By John Pluciennik
Some formulas – such as product formulas – are safeguarded secrets. Then again, food processors all know the formula for success involves the right mix of manufacturing, marketing, sales, pricing, customer service and distribution.
While some companies control every aspect of these functional areas, others choose to outsource one or many of them. The trick, of course, is to find the right outsourcing partner because once you give up control, you become vulnerable and subject to that partner’s performance. Moreover, a bad (or completely wrong) choice can hinder short-term success and lead to long-term damages.
How do you select third-party warehousing and/or transportation partners? As a third-party logistics veteran for more than 20 years, I’ve listed a few criteria for you to consider.
What do you think you should pay for warehousing? That’s a critical question. Behind it, however, are a few more revealing questions.
I would ask, for example, “What do you evaluate when you review a price quote for services provided?” and “Do you always award the lowest bidder?”
Perhaps you pick the highest price or one in the middle. Hopefully, you evaluate the pricing structure as it relates to your company’s needs. Your low-cost bidder could become your highest cost at the end because of other unanticipated expenses. If you picked the wrong provider – you could see your margin erode due to claims, damage, late deliveries, and poor customer service.
Speaking of service, request for proposal (RFP) inquiries almost always ask potential warehouse partners, “What differentiates your warehouse from competition?”
The truth is that almost all 3PL companies use the same buzzwords: “state of the art,” “radio frequency,” “EDI,” “staffing,” “blast freezing,” “rail docks,” “cross dock,” “location” etc. Most distribution warehouses have all of these features.
So perhaps the conclusion is that these third parties ultimately are not that unique. Yet I contend that they are indeed different. What differentiates them is what you require from them. What also differentiates them is how they execute with their technologies and services.
Again, the decision-making process starts with what you need. If you process a basic commodity – involving perhaps one lot and one product code (SKU) per truck sent – do you want to be in a warehouse that has invested in voice pick technology or radio frequency identification (RFID)? If you don’t require this functionality why pay for it?
Most new warehouses are built on a distribution center concept involving multiple SKUs and a high percentage of case picking. Accordingly, distribution warehouse racking is designed for selection not necessarily efficient storage. Modern warehouses usually have no more than single-deep or two-deep rack configurations. That type of layout is very efficient for picking but not very efficient on space utilization. This will be a factor of your eventual cost.
This distribution center 3PL requires more revenue per pallet stored in order to return an investment than does a 3PL that is racked for more bulk-type storage. Rail sidings are great but also expensive. Do you – or will you ever – ship your product on rail? These areas require large docks for staging and this too creates less revenue storage space per square foot for the warehouse. That could be figured into your cost.
Of course, if you are a processor with many SKUs that require a high percentage of casepick moves, then some or all of what we just discussed may be very important to you and well worth paying for.
People behind the processes
In the end, you should try and evaluate any warehouse partner by the quality of its people, management, maturity, training, and processes to execute the benefits of their technology.
Before you make a decision as to your provider, you also examine the following areas should be examined:
- What is the average tenure of the warehousemen?
- Does management regularly share efficiency data with its workers?
- Do warehousemen know their goals and/or how they’re doing versus industry peers?
These are just a few of the important questions to ask warehouse personnel directly and I would highly recommend that you get permission to do so during any facility walkthrough.
The choice, location and ability of your warehouse to execute and consolidate freight greatly impacts the ultimate cost of transportation.
If your customer’s order quantity is anything less than truck load (LTL) and you ship those orders on an LTL carrier, you are paying the highest cost for transporting your product. With recent volatility in fuel cost and expected increases in the near future, cost of transportation should be of highest priority to a manufacturer.
If you are an LTL shipper, you should consider your third party warehouse’s ability to consolidate your freight with others for both pick-ups and shipments. This is more important than the warehouse charges you pay. I have found that your freight probably costs you somewhere between $7 to $10 per hundred pounds whereas your average warehousing charges are somewhere between $3 to $4 per hundred pounds.
A solid consolidating warehouse should be able to provide you up to 30 percent in transportation savings versus LTL. That translates to large bottom-line savings.
If you’re a foodservice provider, it would be better that your warehouse partner’s customer base include other foodservice providers. They sell to similar customers and, therefore, the third parties’ ability to consolidate outbound freight is enhanced. This also would also be true if you’re a retail provider.
Your choice of a third party should keep your pick-up customers in tact or enhance your pick-up program.
In this market you should expect your third party warehouse to provide guaranteed freight rates along with scheduled fuel surcharge tables. Delivery schedules should be guaranteed, along with on time delivery, and references for verification.
In the case of perishables – frozen or chilled – the warehouse and transportation provider has final control of your product quality and taste. The way your product is handled during loading, unloading, storage put away and picking determines the quality of your product to your customer. Once again, this is an important area to examine and you need to be asking questions.
Here’s a warehouse receiving checklist.
- Does your warehouse properly check inbound temperatures to your quality specifications?
- Are temperatures taken of one box or pallet at the end of the trailer or many boxes throughout the trailer?
- Is the warehouse’s temperature recording device adequate, accurate?
- Is the device calibrated on a regular basis? Are there enough devices?
- Does the warehouse log its temperature reading results for later review?
- If the trailer is dropped in the yard and not unloaded live, is someone monitoring trailer temperatures and fuel levels?
- Is the yard secure?
- Are there proper seal procedures? Does the driver cut, remove and apply his own seal?
- Once your product is unloaded, is the dock properly refrigerated?
- Does the warehouse monitor and log dock temperatures?
- How long does your product sit on the dock?
- Is your product inspected properly for damage? Is it counted accurately?
Here’s a warehouse operations checklist.
- Once product is in the freezer, does the warehouse regularly monitor and log warehouse temperatures?
- Does the warehouse have adequate pest control?
- Does an outside (objective) company inspect the warehouse?
- How does the warehouse maintain its refrigeration equipment?
- How does the warehouse identify and maintain inventory?
- When selected for orders, are there proper controls to ensure your customer gets the product it ordered?
- Is the proper product code and use by date selected?
These many points serve only support the fact that you should conduct a thorough review and walkthrough before selecting any warehouse partner. This includes not only answering these questions in writing but verifying them yourself.
In conclusion, I hope I have helped you understand how critical your choice of a third party warehouse and transportation provider is to the success of your company. The goal is to ensure you pick the best third party provider. This critical choice will play a major role in determining your company’s success.
John T. Pluciennik is principal and founder of Business and Logistics Professionals, a Chicago consulting firm. A certified public accountant with more than 20 years experience in temperature controlled logistics, Pluciennik has been president and COO of Continental Freezers of Illinois; regional vice president of CS Integrated; and founder founder and CEO of Continental Refrigerated Services. Readers may contact him at John.firstname.lastname@example.org or 312-545-2712.
Are you in the right warehouse?
July 7, 2009