Executive Briefings

3PLs On The Rise: Smaller Firms Prove Big Isn't Always Better

While logistics outsourcing may seem like a mature business concept, five smaller 3PLs show how new concepts, better technology and outstanding performance can bring new benefits to companies open to fresh ideas.

Outsourced logistics is often associated with the large, global operators that manage vast, multi-modal supply chains for the world's largest manufacturers and retailers. While these very large third-party logistics (3PLs) providers are indeed managing more and more of the world's most complex supply-chain activity, there is an equally impressive outsourcing movement gaining momentum among hundreds of smaller operators that focus on specific industries and highly specialized tasks. Just like their larger brothers and sisters, these mid-sized 3PLs offer their customers the benefits of outsourcing:

• Freeing up staff and capital to focus on core activities such as marketing and manufacturing

• Leveraging the economies of scale of a 3PL's expertise and shared services

• Greater visibility and control over service levels, costs and inventory.

The following five examples illustrate the wide range of outsourced services and the companies that are benefiting from these 3PLs on the rise.

Building on Fulfillment
PFSWeb is an eight-year-old 3PL that is leveraging its technology and fulfillment expertise to expand its service offerings in both in the business-to-business (B2B) market and the business-to-consumer (B2C) market.

"We are very deep in our capability to provide an entire business solution for a product from its manufactured source to its consumed point anywhere in the world," says PFSWeb CEO Mark Layton.

For example, the Plano, Texas-based 3PL signed up IBM's fledgling small printer business as its first customer in 1996. After a five-year hiatus, IBM wanted back into the small printer business as rapidly as possible and with no increase in staff.

"We helped them to become a global competitor in a matter of months," says Layton, who adds that PFSWeb's parent is a wholesale distributor for computer consumables. "Because of our product knowledge and our relationships around the world, we were able to place IBM inventory in multiple channels. They were able to identify end-users for direct sales, as well as targeted dealers, distributors and retailers."

Each channel had different logistics requirements based on the package size and specific information interfaces. For example, a large retailer demanded EDI messages. Wholesale distributors had a completely different interface requirement.

"We had all the relationships and all the technology hooks," says Layton.

PFSWeb still handles fulfillment and kitting for the small IBM printers out of its one-million-square-foot DC in Memphis. PFSWeb now also handles the procurement function from IBM's Asian manufacturers, as well as managing inventory and orders.

"When Ingram Micro calls IBM for these printer products, they are actually calling our order desk," says Layton, who adds that the company also does credit and collection for the product line. "It's an entire turnkey operation."

PFSWeb's B2C business has been a high growth area that includes web hosting, e-commerce transaction execution as well as order fulfillment. Its largest B2C client is the U.S. Mint, for which it handles 20,000 to 30,000 packages of collectable coins on a daily basis to customers all over the world.

Its most interesting B2C success story is with Roots, the Canadian sportswear company that supplied the U.S. Olympic team with much of its outerwear for the 2002 Winter Games. Just before the games, Roots wanted to try to sell a few U.S. Olympic Team products over the internet to U.S. consumers as a way to enter the market. Roots projected demand at about 5,000 units, and it asked PFSWeb to handle the entire campaign as a test over the Olympic period.

"It was a very small project for us, but we took it on because we had a relationship with the client," says Layton. "Roots ended up selling millions of units, especially the official hat. We developed a robust web store in a matter of 48 hours after they realized what was happening. Fulfillment was handled through our infrastructure."

According to Layton, about 40 percent of the company's revenue still comes from fulfillment, but other technology-related revenue streams are growing. The company has also expanded with operations in Toronto and Liege, Belgium.

For example, PFSWeb is partnering with large 3PLs such as Panalpina, Kuehne & Nagel and Menlo Logistics to provide them with technology capabilities that customers are demanding.

"Home Depot doesn't want 1,700 local delivery relationships with thousands of invoices."
- Ron Howard of Ensenda

According to Layton, the traditional 3PL's technology system are very good at managing its internal processes, but not so good at providing information to outside clients. PFSWeb has a propriety technology called Entente that allows for easy integration to any customer system.

For example, PFSWeb worked with Kuehne & Nagel on a kitting project for Siemens cable modems. Besides the kitting and packaging of units imported from China, there was a complex requirement for feeding information into Siemens's SAP enterprise resource planning system.

"The client put K&N and us together," says Layton. "They liked K&N's logistics capability in managing shipments from China, but they wanted our technology solution."

Layton says that this technology niche is opening up new avenues for PFSWeb. Nearly every large request for proposal that goes out to 3PLs today includes a technology requirement for information visibility and data integration.

"We can plug into an SAP system in four or five days," says Layton. "We can feed it all the alerts and populate all the data that the system needs. Increasingly, we are being brought in to provide this capability, which often is a higher margin service than the logistics or fulfillment parts of the project."

3PL Solution for Chemicals
One-year-old Odyssey Logistics & Technology is a non-asset-based 3PL based in Danbury, Conn., that provides multimodal transportation from any origin to any destination in the world. The vast majority of its freight moves in domestic trucks, both bulk and dry van, or in ocean containers. The transportation management service is supported by a net-native technology platform that tracks each shipment and provides visibility into the real cost of doing business.

"For the first time, customers can look at their business mix globally to understand the real costs and profitability for each customer in a particular part of the world," says CEO Robert Shellman.

Shellman and most of the Odyssey team came from Uniglobal, the logistics division of Union Carbide. When Dow Chemical bought Union Carbide in 2001, the Uniglobal team left to form Odyssey.

The 3PL specializes in chemicals and process industries such as food and mining. It has 207 customers shipping between 81 countries. The company has grown rapidly, both by winning new customers and by acquiring logistics assets of its own, including Nordstrom Freighting, a freight forwarding company, and Omni Logistics, the largest bulk trucking services provider in North America.

By including hundreds of chemical and process manufacturers into its transportation network, Odyssey can help all parties optimize cost. Such a managed network creates backhaul opportunities in all directions that also allow carriers to avoid empty moves.

According to Shellman, this type of optimization is the surest way to reduce transportation costs because the carriers are able to pass on savings by keeping their capacity filled.
Odyssey's net-native Global Trading Platform is the company's transportation management system that also allows its customers to have full visibility into their transportation movements.

"Customers gain a state-of-the-art supply-chain management infrastructure without investing in software or maintenance, says Dennis Reed, Odyssey's chief technology office. "The systems and the upgrades are part of being a customer."

The system allows up to seven points of integration using extensible markup language (XML) or other protocols such as iDocs for SAP systems, which are prevalent in the chemical industry. The system is entirely automated.

For example, a customer's SAP system will send iDocs to Odyssey at the point the customer company does an order entry and is ready to allocate inventory or production capacity. That iDoc triggers a planning process in the Odyssey system that selects the carrier that meets the required equipment and transit times. The Odyssey system creates an iDoc that goes back to the customer system updating its database and allowing it to print a bill of lading. Once the customer ships the product, their SAP system sends a message confirming that product has left the dock. Odyssey sends the customer an electronic invoice for the transportation. When the bank electronically confirms that the invoice has been paid, Odyssey pays the carrier electronically.

"The system displays all information about a shipment including the current status from the carrier," says Reed. "We are hooked up to all the motor carriers, steamship lines, and rail carriers we use. A customer can create exception management alerts and delivery notifications. Customers check their shipments manually, or we can automatically send that information to their systems, or even to their web sites."

From an optimization standpoint, the Global Trading Platform considers numerous strategies for routing a shipment, including consolidations and pooling points.

Odyssey's first and largest client has been Hercules, the $1.7bn chemical manufacturer, which signed a five-year, multimillion-dollar contract to outsource all of its North American import and export transportation and logistics operations to Odyssey.

"The transportation needs of the chemical industry are unique in their sheer variety and scope," says Rick Pekarski, director, global supply chain, at Hercules. "With multiple modes of transportation - from tanker trucks to ship cargos to railcars - we found that having one view of our transportation supply chain was the only way we would achieve efficiencies."

With Odyssey, Pekarski says that he has a much better view of the entire scope of his company's transportation operations and transactions, so he can make better decisions about opportunities to trim costs wherever possible."

Odyssey earns its revenue only through management fees, not in markups or gain sharing.

"Our customers demand transparency," says Shellman. "The customers need to see the real cost of transportation for each shipment so they can understand customer profitability and make good pricing decisions. If we can match more loads with backhauls and lower the cost for our customers, they will see this drop immediately."

Business revenues for Odyssey are growing at 40 percent a quarter. Shellman says that the company is now bringing on new customers if they fit into the existing network and provide more opportunities for load and route optimization.

"Those companies that provide the highest value to our whole network get priority," he says.

A First for Last-mile Logistics
Ensenda is a very different type of 3PL that provides "last-mile" home and business delivery services for retailers and other merchants. This four-year-old 3PL provides such retail giants as Home Depot, Office Max and Best Buy with home or business delivery capabilities in 120 markets across the U.S. and Canada.

A network of local delivery companies is not a new idea, but according to Ensenda's vice president of operations, Rob Howard, who came out of that industry, consistent quality and information reliability have always limited the success of such efforts.

Ensenda's technology has allowed the company to make a breakthrough, says Howard.

The 3PL uses a web-based dispatching system that is electronically connected with both the customer ordering front end, as well as with the local delivery company. The system accepts automated orders from call centers, individual stores or through a retailer ordering system. Customers buying a product on the internet can type in delivery requirements on the retailer's web site.

"Our system automatically routes the order to the most appropriate delivery company in our network," says Howard. "We provide them with technology to provide us with status information in near real time."

To be part of the network, delivery companies must have an acceptable technology system that can be integrated with Ensenda. There must be a mechanism to collect information on pick-up times, delivery times, who signed, and to report any problems. Most carriers have handheld devices in their trucks to collect, receive and update this status information. The Ensenda system collects this data and monitors the carriers for performance.

Another difference between Ensenda and other local delivery networks is that all the delivery companies are independent operators.

"We are able to find and keep the best operators because we offer them a great deal of value if they perform," says Howard. "We are a pipeline of new business for them that they do not have to find themselves."

Since most of the retailers that Ensenda works with are national chains, the local delivery companies would have very little chance of winning the business on their own. All the dispatching is handled electronically, so the delivery companies have little or no added administrative work. Checks are cut automatically, so the delivery companies don't even have to invoice.

"They are motivated to do a good job and stay in the network," says Howard.

Ensenda usually has multiple operators in every market, both to create competition among delivery companies, but also to provide customers with different types of carriers. Some are experienced in handling large appliances or equipment. Others do courier-type deliveries. In metropolitan areas, there are usually carriers that specialize in downtown deliveries.

The types of customers that Ensenda's 3PL service appeals to is expanding. The first retail customers included companies like Home Depot that needed home deliveries from the stores. Consumers would visit the store, but would request home delivery of large items. Best Buy uses Ensenda as a marketing tool with its customers to offer same-day delivery of major consumer electronics. Other retailers such as Office Max have replaced their own costly delivery fleets with the Ensenda delivery carriers.

"Our delivery operators can be a flexible backup for company fleets, but more often, companies are replacing their entire delivery fleet to avoid fixed overhead," says Howard.

Ikea has taken the "last-mile" concept considerably farther than one mile. The furniture retailer has no stores in Georgia, but it is able to serve catalog and e-commerce customers in the state from its New Jersey DC using the Ensenda system. Ikea ships volume loads of orders with a long haul carrier to an Ensenda delivery operator in Atlanta. That operator cross-docks the orders onto its trucks to do home delivery throughout Georgia.

"Our network allows Ikea to extend its sales reach and to save money over alternatives such as LTL," says Howard.

While 60 percent of Ensenda's traffic is direct-to-customer deliveries, the company is doing more inventory balancing between customer's stores or shuttling to distribution centers.

"The need for these internal deliveries is much deeper that we first realized," says Howard, who adds that this segment of the business is the fastest growing. "We start our business relationship with retailers as a home delivery service, then the store finds additional needs that we can fill."

Ensenda charges the retailer on a per-delivery basis. There are no accessorials, per-mile charges, insurance costs or other fees. There is a simple charge that Ensenda shares with the local delivery company. Ensenda makes the payment process extremely simple for large customers like Home Depot that has 1,700 stores.

"They do not want 1,700 local delivery relationships with thousands of invoices," says Howard. "With us, they work with one entity, so there is just one invoice."

Ensenda's 3PL model is gaining traction. Its business is growing five to 15 percent a month in terms of revenue.

The Case for Consolidation
CaseStack is a 3PL specializing in transportation and distribution for consumer packaged goods (CPG) companies, retailers, distributors and manufacturers. What makes CaseStack different from the hundreds of regional distribution warehousing operations in this same market segment is that CaseStack neither owns nor operates any warehouses or transportation services. The company outsources all of these operations to other providers. It has a network of best-of-breed regional warehousing companies it works with in six key markets around the U.S. It manages transportation for its customers in these warehouses by selecting from a list of 300 truckload and less-than-truckload carriers, as well as a number of air, rail and ocean carriers.

The value that CaseStack adds for its customers is to manage the transportation and distribution operations with its proprietary web-based software. The system includes a number of tools for demand planning, inventory management and transportation visibility.

The CaseStack technology is the customer's window into its consolidated operations at all six of the DCs that CaseStack uses, as well as into all the transportation operations it manages for the customer.

"As far as the client is concerned, they are only dealing with CaseStack," says Dina Kundar, vice president of business development for CaseStack. "They have one vendor to deal with, one technology that integrates with their systems and one set of business relationships.

Kundar says that their competition is the traditional CPG distribution model that requires the company to manage 30 or 40 carriers and work with six different regional warehouse without a state-of-the-art logistics systems.

The regional warehouse operators like working with CaseStack because of the efficient relationship. The warehouses have no sales, marketing or customer service responsibilities with the end customer. Once CaseStack integrates its systems into the warehouse systems, every new customer that CaseStack brings on is automatically integrated into all systems.

"We fill their space with profitable business," says Kundar.

One of CaseStack's most interesting operations is a consolidation program that it runs for Wal-Mart and a large number of CPG companies. In April 2003, Wal-Mart decided to drastically reduce LTL deliveries at its DCs because they took too much time and caused major congestion problems. At the same time, Wal-Mart wanted to order more frequently in smaller volumes to hold less inventory. To achieve both goals, Wal-Mart identified these LTL-oriented vendors and mandated that they participate in a consolidation program that CaseStack would manage.

Hain Celestial Group, the largest natural organic food company in the U.S., was one of the companies identified by Wal-Mart as a candidate for its new consolidation program for suppliers that normally shipped in LTL quantities. The product involved was the company's Celestial Seasons Tea business.

According to Hain-Celestial's national account manager, Sindi Mestas, the shift to the consolidation program has been very smooth. Now Wal-Mart places an order for Celestial Tea directly with CaseStack, along with orders for other vendors on the consolidation program. Mestas says her company views that order on CaseStack's web-based systems.

Celestial has its own demand planning and forecasting system, so according to Amy Anderson, business development analyst for Hain Celestial, the company uses the CaseStack web-based system primarily as a real-time visibility tool.

"We can track purchase orders, shipments and inventory down to lot level," says Anderson. "It is very user friendly and configurable to our needs."

Other companies in the consolidation program use the full complement of CaseStack systems to manage their Wal-Mart business. The CaseStack demand planning system is fed data directly from Wal-Mart's Retail Link point of sale (POS) information system. Case-Stack's client can do demand planning online using the system and the POS data, or the client can feed the POS data into their own planning systems. Clients can have the CaseStack system alert them when to replenish based on a built-in forecasting tool.

"Large clients with their own demand planning systems just use our system as a window into inventory," says Kundar. "The mid-sized companies like our systems because they could not possibly afford the millions of dollars that we have invested in applications for production planning, inventory management, load optimization, dispatching, appointment scheduling, freight auditing, and so on."

For Hain-Celestial, the consolidated program has produced a number of benefits.

"Our inventory turns with Wal-Mart are much higher, so that is helping our performance metrics with them," says Mestas. "We want to satisfy an important customer with better service, and we have succeeded on that front."

An added benefit has been the shifting of most of the labor-intensive logistics administration to CaseStack, so Hain-Celestial can focus on more value-added tasks.

An Award-winning 3PL
Hershey Foods, the manufacturer of chocolate and non-chocolate confectionery products, has long believed in logistics outsourcing for its warehousing, distribution and transportation. In fact, its longest standing logistics partnership goes back 40 years with Atlanta Bonded Warehouse (ABW), which now operates Hershey's 400,000-square-foot DC in Kennesaw, Ga.

When Hershey completes a rationalization of its distribution network later this year, it will have three 3PLs operating 3.8 million square feet of storage and distribution space from California to Pennsylvania.

"We focus on what we do best, which is manufacturing and marketing our products," says Bill Turner, Hershey's vice president of logistics and customer service. "We have strong expertise in strategic logistics and supply-chain management that we leverage to support our customers and sales organization. But for the day-to-day distribution and transportation we depend on the best 3PLs."

Hershey centrally manages all of its transportation to include carrier selection negotiations and load planning. Besides running the DCs, the 3PLs handle the execution of the orders with the carriers identified by Hershey.

All of Hershey's 3PLs are tightly integrated into the company's distribution processes and systems that are centralized at their Pennsylvania headquarters. Orders are processed in Hershey's SAP ERP system and run through its Manugistics supply-chain and transportation systems to plan and optimize loads. The orders and shipping information are sent via electronic data interchange (EDI) to the 3PLs. The 3PLs pick the orders and perform all required value-added activities such as doing repack operations, assembling store-ready pallets or cross-docking product. Most of the 3PLs use Hershey's Red Prairie warehouse management system (WMS) system to pick and ship the orders. ABW, however, uses an alternate WMS system that is linked via EDI to Hershey's central systems. Orders are loaded on carriers that Hershey has designated for each shipment. As soon as a truck leaves with a shipment, the 3PLs send Hershey's ERP system a goods issue inventory adjustment via EDI. Ongoing order status information is available at various stages of the order cycle.

"We have all the visibility and control we need because our 3PLs are so tightly linked to our systems," says Turner.

Ken Miesemer, Hershey's director of distribution operations, gives all the 3PLs high marks for DC operations. A formal scorecard is updated each month to chart the performance of each DC, and its operator, according to metrics and objectives for inventory and order accuracy, financial performance, operational productivity and customer collaboration. In 2003, for the third consecutive year, ABW was named Hershey Foods' distribution center operator of the year.

Hershey also uses ABW's carrier subsidiary called Colonial Cartage for distribution in the Southeast.

"Being big isn't always better," says Turner. "What's important in a 3PL is being dedicated to always bringing value to your customers."

Identifies Problems
According to Miesemer, ABW has been especially strong in its ability to iron out customer problems in the supply chain. For example, if there is sudden increase in shortages, damage or unloading detention with a particular customer, ABW will immediately investigate the cause. It first looks at its own operations and motor carriers to verify the shipments were accurate and should have been unloaded in the allotted time. If the problem is at the customer end, ABW will reach out to the customer to jointly improve operations.

"Atlanta Bonded has been very successful in solving supply-chain problems," says Miesemer. "For certain customers Hershey personnel work with the ABW staff, but more often than not, they handle this process on their own."

Turner says its 3PLs will become even more integrated as Hershey's customers require more customization in product delivery and configuration.

"Every retailer wants unique displays and putups, so it has a unique merchandizing opportunity with its customers," says Turner.

To meet this continuing challenge, Miesemer says that its 3PLs are a proactive force in finding and implementing new ideas. They watch what the market is doing and provide us with new distribution ideas. Turner agrees that its 3PLs are in the best position to understand these new ideas since they deal with so many of leading CPG companies.

"They know what is working and what is bringing value to retail customer relationships," says Turner. "They share this knowledge with us, which makes them strategic partners in our supply chain."

Outsourced logistics is often associated with the large, global operators that manage vast, multi-modal supply chains for the world's largest manufacturers and retailers. While these very large third-party logistics (3PLs) providers are indeed managing more and more of the world's most complex supply-chain activity, there is an equally impressive outsourcing movement gaining momentum among hundreds of smaller operators that focus on specific industries and highly specialized tasks. Just like their larger brothers and sisters, these mid-sized 3PLs offer their customers the benefits of outsourcing:

• Freeing up staff and capital to focus on core activities such as marketing and manufacturing

• Leveraging the economies of scale of a 3PL's expertise and shared services

• Greater visibility and control over service levels, costs and inventory.

The following five examples illustrate the wide range of outsourced services and the companies that are benefiting from these 3PLs on the rise.

Building on Fulfillment
PFSWeb is an eight-year-old 3PL that is leveraging its technology and fulfillment expertise to expand its service offerings in both in the business-to-business (B2B) market and the business-to-consumer (B2C) market.

"We are very deep in our capability to provide an entire business solution for a product from its manufactured source to its consumed point anywhere in the world," says PFSWeb CEO Mark Layton.

For example, the Plano, Texas-based 3PL signed up IBM's fledgling small printer business as its first customer in 1996. After a five-year hiatus, IBM wanted back into the small printer business as rapidly as possible and with no increase in staff.

"We helped them to become a global competitor in a matter of months," says Layton, who adds that PFSWeb's parent is a wholesale distributor for computer consumables. "Because of our product knowledge and our relationships around the world, we were able to place IBM inventory in multiple channels. They were able to identify end-users for direct sales, as well as targeted dealers, distributors and retailers."

Each channel had different logistics requirements based on the package size and specific information interfaces. For example, a large retailer demanded EDI messages. Wholesale distributors had a completely different interface requirement.

"We had all the relationships and all the technology hooks," says Layton.

PFSWeb still handles fulfillment and kitting for the small IBM printers out of its one-million-square-foot DC in Memphis. PFSWeb now also handles the procurement function from IBM's Asian manufacturers, as well as managing inventory and orders.

"When Ingram Micro calls IBM for these printer products, they are actually calling our order desk," says Layton, who adds that the company also does credit and collection for the product line. "It's an entire turnkey operation."

PFSWeb's B2C business has been a high growth area that includes web hosting, e-commerce transaction execution as well as order fulfillment. Its largest B2C client is the U.S. Mint, for which it handles 20,000 to 30,000 packages of collectable coins on a daily basis to customers all over the world.

Its most interesting B2C success story is with Roots, the Canadian sportswear company that supplied the U.S. Olympic team with much of its outerwear for the 2002 Winter Games. Just before the games, Roots wanted to try to sell a few U.S. Olympic Team products over the internet to U.S. consumers as a way to enter the market. Roots projected demand at about 5,000 units, and it asked PFSWeb to handle the entire campaign as a test over the Olympic period.

"It was a very small project for us, but we took it on because we had a relationship with the client," says Layton. "Roots ended up selling millions of units, especially the official hat. We developed a robust web store in a matter of 48 hours after they realized what was happening. Fulfillment was handled through our infrastructure."

According to Layton, about 40 percent of the company's revenue still comes from fulfillment, but other technology-related revenue streams are growing. The company has also expanded with operations in Toronto and Liege, Belgium.

For example, PFSWeb is partnering with large 3PLs such as Panalpina, Kuehne & Nagel and Menlo Logistics to provide them with technology capabilities that customers are demanding.

"Home Depot doesn't want 1,700 local delivery relationships with thousands of invoices."
- Ron Howard of Ensenda

According to Layton, the traditional 3PL's technology system are very good at managing its internal processes, but not so good at providing information to outside clients. PFSWeb has a propriety technology called Entente that allows for easy integration to any customer system.

For example, PFSWeb worked with Kuehne & Nagel on a kitting project for Siemens cable modems. Besides the kitting and packaging of units imported from China, there was a complex requirement for feeding information into Siemens's SAP enterprise resource planning system.

"The client put K&N and us together," says Layton. "They liked K&N's logistics capability in managing shipments from China, but they wanted our technology solution."

Layton says that this technology niche is opening up new avenues for PFSWeb. Nearly every large request for proposal that goes out to 3PLs today includes a technology requirement for information visibility and data integration.

"We can plug into an SAP system in four or five days," says Layton. "We can feed it all the alerts and populate all the data that the system needs. Increasingly, we are being brought in to provide this capability, which often is a higher margin service than the logistics or fulfillment parts of the project."

3PL Solution for Chemicals
One-year-old Odyssey Logistics & Technology is a non-asset-based 3PL based in Danbury, Conn., that provides multimodal transportation from any origin to any destination in the world. The vast majority of its freight moves in domestic trucks, both bulk and dry van, or in ocean containers. The transportation management service is supported by a net-native technology platform that tracks each shipment and provides visibility into the real cost of doing business.

"For the first time, customers can look at their business mix globally to understand the real costs and profitability for each customer in a particular part of the world," says CEO Robert Shellman.

Shellman and most of the Odyssey team came from Uniglobal, the logistics division of Union Carbide. When Dow Chemical bought Union Carbide in 2001, the Uniglobal team left to form Odyssey.

The 3PL specializes in chemicals and process industries such as food and mining. It has 207 customers shipping between 81 countries. The company has grown rapidly, both by winning new customers and by acquiring logistics assets of its own, including Nordstrom Freighting, a freight forwarding company, and Omni Logistics, the largest bulk trucking services provider in North America.

By including hundreds of chemical and process manufacturers into its transportation network, Odyssey can help all parties optimize cost. Such a managed network creates backhaul opportunities in all directions that also allow carriers to avoid empty moves.

According to Shellman, this type of optimization is the surest way to reduce transportation costs because the carriers are able to pass on savings by keeping their capacity filled.
Odyssey's net-native Global Trading Platform is the company's transportation management system that also allows its customers to have full visibility into their transportation movements.

"Customers gain a state-of-the-art supply-chain management infrastructure without investing in software or maintenance, says Dennis Reed, Odyssey's chief technology office. "The systems and the upgrades are part of being a customer."

The system allows up to seven points of integration using extensible markup language (XML) or other protocols such as iDocs for SAP systems, which are prevalent in the chemical industry. The system is entirely automated.

For example, a customer's SAP system will send iDocs to Odyssey at the point the customer company does an order entry and is ready to allocate inventory or production capacity. That iDoc triggers a planning process in the Odyssey system that selects the carrier that meets the required equipment and transit times. The Odyssey system creates an iDoc that goes back to the customer system updating its database and allowing it to print a bill of lading. Once the customer ships the product, their SAP system sends a message confirming that product has left the dock. Odyssey sends the customer an electronic invoice for the transportation. When the bank electronically confirms that the invoice has been paid, Odyssey pays the carrier electronically.

"The system displays all information about a shipment including the current status from the carrier," says Reed. "We are hooked up to all the motor carriers, steamship lines, and rail carriers we use. A customer can create exception management alerts and delivery notifications. Customers check their shipments manually, or we can automatically send that information to their systems, or even to their web sites."

From an optimization standpoint, the Global Trading Platform considers numerous strategies for routing a shipment, including consolidations and pooling points.

Odyssey's first and largest client has been Hercules, the $1.7bn chemical manufacturer, which signed a five-year, multimillion-dollar contract to outsource all of its North American import and export transportation and logistics operations to Odyssey.

"The transportation needs of the chemical industry are unique in their sheer variety and scope," says Rick Pekarski, director, global supply chain, at Hercules. "With multiple modes of transportation - from tanker trucks to ship cargos to railcars - we found that having one view of our transportation supply chain was the only way we would achieve efficiencies."

With Odyssey, Pekarski says that he has a much better view of the entire scope of his company's transportation operations and transactions, so he can make better decisions about opportunities to trim costs wherever possible."

Odyssey earns its revenue only through management fees, not in markups or gain sharing.

"Our customers demand transparency," says Shellman. "The customers need to see the real cost of transportation for each shipment so they can understand customer profitability and make good pricing decisions. If we can match more loads with backhauls and lower the cost for our customers, they will see this drop immediately."

Business revenues for Odyssey are growing at 40 percent a quarter. Shellman says that the company is now bringing on new customers if they fit into the existing network and provide more opportunities for load and route optimization.

"Those companies that provide the highest value to our whole network get priority," he says.

A First for Last-mile Logistics
Ensenda is a very different type of 3PL that provides "last-mile" home and business delivery services for retailers and other merchants. This four-year-old 3PL provides such retail giants as Home Depot, Office Max and Best Buy with home or business delivery capabilities in 120 markets across the U.S. and Canada.

A network of local delivery companies is not a new idea, but according to Ensenda's vice president of operations, Rob Howard, who came out of that industry, consistent quality and information reliability have always limited the success of such efforts.

Ensenda's technology has allowed the company to make a breakthrough, says Howard.

The 3PL uses a web-based dispatching system that is electronically connected with both the customer ordering front end, as well as with the local delivery company. The system accepts automated orders from call centers, individual stores or through a retailer ordering system. Customers buying a product on the internet can type in delivery requirements on the retailer's web site.

"Our system automatically routes the order to the most appropriate delivery company in our network," says Howard. "We provide them with technology to provide us with status information in near real time."

To be part of the network, delivery companies must have an acceptable technology system that can be integrated with Ensenda. There must be a mechanism to collect information on pick-up times, delivery times, who signed, and to report any problems. Most carriers have handheld devices in their trucks to collect, receive and update this status information. The Ensenda system collects this data and monitors the carriers for performance.

Another difference between Ensenda and other local delivery networks is that all the delivery companies are independent operators.

"We are able to find and keep the best operators because we offer them a great deal of value if they perform," says Howard. "We are a pipeline of new business for them that they do not have to find themselves."

Since most of the retailers that Ensenda works with are national chains, the local delivery companies would have very little chance of winning the business on their own. All the dispatching is handled electronically, so the delivery companies have little or no added administrative work. Checks are cut automatically, so the delivery companies don't even have to invoice.

"They are motivated to do a good job and stay in the network," says Howard.

Ensenda usually has multiple operators in every market, both to create competition among delivery companies, but also to provide customers with different types of carriers. Some are experienced in handling large appliances or equipment. Others do courier-type deliveries. In metropolitan areas, there are usually carriers that specialize in downtown deliveries.

The types of customers that Ensenda's 3PL service appeals to is expanding. The first retail customers included companies like Home Depot that needed home deliveries from the stores. Consumers would visit the store, but would request home delivery of large items. Best Buy uses Ensenda as a marketing tool with its customers to offer same-day delivery of major consumer electronics. Other retailers such as Office Max have replaced their own costly delivery fleets with the Ensenda delivery carriers.

"Our delivery operators can be a flexible backup for company fleets, but more often, companies are replacing their entire delivery fleet to avoid fixed overhead," says Howard.

Ikea has taken the "last-mile" concept considerably farther than one mile. The furniture retailer has no stores in Georgia, but it is able to serve catalog and e-commerce customers in the state from its New Jersey DC using the Ensenda system. Ikea ships volume loads of orders with a long haul carrier to an Ensenda delivery operator in Atlanta. That operator cross-docks the orders onto its trucks to do home delivery throughout Georgia.

"Our network allows Ikea to extend its sales reach and to save money over alternatives such as LTL," says Howard.

While 60 percent of Ensenda's traffic is direct-to-customer deliveries, the company is doing more inventory balancing between customer's stores or shuttling to distribution centers.

"The need for these internal deliveries is much deeper that we first realized," says Howard, who adds that this segment of the business is the fastest growing. "We start our business relationship with retailers as a home delivery service, then the store finds additional needs that we can fill."

Ensenda charges the retailer on a per-delivery basis. There are no accessorials, per-mile charges, insurance costs or other fees. There is a simple charge that Ensenda shares with the local delivery company. Ensenda makes the payment process extremely simple for large customers like Home Depot that has 1,700 stores.

"They do not want 1,700 local delivery relationships with thousands of invoices," says Howard. "With us, they work with one entity, so there is just one invoice."

Ensenda's 3PL model is gaining traction. Its business is growing five to 15 percent a month in terms of revenue.

The Case for Consolidation
CaseStack is a 3PL specializing in transportation and distribution for consumer packaged goods (CPG) companies, retailers, distributors and manufacturers. What makes CaseStack different from the hundreds of regional distribution warehousing operations in this same market segment is that CaseStack neither owns nor operates any warehouses or transportation services. The company outsources all of these operations to other providers. It has a network of best-of-breed regional warehousing companies it works with in six key markets around the U.S. It manages transportation for its customers in these warehouses by selecting from a list of 300 truckload and less-than-truckload carriers, as well as a number of air, rail and ocean carriers.

The value that CaseStack adds for its customers is to manage the transportation and distribution operations with its proprietary web-based software. The system includes a number of tools for demand planning, inventory management and transportation visibility.

The CaseStack technology is the customer's window into its consolidated operations at all six of the DCs that CaseStack uses, as well as into all the transportation operations it manages for the customer.

"As far as the client is concerned, they are only dealing with CaseStack," says Dina Kundar, vice president of business development for CaseStack. "They have one vendor to deal with, one technology that integrates with their systems and one set of business relationships.

Kundar says that their competition is the traditional CPG distribution model that requires the company to manage 30 or 40 carriers and work with six different regional warehouse without a state-of-the-art logistics systems.

The regional warehouse operators like working with CaseStack because of the efficient relationship. The warehouses have no sales, marketing or customer service responsibilities with the end customer. Once CaseStack integrates its systems into the warehouse systems, every new customer that CaseStack brings on is automatically integrated into all systems.

"We fill their space with profitable business," says Kundar.

One of CaseStack's most interesting operations is a consolidation program that it runs for Wal-Mart and a large number of CPG companies. In April 2003, Wal-Mart decided to drastically reduce LTL deliveries at its DCs because they took too much time and caused major congestion problems. At the same time, Wal-Mart wanted to order more frequently in smaller volumes to hold less inventory. To achieve both goals, Wal-Mart identified these LTL-oriented vendors and mandated that they participate in a consolidation program that CaseStack would manage.

Hain Celestial Group, the largest natural organic food company in the U.S., was one of the companies identified by Wal-Mart as a candidate for its new consolidation program for suppliers that normally shipped in LTL quantities. The product involved was the company's Celestial Seasons Tea business.

According to Hain-Celestial's national account manager, Sindi Mestas, the shift to the consolidation program has been very smooth. Now Wal-Mart places an order for Celestial Tea directly with CaseStack, along with orders for other vendors on the consolidation program. Mestas says her company views that order on CaseStack's web-based systems.

Celestial has its own demand planning and forecasting system, so according to Amy Anderson, business development analyst for Hain Celestial, the company uses the CaseStack web-based system primarily as a real-time visibility tool.

"We can track purchase orders, shipments and inventory down to lot level," says Anderson. "It is very user friendly and configurable to our needs."

Other companies in the consolidation program use the full complement of CaseStack systems to manage their Wal-Mart business. The CaseStack demand planning system is fed data directly from Wal-Mart's Retail Link point of sale (POS) information system. Case-Stack's client can do demand planning online using the system and the POS data, or the client can feed the POS data into their own planning systems. Clients can have the CaseStack system alert them when to replenish based on a built-in forecasting tool.

"Large clients with their own demand planning systems just use our system as a window into inventory," says Kundar. "The mid-sized companies like our systems because they could not possibly afford the millions of dollars that we have invested in applications for production planning, inventory management, load optimization, dispatching, appointment scheduling, freight auditing, and so on."

For Hain-Celestial, the consolidated program has produced a number of benefits.

"Our inventory turns with Wal-Mart are much higher, so that is helping our performance metrics with them," says Mestas. "We want to satisfy an important customer with better service, and we have succeeded on that front."

An added benefit has been the shifting of most of the labor-intensive logistics administration to CaseStack, so Hain-Celestial can focus on more value-added tasks.

An Award-winning 3PL
Hershey Foods, the manufacturer of chocolate and non-chocolate confectionery products, has long believed in logistics outsourcing for its warehousing, distribution and transportation. In fact, its longest standing logistics partnership goes back 40 years with Atlanta Bonded Warehouse (ABW), which now operates Hershey's 400,000-square-foot DC in Kennesaw, Ga.

When Hershey completes a rationalization of its distribution network later this year, it will have three 3PLs operating 3.8 million square feet of storage and distribution space from California to Pennsylvania.

"We focus on what we do best, which is manufacturing and marketing our products," says Bill Turner, Hershey's vice president of logistics and customer service. "We have strong expertise in strategic logistics and supply-chain management that we leverage to support our customers and sales organization. But for the day-to-day distribution and transportation we depend on the best 3PLs."

Hershey centrally manages all of its transportation to include carrier selection negotiations and load planning. Besides running the DCs, the 3PLs handle the execution of the orders with the carriers identified by Hershey.

All of Hershey's 3PLs are tightly integrated into the company's distribution processes and systems that are centralized at their Pennsylvania headquarters. Orders are processed in Hershey's SAP ERP system and run through its Manugistics supply-chain and transportation systems to plan and optimize loads. The orders and shipping information are sent via electronic data interchange (EDI) to the 3PLs. The 3PLs pick the orders and perform all required value-added activities such as doing repack operations, assembling store-ready pallets or cross-docking product. Most of the 3PLs use Hershey's Red Prairie warehouse management system (WMS) system to pick and ship the orders. ABW, however, uses an alternate WMS system that is linked via EDI to Hershey's central systems. Orders are loaded on carriers that Hershey has designated for each shipment. As soon as a truck leaves with a shipment, the 3PLs send Hershey's ERP system a goods issue inventory adjustment via EDI. Ongoing order status information is available at various stages of the order cycle.

"We have all the visibility and control we need because our 3PLs are so tightly linked to our systems," says Turner.

Ken Miesemer, Hershey's director of distribution operations, gives all the 3PLs high marks for DC operations. A formal scorecard is updated each month to chart the performance of each DC, and its operator, according to metrics and objectives for inventory and order accuracy, financial performance, operational productivity and customer collaboration. In 2003, for the third consecutive year, ABW was named Hershey Foods' distribution center operator of the year.

Hershey also uses ABW's carrier subsidiary called Colonial Cartage for distribution in the Southeast.

"Being big isn't always better," says Turner. "What's important in a 3PL is being dedicated to always bringing value to your customers."

Identifies Problems
According to Miesemer, ABW has been especially strong in its ability to iron out customer problems in the supply chain. For example, if there is sudden increase in shortages, damage or unloading detention with a particular customer, ABW will immediately investigate the cause. It first looks at its own operations and motor carriers to verify the shipments were accurate and should have been unloaded in the allotted time. If the problem is at the customer end, ABW will reach out to the customer to jointly improve operations.

"Atlanta Bonded has been very successful in solving supply-chain problems," says Miesemer. "For certain customers Hershey personnel work with the ABW staff, but more often than not, they handle this process on their own."

Turner says its 3PLs will become even more integrated as Hershey's customers require more customization in product delivery and configuration.

"Every retailer wants unique displays and putups, so it has a unique merchandizing opportunity with its customers," says Turner.

To meet this continuing challenge, Miesemer says that its 3PLs are a proactive force in finding and implementing new ideas. They watch what the market is doing and provide us with new distribution ideas. Turner agrees that its 3PLs are in the best position to understand these new ideas since they deal with so many of leading CPG companies.

"They know what is working and what is bringing value to retail customer relationships," says Turner. "They share this knowledge with us, which makes them strategic partners in our supply chain."