Global Logistics and Supply Chain Strategies - April 2008 - (Page 50)

should be outsourced. Companies that refuse to consider this approach are very short-sighted. They do not grasp that supply chains should be transformed and optimized over time.” More enlightened companies take a different approach to outsourcing. They are willing to make a long-term commitment to outsourcing in order to gain additional capabilities and continuous improvement. They understand that to accomplish longterm optimization they have to make investments and take a longer-term view than one-time labor arbitrage. “This transformation approach requires thinking through processes strategically,” he says. Companies must analyze how each process works in the supply chain, and how they can be automated or replaced with a better methodology. They have to investigate what technologies are available, on hold right now for reasons unrelated to the basic plan, but we’ll see if it comes back.” Equaterra’s most extensive work in longterm improvement process has been in the consumer packaged goods industry. It has worked with Unilever to help it outsource more of its non-production procurement on a global basis. For example, Unilever has long operated in places like Africa where it has not been possible to have single suppliers serve all the factories in all countries on the continent. Unlike North America or Europe, suppliers there have always been country or regionally focused, so internal procurement operations has been equally local. Equaterra helped Unilever change the paradigm by working with a few suppliers to drive their coverage across large parts of Africa, which has allowed more procurement outsourcing. Unilever had to show its suppliers how to expand geographically and functionally. The CPG companies, it now sees similar transformation opportunities in the pharmaceutical industry, which is facing fundamental changes in its business model. Given the huge gross margins that the pharma industry has enjoyed, managing supply chain costs has not been a high priority. The priorities are changing. “Many pharma companies are experiencing significant revenue fall-off from expiring patents, so they now have to manage their cost base much more closely than they ever had to in the past,” says Shahani. “Outsourcing is a powerful way to accomplish these cost savings.” Integrating Outsourcing For some forward-thinking companies, outsourcing has been an integrated strategy from the very beginning. Take Phoenix Brands, for example. This Stamford, Conn.based consumer products company was formed four years ago by purchasing established brands from Unilever and ColgatePalmolive, such as RIT Dye, Fab, Dynamo, Ajax laundry detergent and several others. In its short history, the company’s annual sales have grown to $350m. Just in the last two years, its sales have doubled. Its outsourcing strategy is one reason Phoenix was able to create a business that scaled from zero to the big leagues overnight. From its beginning, Phoenix has focused all of its energy on marketing and sales. Just about everything else, including most manufacturing and logistics, is outsourced. Because logistics is so important to providing competitive service levels, one of Phoenix’s first decisions was to select a top 3PL that had broad distribution capabilities and expertise in transportation and information systems. It selected Menlo Worldwide Logistics. Menlo set up the initial network of distribution centers, signed agreements with carriers, and established operations and processes to manage Phoenix Brands’ transportation and demand planning strategies. It even helped the company with its IT systems. According to Lori Sullivan, director of customer operations for Phoenix Brands, the company now has four Menlo locations in the U.S. and two in Canada. Menlo also handles inbound and outbound transportation management for these facilities. Half of Menlo’s network for Phoenix is made up of dedicated facilities. The other half is multi-client warehouses, which not only allow the business to “Not too many companies are willing to devote the time, resources and money to make outsourcing a transformational process.” — Robin Shahani of Equaterra which sourcing options exist, and so on. It takes a bold management team willing to question tried-and-true industry processes. For example, in the grocery industry one of the most basic functions is replenishment of product from the supplier all the way to the store shelves, so product is always in stock and customer service at the highest levels. Because this function is so critical, it is not something grocery chains are willing to outsource across all lines and products. Equaterra has been working with a supermarket chain that wants to outsource the entire replenishment function to achieve cost improvement and customer service performance superior to industry standard. “Think about the complexity of outsourcing complete replenishment,” says Shahani. “The grocery chain is willing to trust a logistics provider to manage the most important function in the grocery business, and they were willing to invest in the technology and automation to make it happen. This deal is CPG company had to implement new processes and technologies as well as develop a new service delivery model. Initially, Unilever had to pay more for its procurement function, but the long-term benefits have greatly offset these costs. The initial financial hit included the cost to get the service provider up and running, recruiting a team, severance for displaced workers, investment in technology and licenses, integration with existing systems and double running cost for maintaining the existing function while the new one is transitioned in. “For any company expanding its outsourcing, there is always an investment in governance because managing a thirdparty requires a different skill set than performing the function internally,” he says. We see an investment of three to five percent of the total deal value going to finding, hiring and training the right people to manage the outsourced relationships.” While Equaterra has worked with many 50 APRIL 2008

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Global Logistics and Supply Chain Strategies - April 2008 Contents Editorial GL & SCS Exclusive Fast Forward Up Front Cover Story: Continuing to Add Ever More to Their Offerings, 3PLs Are - At Your Service Over the Long Haul Opinion: Freight Audit Bill Can't Show All Mistakes that Hurt the Bottom Line Opinion: The ‘Good-Freight’ and ‘Bad-Freight’ Trucking Customers Industry Voices

Global Logistics and Supply Chain Strategies - April 2008

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