Good contract: good logistics

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Logistics outsourcing has had its share of bad press over the years with people saying they’re outsourcing, but not seeing the benefits. But success depends on how you set up the contract, delegates heard at the Logistics Manager Summit at Sandown Park in February. Rosy Hill reports.

In logistics it’s not just what you do, but how you do it – and it seems how you do it can vary, from focusing on forecasting and implementing new technology, to launching new services and strategic partnerships, just don’t forget your yellow card along the way.

In a joint presentation at this year’s Logistics Manager Summit, DHL’s vice president operations, Gavin Lucas, and Birds Eye’s group distribution manager, Peter Broome, took to the stage to present a case study on their partnership.

Lucas and Broome discussed the journey between their two companies, and exactly how their relationship has developed and improved. “You really have to look at it from both sides,” said Broome. “It’s not just about the customer or just about the 3PL – both teams must come together to ensure consistent results.”

After being sold by Unilever to the Iglo Group in 2006, Birds Eye took the time to assess and redesign its network. In 2010 the company moved into a brand new distribution centre in Wisbech, Cambridgeshire, and so began its journey with DHL. DHL took on responsibility of moving Birds Eye’s product from its factory in Lowestoft, Suffolk, to the new Wisbech site, as well as delivering to all of Birds Eye’s UK retail customers.

Lucas and Broome explained that their relationship began at a very basic level. Birds Eye’s expectations were low to start off with, and mid-2011 these expectations were met with DHL content at offering such basic services. “But towards the end of 2011, new appointments were made at both companies,” said Lucas. “These were key appointments on both ends, and it really shook things up – the new personnel had their own agenda and knew what they needed to do to take this relationship up a level.”

With the arrival of new people and new rules, the two firms moved into a period of collaboratively discussing new service propositions, to develop the network they had formed.

As of 2012, Birds Eye and DHL had created a partnership beyond anyone’s expectations. “DHL really took the time to know our business, and work within our agenda, which was key to our successful relationship,” said Broome.

“As a retailer we believe that every case counts – every case must be at a certain place at a certain time and we now both work on sharing this value.”

Lucas added that: “You must focus on a truly cross-functional team in any partnership, you must realise that it’s not just your company and their company, but the factory, the warehouse, the drivers – you must maximise every part of the relationship.”

But ultimately they believe their success story all comes down to honesty and openness. “When something goes wrong, we don’t point the finger of blame,” said Broome.

“We have a yellow card system, where we stop and analyse what has gone wrong.”

Lucas added: “When we have a problem, we fix it first then sit down and assess it between us – In a partnership no one gets the blame.”

And this crucial honesty and openness applies for any type of logistics contract, whether it be fixed-term or flexible, according to the summit’s morning panellists.

Lucas was joined by vice president logistics at CooperVision, Tom Mullally; logistics manager at General Mills, Peter Whitelegg; and European logistics and planning manager at Southco Manufacturing, Paul Hughes, in a group discussion focusing on contracts and collaboration.

62 per cent of respondents to the 2013 Logistics Manager State of the Market survey revealed they operated a rolling 3PL/FF contract with no fixed term, so is this the future of contract logistics asked the panel, and do contracts really matter?

Southco’s fixed term 3PL outsourcing contract is key, according to Hughes, who said the manufacturer recognises it as a necessity to offer the best overall service possible.

“We optimise what we do and work on it through our partnership, to make sure our product arrives as we would like it to, to our customer,” he said.

“Our business is very much about short lead time, it’s very much about quality, and we recognise that the person delivering our product to our customer isn’t necessarily a Southco employee, but is a Southco representative. “We didn’t just take on a 3PL to improve service, but also to answer customer demand – a lot of customers will need a supplier within a certain mile-radius of them, and it was only by outsourcing to a 3PL that we were able to meet this industry need.”

Having outsourced from day one in the UK, Whitelegg says General Mills applies the same principal all around the world, whether that be in developed markets or not.

“We manufacture ambient, chilled, and frozen food products, and use different carriers for that reason, but it really is about specialisation,” he said.

“The retail environment changes on a daily basis, retailers are demanding a range of deliveries nowadays; next-day, same-day, within a certain time slot, and they want this seven days a week, six days, five days, etc. Could we deliver this as a manufacturer? No, we need our partners for this, we need them to develop those relationships.”

Mullally focused on outsourcing in his afternoon presentation entitled “Outsourced Services as a Market Entry Tool”. Addressing how external providers can be used to facilitate market entry, the advantages and pitfalls of different types of 3PL contracts, he looked at how to decide which type of 3PL contract is right for your company.

CooperVision, part of US-based Cooper Companies, specialises in making contact lenses, it has around 7,000 employees in some 32 countries around the world. Around 80 per cent, £1.3 billion, of The Cooper Companies’ revenue is generated by CooperVision itself. It has two main manufacturing sites – one in Southampton, which produces around 50/60 per cent of its overall products, and one in Portugal.

CooperVision has 22 warehouse locations around the world, evenly split between those it runs internally and those it runs with 3PLs.

“There is a difference, one being that 3PLs are usually all related to emerging markets. The established markets such as North America and Europe are where we run our operations internally – we have been around a long time there and have a strong presence,” said Mullally.

“We are expanding into India, for example, but what we don’t have there is an infrastructure – an infrastructure to transport product, to store product, or to manage product, so this a case where the 3PL is clearly very important.

“Companies generally use 3PLs because they’re better and cheaper, but don’t believe they offer a competitive advantage. I disagree, any relationship or work done with a 3PL results in the building of a business – it supports you throughout.

“The theory behind third party relationships is that they help reduce warehousing costs, inventory costs, give reduced order cycle time, and overall deliver a greater degree of control.

“But our main benefit from a 3PL partnership is that it facilitates market entry, it offers access to a shared user facility, which is crucial as we don’t have the stock to go out and fill our own warehouse, we only require a small corner.

“A 3PL has that expertise to get a company into any market, they are specialists and know not just how to get into a market, but how to work within it.”

But Mullally added that for many companies the main problem of a 3PL partnership is the scale and the scope of it. “Typically there’s a lot of bad press about 3PLs, people saying they’re outsourcing, but not seeing the benefits, people saying their time and effort into a project is going unrewarded, but this all relates to how we set up a contract,” he said. “There is that element of trust, but more importantly the focus must be the level of communication between both parties.”

Communication is key to any project, notably when it comes to managing supply chain complexity.

When dealing with complexity you must deliver step change in customer service and supply chain performance, while integrating supply chain functions and ensuring total alignment of processes.

You must encourage a culture of problem solving and continuous improvement at all levels, while operating with a focus on customer needs and expectations.

All this has become second nature to business development executive of Aftermarket Logistics at Unipart Logistics, Luke Myring.

Myring said at Unipart performance is sought through engagement: “We encourage our staff to go the extra mile and actively seek opportunities for continuous improvement in all that they do, for the benefit of themselves, the organisation and its customers.

“As a result the end customer will benefit from reduced costs, elimination of waste, improved productivity, and a flexible and co-operative workforce.

“When it comes to managing complexity, we then focus on our customer, embracing the idea of continuous improvement. But we also focus on two other key areas – process and technology.

“You must design processes from the perspective of the end customer, instead of the functional needs of organisations within the value chain. Put this together with appropriate technology, able to support the customer’s requirements on time, all while managing your people properly, and the result is error free data.”

Myring said that five key functions drive world class supply chain performance – forecasting and scheduling, supplier management, packing and distribution, global supply chains, and customer and dealer experience.

“Controlling scale and complexity on a global basis ultimately comes down to an absolute focus on customer needs.”

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