Terms and Conditions

Standard Terms and Conditions• Do they work for you• Are they fair – for both sides• Red flags• Less complex, high turn rate

Contract• Terms of service obligation• Lengthy negotiations• Is provider flexible enough to consider risk of contracts• Complex and specialized services• High tech

11© 2002 Expeditors

Considerations when sourcing Distribution Services – Scope of Work

Develops framework for your agreement• Are requirements for service outsourceable and

are you comfortable• Basis for pricing you will agree to• Is it well defined or ambiguous

– Note: providers responsibility to develop this

• Attainable?• Measurement criteria and goal reaching• Will you be micro-managing or weed pulling?• Exceptions

12© 2002 Expeditors

Considerations when sourcing Distribution Services – Pricing and Cost Structure

• 1st and foremost: Is the scope of work well defined?

• Variable vs. fixed structure• Avoid flat rates• Accessorials – do they make sense?• How are costs calculated – manual or

systematic by transaction• Will all parties involved be successful• How will performance be validated against cost• Can provider pass the “red-face” test?• Profit center or cost center

13© 2000 Expeditors

Global Distribution Services

Distribution Services

Solution Models

14© 2002 Expeditors

Solutions

Com

ple

xit

y

Trans-load

DC Bypass/Store Direct

Cross-dock

Merge in Transit

Postponement/Localization

Supplier Managed Inventory

ComplianceInspection

Expeditors Distribution Services © 2005 Property of Expeditors International of Washington, Inc. and its subsidiaries. All information contained herein is confidential and proprietary and may not be reproduced, used, manipulated, disclosed, copied or disseminated without Expeditors' prior written consent.

Kitting

Fulfillment/Pick and Pack

Procurementfunction

The supplier Consolidation Transportation CustomsManufacturingor distribution

function

Manufacturingor distribution

function

TheSupplychain

•Kitting•Compliance Inspection•Origin distribution

•Transload•Cross dock

•Merge in transit•Kitting•VMI•DC bypass•Fulfillment

1

Service

Com

ple

xity

Trans-load

Trans-load

• Change mode of carriage

What is it? Benefits

Import: International long-haulExport: Local source

Import: Final transport legExport: International transport

• Visibility throughout transit• Cost savings from consolidation• Quickly transfer between conveyances• One to one simplified execution

Dock

From one conveyance to another

In

Out

2

Service

Com

ple

xity

DC bypass

DC Bypass (Store Direct)

•Product does not touch customer distribution center

What is it? Benefits• Time savings/Shorter transit• Cost savings• Reduced product touches

CustomerDistribution

Center

Store

Store

NormalBypass

Store

3

Service

Com

ple

xity

Cross-dockCross-dock

•Rapid movement (<72 hours) of inbound goods to many destinations

What is it? Benefits• Reduce handling and storage costs• Increased throughput• Faster inventory turn

Cross-dock

4

Service

Com

ple

xity

M.I.T.Merge in transit

•Merge customized product with standard productWhat is it? Benefits

• Lower transportation costs• Optimal mode selection

Warehouse

5

Service

Com

ple

xity

PostponePostponement/Localization

•Delay final SKU kitting until unit is sold•Locally procured or country specific items are added prior to shipment

What is it? Benefits• Lower inventory levels of main components• Delay point of differentiation• Rapid delivery of wider product variety• Potential to reduce duty for work in process

vs. finished goods

WarehouseStandard Items

Local unique Items

To country A

To country B

6

Service

Com

ple

xity P&PProduct Fulfillment/

Pick and Pack

• Orders are filled at less than master carton quantity

What is it? Benefits• Allow customers to order specific

items

Stock

Order 1 Order 2

To customer 1

To customer 2

Warehouse

7

Kit #1

Service

Com

ple

xity KittingKitting

• Combine Materials from multiple suppliers

What is it? Benefits• Fewer materials on the production floor• “Just-in-time”deliveries to appropriate

line reducing costs and increasing productivity• Smaller buffer inventory

Supplier 1

Supplier 2

Supplier 3

WarehouseStock

Kit #2

Kit #3

Product 3

Product 2

Product 1

Production

Manufacturing line

Site Installations

Retail

8

Service

Com

ple

xity VMISupplier (Vendor)

Managed Inventory

• Supplier manages the stock levels and availability for the customer based on forecasts

What is it? Benefits• Receive Just-In-Time (JIT) deliveries • Local warehouse without infrastructure investment• Real time visibility to inventory for all suppliers• Shift to suppliers financial responsibility, and for

managing and replenishing inventory

Supplier 1

Supplier 2

Supplier 3

VMI HubStock (owned and inventory levels managed by supplier)

Product 3

Product 2

Product 1

Manufacturing line

Deliv

Deliv

Deliv

Inventory owned by supplier Inventory owned by customer

Pull

Hubreceives signal

Pull

Lineissuessignal

9

Service

Com

ple

xity

ComplianceInspectionCompliance Inspection

• Inspection of product at receipt or from stock to insure compliance with specification

What is it? Benefits• Validate supplier performance

regarding product and documents• Move inspection closer to supplier or

source

Supplier

WarehouseInspect parts for

compliance to specification

OK!!

At receipt

From stock

15© 2002 Expeditors

Service

Com

ple

xit

y

Trans-load

Trans-load

• Change mode of carriage

What is it? Benefits

Import: International long-haulExport: Local source

Import: Final transport legExport: International transport

• Visibility throughout transit• Cost savings from consolidation• Quickly transfer between conveyances• One to one simplified execution

Dock

From one conveyance to another

In

Out

16© 2002 Expeditors

Service

Com

ple

xit

y

DC bypass

DC Bypass (Store Direct)

•Product does not touch customer distribution center

What is it? Benefits• Time savings/Shorter transit• Cost savings• Reduced product touches

CustomerDistribution

Center

Store

Store

Normal

Bypass

Store

17© 2002 Expeditors

Service

Com

ple

xit

y

Cross-dockCross-dock

•Rapid movement (<72 hours) of inbound goods to many destinations

What is it? Benefits• Reduce handling and storage costs• Increased throughput• Faster inventory turn

Cross-dock

18© 2002 Expeditors

Service

Com

ple

xit

y

M.I.T.Merge in transit

•Merge customized product with standard product

What is it? Benefits• Lower transportation costs• Optimal mode selection

Warehouse

19© 2002 Expeditors

Service

Com

ple

xit

y

PostponePostponement/Localization

•Delay final SKU kitting until unit is sold•Locally procured or country specific items are added prior to shipment

What is it? Benefits• Lower inventory levels of main components• Delay point of differentiation• Rapid delivery of wider product variety• Potential to reduce duty for work in process vs. finished goods

WarehouseStandard Items

Local unique Items

To country A

To country B

20© 2002 Expeditors

Service

Com

ple

xit

y

P&PProduct Fulfillment/Pick and Pack

• Orders are filled at less than master carton quantity

What is it? Benefits• Allow customers to order specific items•Reduce fixed costs associated with DC operations

Stock

Order 1 Order 2

To customer 1

To customer 2

Warehouse

21© 2002 Expeditors

Kit #1

Service

Com

ple

xit

y KittingKitting

• Combine Materials from multiple suppliers

What is it? Benefits• Fewer materials on the production floor• “Just-in-time” deliveries to appropriate line reducing costs and increasing productivity• Smaller buffer inventory

Supplier 1

Supplier 2

Supplier 3

WarehouseStock

Kit #2

Kit #3

Product 3

Product 2

Product 1

Production

Manufacturing line

Site Installations

Retail

22© 2002 Expeditors

Service

Com

ple

xit

y VMISupplier (Vendor) Managed Inventory

• Supplier manages the stock levels and availability for the customer based on forecasts

What is it? Benefits• Receive Just-In-Time (JIT) deliveries • Local warehouse without infrastructure investment• Real time visibility to inventory for all suppliers• Shift to suppliers financial responsibility, and for managing and replenishing inventory

Supplier 1

Supplier 2

Supplier 3

VMI HubStock (owned and inventory levels managed by supplier)

Product 3

Product 2

Product 1

Manufacturing line

Deliv

Deliv

Deliv

Inventory owned by supplier Inventory owned by customer

Pull

Hubreceives signal

Pull

Lineissuessignal

23© 2002 Expeditors

Service

Com

ple

xit

y

ComplianceInspectionCompliance Inspection

• Inspection of product at receipt or from stock to insure compliance with specification

What is it? Benefits• Validate supplier performance regarding product and documents• Move inspection closer to supplier or source

Supplier

WarehouseInspect parts for

compliance to specification

OK!!

At receipt

From stock

24© 2000 Expeditors

Global Distribution Services

Develop the Opportunity

25© 2002 Expeditors

Process for developing Scope of Business into Cost Structure and Solution

Learn about a new

opportunity

Receive first shipment

?

26© 2002 Expeditors

How do we develop an opportunity?

• Opportunity identified.• Information gathered, analyzed, and compared

– Questionaire, volume analysis

• Client – Provider meetings, conferences, and outings to discuss services required

• Remember: complexity=longevity• Key: If a provider does not intend to fully

understand your business they will not fully intend to offer you the best solution

• Solution and pricing established and agreed to

27© 2002 Expeditors

Understanding your Business

• Scope of service defined (NOT SOP)– Requirements understood– Definition is important– Less defined means less opportunity for success

• Historical vs forecasted volumes understood and analyzed

• Performance measurements outlined

Understand

28© 2002 Expeditors

Pricing the Opportunity

• Three main components of distribution costs:• Space• Labor• Supplies

– Understand these components in combination with volumes• Note: Pricing analysis

• Rates established– Volume, longevity = favorability– Variable not fixed unless requested– Accessorials

Scope and

Rates

29© 2002 Expeditors

Present the Solution

• Does the scope of work agree with the requirements – collective

• Does the pricing correlate with this scope – also collective– Negotiate?

• Agree to Key Performance Indicators (KPI)• Develop SOP(s)• Flow out the process• Marriage

Process

Development

30© 2002 Expeditors

Process for developing Scope of Business into Cost Structure

Learn about a new

opportunity

Receive first shipment

Understand

Scope and Rates

Process Development

31© 2000 Expeditors

Global Distribution Services

Technical Offerings

32© 2002 Expeditors

What to Look for

• Scalability– Warehouse Management System

• Solution Offering• EDI – system integration

• MDC

• RF capability

• RFID – where is this going?

• Web based visibility and reporting capabilities

• Technological Awareness• Proprietary vs. over-the-counter• Supply Chain Integration

33© 2002 Expeditors

Close

• Questions