Outsourced vs In-House Transportation: A Guide

All companies at some point have to make a decision on what aspect of a business to keep in-house, and what should be outsourced. Transportation is such a critical part of a supply chain that many companies leave it to specialist third party logistics (3PL), but depending on the type of company and the trajectory of the business, insourcing could be a valuable investment.

The three main options for transportation are:

1. Contract Carriage: An agreement between an established carrier and another party for transportation. This is the most popular option as it is the most well-known and the most flexible. The upside to this option is that there is no transportation management other than scheduling pickups and deliveries for products as they are ready to ship. The downside is that the transportation is at the mercy of big trucking companies and if there are emergency shipments it’s not always possible to schedule last-minute transportation.

2. Private Fleet: Owning tractors and trailers and employing drivers to run transportation operations. A private fleet enables a company to have complete ownership of the transportation network. The benefit to this is that there is total control over the operation, but this comes with the burden of managing a separate entity that is likely not the company’s specialty. It requires capital to invest in trucks and trailers, as well as hiring and retaining drivers and adhering to regulations for these truck drivers. Very consistent demand and shipments would be required to justify this option.

3. Dedicated Fleet: Assigning a group of tractors, trailers, and drivers exclusively to fulfill transportation needs. This option is essentially a private fleet but is managed by experienced companies, so is somewhere in the middle of insourcing and outsourcing. This is a desirable option often because companies do not want to deal with the intricacies of owning a private fleet, but they want the flexibility and service levels that come with owning it. Dedicated fleets are usually run through 3PLs.

How to Select the Right Warehouse Management System (WMS)

A successful warehouse depends on employees implementing storage solutions, and the success of these employees depend on system support. A Warehouse Management System (WMS) is a key system requirement in a warehouse to collect and track data, standardize processes, and execute efficient operations. WMS vary in precise functionality but will typically manage several supply chain operations within the warehouse with the objective of boosting productivity, optimizing costs, increasing customer satisfaction and creating data visibility.

There are many different factors to evaluate when choosing the right WMS for a company’s business and processes. The right WMS should be able to:

  • Support current warehouse functions

  • Support desired functions the warehouse plans to implement

  • Integrate with systems that will not be supported by the WMS

  • Grow with the company and future improvements

Tier 1 versus Tier 2 versus Tier 3

Warehouse Management Systems are typically classified in 3 tiers; Tier 1 being the most sophisticated and Tier 3 the least, with associated costs following the same pattern. The standard costs will consist of startup and implementation in addition to monthly operational costs. The decision on what kind of WMS is needed comes down to balancing costs with required or desired capabilities. The line between a Tier 1, 2, and 3 WMS is becoming less defined – a Tier 1 WMS can turn functions on or off to provide custom applications on an individual customer level to accommodate specific needs.

Tier 3 WMS are usually an enterprise resource planning (ERP) system that has WMS capabilities, but there are also basic WMS programs. The Tier 3 functionality will cover standard receiving, putaway, inventory, picking, packing and shipping. These usually are the lowest cost and popular for clients looking to develop and implement a WMS with minimal capital costs.

A warehouse operating with a Tier 2 WMS is likely to have more complex processes that require more advanced and custom functionalities. Tier 2 systems support multi-warehouse businesses, enable greater automation and can integrate with multiple systems like ERP and Transportation Management Systems (TMS). These can range in costs and clients favor these for the expanded functionality and better integration options than a Tier 3 system.

Tier 1 WMS deliver comprehensive functionality to any business operating a warehouse. These enterprise-grade systems include the most advanced functionality and can be multi-site and global installations. They provide a complete integration of the supply chain, fully automated warehouse operations, and additions like labor management, yard management and task management. Tier 1 systems are usually the priciest, but also have the broadest support and the most flexibility of all the systems. As mentioned before, most of these systems can only offer certain aspects of the software to help align costs with customer requirements.

WMS Selection Steps

When it comes time to select a WMS, the main process steps are as follows:

  1. Recruit an internal WMS selection team, potentially with the addition of an external specialist, for example a WMS consultant or supply chain consultant.

  2. Create a timeline and budget for the WMS search and implementation, including a forecast ROI.

  3. Gather WMS requirements.

  4. Create a vendor list based on WMS requirements.

  5. Compile an RFP using a vendor template or custom outline.

  6. Send RFP to vendors.

  7. Analyze vendor responses to produce a final shortlist.

  8. Schedule demos with top vendors to evaluate system performance.

  9. Negotiate contracts with vendors where desired.

  10. Make final WMS vendor decision based on capabilities and cost implications.

  11. Schedule training and implementation.

At the end of the process, you will be going live with what is the right WMS for your business.

Declining Business: 3 Key Ways to Save in Warehousing Costs

A financially stable business with declining demand is a situation in which. Do not be alarmed as there are many ways to help cut warehousing costs to prolong your positive cash flow. Here are 3 key ways:

1: Data-Driven Forecasting

Completely accurate forecasting is hard to achieve, but frequent, data-driven forecasts with informed strategic adjustments are the key to determine how much product nee on-hand inventory is needed. Being able to plan for While this seems basic, there are other areas where accurate forecast can help save money in the future. For example, if you are using a 3PL and can say that your inventory levels will drop x amount each year, your footprint in their warehouse should drop as well allowing the 3PL to fill that space with other clients thus saving you money.

2: Inventory Analysis

In a business that’s losing demand, there’s a good chance that the are certain items that maintain the demand while most others are being phased out. It is very important to keep track of the demand for each individual SKU in the warehouse. An ideal situation would be to set up all the slow-moving SKUs as direct shipments from the manufacturer while keeping only the high moving SKUs in the warehouse. While the shipment costs directly from manufacturer to customer will likely be higher, the savings from not keeping the inventory in stock will outweigh the increased shipping costs. Another option to look into would be to separate slow-moving SKUs in one smaller and centralized warehouse. You can keep the inventory levels low allowing you to lower the footprint. Staffing needs will also be reduced since the handling of these SKUs is much less than in the faster moving warehouse.

3: Inventory and Staffing Management

Proper inventory management is important for all businesses, but it is especially important in declining ones. Start by looking into any trends that might be developing in the orders. It is important to think of outside the box methods for optimizing your warehouse strategy. Instead of looking at storing the SKUs by size or product line, look to see if there are certain items that are usually part of the same order. Group these items close together in your warehouse to save on the handling costs. Instead of storing 1 small SKU per bin, store 3 in each by adding in dividers to the bins. There is also a greater need for cross training of the staff in a slower moving warehouse. There will be much more down time and you cannot afford to have employees not being productive. There will be a slight learning curve at the beginning when the employees are learning the other job functions of the warehouse, so productivity might go down. This is fine as the returns once the cross training is complete will be much greater than the lost production early on.

The Four Most Important Factors to Conduct a Successful 3PL Search

There are many situations in which outsourcing your warehouse may make sense, as opposed to running it in-house. Regardless of the reasoning, there are four key items to have organized internally that will drive success in finding the right 3PL for you:

  1. Desired Location. There are many local, regional and national 3PLs. Depending on the market you're looking for, it is wise to have at least a rough area or region in mind before looking. Also, depending on your location, your freight cost may change significantly if there has been no due diligence in analyzing this, and it may defeat any purpose of moving your operation. It's very difficult to limit down the search if you have no idea where the operation needs to be.

  2. Data. A 3PL must be able to adequately quote your business as well as ensure their facility has enough space for your operation. Warehousing-specific operational data, such as inbound load profile, cases/eaches/pallets picked, pallets stored, inventory turns, labeling requirements, and order profiles, are not often tracked in the format the 3PL would like to see. Ensuring this data is complete and clean before starting your 3PL search will minimize surprises and ensure a smooth RFP process and go-live.

  3. Requirements. Before conducing any 3PL search, for warehousing and/or freight management, it is important to gather internal requirements to minimize any friction during the actual search and not waste your time or the 3PL's time. Some requirements to confirm are: insurance, preferred lease term, pricing methodology (fixed/variable/mark-up), EDI transactions, WMS preference/IT integration, freight management, invoicing terms, getting legal's input for the NDA's/contracts, RFP timing and move-in date, etc. Being upfront in the process will greatly improve the quality of the search and minimize surprises.

  4. Determining What Matters to Your Company. As due diligence is done, it is important to gather the internal stakeholders to determine what really matters to you and your company in terms of what 3PL to select. Is it lowest cost? Best location? New facility? Relationship? Growth opportunities? Technology? General comfort? Max flexibility? References from similar businesses? It is remarkably hard to make a decision between competing bids as so many 3PLs are competitive for the business and have great value props. Knowing what's important will help.

Establish Improves a Consumer Goods Distribution Center

A client of Establish's was running into some warehouse process problems: the warehouse was not as efficient as it could have been and, with a labor shortage of quality workers, needed to become as efficient as possible. As such, they called Establish and enlisted our help.

 

The current situation was a warehouse that acts as the hub for our client's business: it receives all of the sourced product and distributes to end customers, retailers and its network of satellite warehouses. As such, it was critical that this operation be as efficient as possible.

 

The operation consisted of all magnitudes of order picking: full pallet, case and unit/inner pack. Initially, the picks were done in varying areas: inner and unit picks were done from full cases, pallets and from case flow rack. Cases were pulled from the case flow rack, a hot-case area and the full pallet area.

 

Additionally, capacity was a constraint. The warehouse was nearly out of space.

 

Once Establish came in, we started with our standard, 8-step methodology. We had a project kick-off to discuss the parameters of improvement and toured the site for the first time. In the meantime, we collected all the data we could from our client's ERP system: receipt history, monthly inventory data, sales history and more. We then observed all functional fulfillment processes and created a current state baseline of where the operation was, and recommended some quick fixes to help productivity.

 

We then created several conceptual warehouse designs that met the design criteria established from the kick-off meeting and all of the data analysis. The winning concept, as determined by our client, was a standardized case flow rack picking system. All SKUs were to be re-packed into a standard tray from their carton to speed up order picking and allow for a more dense and uniform picking area. Additionally, it was recommended to pick directly into a shipper. It was estimated that the additional replenishment time would require an additional 0.5 FTE, but the labor savings in picking direct to a shipper with reduced travel distance would dwarf the additional replenishment labor.


Additionally, the overall 150,000 square foot operation was re-designed to utilize more bulk floor storage for pallets to increase the warehouse capacity nearly 40%. Our final deliverable was a detailed layout with all of the specifications that our client would need to manage equipment acquisition and installation of the new design.

An Often-Overlooked Aspect of any Operation that can be Improved

As supply chain consultants, we are fortunate to be exposed to nearly every industry and have the unique opportunity to see hundreds of different warehousing and distribution operations. We get to see the different operations for exactly one reason: our clients want us to help improve them.

 

The most common item we recommend improving is the cleanliness and orderliness of a warehouse. Maintaining a clean and orderly operation is much more important than just the optics (though the optics are important - imagine taking a potential client or business partner through a dark warehouse with trash on the floor and graffiti on the wall!).

 

A clean and orderly operation drives the culture of accountability and effort. When nothing is disorganized or out of place, it makes it that much harder for someone to purposely misplace something or work inefficiently. When cleanliness is stressed, it follows to all aspects of the operation, from receiving to stretch-wrapping the pallet going out.

 

As simple as it sounds, this idea is not so simple to implement. Operators are typically evaluated on their productivity. The more you pick/put away accurately, the more productive you are. However, this leads to the little things being forgotten. Will an operator want to put an empty carton away in the corrugate bin if it slows them down? Probably not. These need to be taken into account when evaluating your warehouse personnel. Productivity is key, but not when it neglects other areas of the operation.

The Key Components of an Agile Supply Chain

The agile concept started in software development as an iterative method requiring collaboration to create an end product. Lately, the agile concept has been shifting to nearly all facets of business, including the supply chain.

The key concepts to an agile supply chain, and agile business, as well, are: Technologies, Empowerment/Culture, Customer-Centricity/Flexibility and Partner Relationships.

Technologies: A key component of an agile supply chain is visibility. Companies and employees must be able to quickly react and change course based on real-time data. To do this, of course, the right technologies are needed to track and display critical data points.

Empowerment/Culture: As good as real-time data may be, it is useless if the company culture is very rigid and employees are not empowered to make decisions. To have an agile supply chain, companies must have a flat hierarchy where employees always feel empowered to make critical decisions without excessive oversight. Additionally, there must always be a culture of continuous improvement internally.

Customer-Centricity and Flexibility: From a greater business aspect, companies must listen to their customers and tailor their business to their customers' needs. From the aspect of the supply chain, the supply chain must be able to easily accommodate customers' changing needs quickly and flexibly.

Partner Relationships: Whether any supply chain activities are outsourced or everything is in-house, there will always be partnerships and suppliers to work with. To maintain an agile supply chain, the relationships with all partners and suppliers must be extremely close. The partners and suppliers will grow as you grow, and the closer and more collaborative that they are worked with, the better work and adaptiveness they will offer.

The agile concept is growing similar to the lean concept, but don't confuse the two - they are similar but different. We will save that topic for another blog.

The Warehouse Rack Layout Aisle Width Decision

As warehouse consultants, we are fortunate to visit and improve hundreds of distribution operations. The majority, but not all, of the operations require forklifts of some sort. Upon starting my career, one of the things I expected to see in the operations was more standardization of forklift types and, by extension, aisle width. However, that is not the case. Operations of similar applications and volumes can often have different forklifts and aisle widths. Here, I’ll explore some reasons why this may be:

Facility – Oftentimes, the facility may be the constraint. When creating pallet rack layouts, column lines cannot be in the aisles and are best buried in the flue spaces. As such, sometimes the column grid guides the aisle width decision. Also, the facility could have limited height, encouraging bulk floor storage where possible, which limits the truck types used.

Warehouse Management System (WMS) – Some types of racking, such as double deep, drive-in or pushback, require additional functionality to the WMS. Without the functionality, many types of rack cannot be used optimally, which affects the truck type and aisle spacing.

Item Profile – If an item is heavy or bulky, it may require a certain type of truck (for example, a counterbalance instead of a reach) or an extra-long aisle for maneuverability. The reverse is true if an item is too small and only fits in shelving.

Inventory Profile – If the inventory profile contains many pallets of few SKUs as opposed to many SKUs of few pallets, it affects the optimal racking method, thus affecting aisle width and truck decision.

Order Profile – If items are picked in full pallets as opposed to each or case quantities, the best picking method will then drive the truck and rack selection.

Though two operations may appear similar, there are many factors that go into selecting the right aisle width and forklift type. It is not a one size fits all solution nor an easy decision - it requires analysis of several variables.