Executive Briefings

For Logistics Providers, The Bar Is Being Raised

Never mind the thriving economy. U.S. manufacturers and distributors are more demanding of service quality - and less tolerant of failure - than ever before.

The U.S. market for manufactured goods remains strong, and no international shipper would have it otherwise. But a vibrant economy places even greater demands on suppliers to provide top-notch service to their customers.

Micron cut its core suppliers from 156 to 87, and crafted tight alliances with the remaining players.

Many companies, especially those in the high-tech sector, are in the throes of rapid growth. They need supply-chain partners who can keep product moving even as sales explode. Less likely than bigger shippers to possess in-house expertise, they are more inclined to seek the help of third-party logistics providers.

Much work remains to be done. For all the talk of more efficient supply chains, U.S. logistics costs haven't gone down. They have remained at around 10.6 percent of gross domestic product throughout the 1990s, according to the latest report on logistics productivity by Cass Information Systems, Inc. and ProLogis.

As for inventory performance, the record is mixed. U.S. high-technology industries saw a rise in annual inventory turns from 2.5 to 4.8 between 1977 and 1997, said Jeffrey Berg, a director in the Stamford, Conn. office of Pattiglio Todd Rabin & McGrath. In terms of overall turns on assets, however, the sector hit a high of 1.2 in 1993 "and has been losing ground ever since," said PRTM manager Rich Fredricksen.

Individual companies, such as Apple Computer and Dell Computer, have done far better. Like the companies highlighted in the following pages, they have embraced outsourcing as a means of shedding unneeded assets. The result has been fewer inventories and better customer responsiveness - a combination few companies would have thought possible a decade ago.

In One Door and Out the Other
major reengineering program at Micron Electronics Inc. has resulted in a better way of feeding parts to the high-tech assembly line.

In April of this year, Skyway Systems opened a material logistics center (MLC) near Micron's headquarters and main manufacturing site in Nampa, Idaho. The facility acts as a go-between for some 50 suppliers and the Micron plant, which turns out personal computers on a direct-sale, build-to-order basis.

The Micron business model follows that of industry pioneer Dell Computer. But it wasn't until a year ago that Micron's supply chain began to take full advantage of the concept.
Reengineering at Micron was spearheaded by newly appointed Chief Executive Officer Joel Kocher, who came to the company from Dell. For his new vice president of materials, he named a former employee in Austin, Lyle Jordan.

Jordan immediately set to work cutting costs and streamlining Micron's bloated supply chain. In a single year, he reduced parts inventory levels from $136m to $24m, and days sale of inventory (DSI) from 36 days to seven. At the same time, he increased inventory turns from 10 a year to 52.

Much of the improvement stemmed from working more closely with core suppliers. Jordan cut their numbers from 156 to 87, and crafted tight alliances with the remaining players. He stressed long-term relationships over spot buying.

Another big target for change was the way in which parts flowed into the plant. Micron had a third-party logistics provider set up shop right across the street to handle orders and replenishment. But Jordan vowed to take things further. He wanted suppliers to manage the schedule of materials, and retain ownership of inventory right up to the moment that parts were needed on the line. "We don't bring any value-added [benefits] by having a receiving and stockroom function," he said.

Micron's needs happened to dovetail with development of the MLC concept by Skyway. Significantly, Skyway's first successful MLC account was Dell. Jordan said Micron was further drawn to the provider by its extensive Internet capabilities, part of a menu of supply-chain services dubbed Concerto.

The MLC is a short-term staging point for raw materials, components and partially finished product destined for the assembly line on a just-in-time basis. Items remain in the center until they are called by Micron, either by telephone or via the Web link. Skyway then has between two and four hours to get them to the line.

Skyway manages the flow of information so that Micron and its suppliers can see at a glance how much inventory is on hand, on order, and en route to the MLC. They also can view the purchase order against which a particular item was shipped, and how much remains on it. Skyway will not pull more product than is allowed by a P.O., a rule that eliminates the need for suppliers to undertake costly reconciliations, said Louise Smith, vice president of marketing and supply-chain technology at Skyway's headquarters in Watsonville, Calif.

Suppliers further benefit because they receive immediate notification of shipment to the manufacturer, and can replenish inventories accordingly. Frequently they can invoice Micron directly off pull records, said Smith.

"We find it's a great way to keep the customer supplied and up and running," said Ed Tymick, OEM supply-chain manager of 3Com Corp., the Santa-Clara, Calif.-based maker of desktop modems and network-interface cards for personal computers. 3Com pushed Micron to choose Skyway for the Nampa MLC, having participated in Dell's facility in Austin, Tex.

By receiving fast and accurate data on the manufacturer's consumption patterns, 3Com can better plan its own factory output and cut down on excess inventory, Tymick said. Micron, too, is able to work with suppliers to determine the optimal level of inventories in the pipeline. Otherwise, said Jordan, "we're constantly either expediting material or slamming on the brakes."

Suppliers such as 3Com are as much customers of Skyway as the end manufacturer, and both pay Skyway for the use of the MLC. In return, Skyway furnishes detailed performance reports based on five key metrics: accuracy in receiving, inventory management and shipment, on-time delivery from hub to customer, and how well Skyway manages the small amount of safety stock that resides in the facility.

Micron appears well on the road to further reducing inventory levels, eliminating line-down situations, and shortening its cash-to-cash cycle. Jordan expects ultimately to be measuring inventory levels in terms of hours, not days. The company already receives payment from its customers between 18 and 21 days before it has to pay its suppliers. That, he said, is a record for the computer industry.

Micron's next step is to implement a third-party database that will allow its suppliers to see exactly what has been assembled, fulfilled and shipped out to the manufacturer's customers. He also expects to get a better hold on sales forecasts through volume purchase agreements with key customers. The provider of the new software, to be implemented over the next year, will likely be i2 Technologies.

A Partnership That Deepened With Time
t took more than 10 years for the supply-chain partnership of Lucent Business Communications Systems and GeoLogistics to evolve into its current form.

GeoLogistics began by performing traditional freight forwarding for Lucent BCS, which makes telephone systems for businesses around the world. In fact, GeoLogistics was one of several freight forwarders that the company used, basing its choice on pricing and shipment characteristics.

Gradually, GeoLogistics took on a broader range of services for Lucent, culminating in sharply reduced inventories, transportation costs and delivery times. And the partnership continues to deepen.

Change has been the hallmark of both companies in recent years. Lucent BCS is a unit of Lucent Technologies, formed in 1996 when AT&T spun off Bell Laboratories, its research and development division, along with the parent's systems and technology units.
Now one of 11 business units of Lucent Technologies, Lucent BCS is headquartered in Murray Hill, N.J. Customers range from small shops to hotels and Fortune 50 companies in need of integrated systems.

Golden, Co.-based GeoLogistics was born in 1998. Previously known as International Logistics Ltd., it was formed when the investment group of William Simon & Sons merged three forwarding and logistics entities: Bekins Van Lines, LEP International, and Matrix International. LEP was GeoLogistics' predecessor on the Lucent BCS account.

GeoLogistics got its first crack at providing value-added services to Lucent when the customer asked it to create an expedited surface network, according to Darryl Barker, the 3PL's vice president of business development. Lucent needed to move large pieces of equipment that could only fly on freighters operated by expensive integrators. The obvious alternative, assuming GeoLogistics could move the product fast enough, was over the road.

When problems crop up, "you need to look at them objectively, and mutually go after them without finger-pointing."
- Rick Forti of Lucent BCS

From there, GeoLogistics went on to add such services as direct delivery to the end customer with inside placement, and a merge-in-transit (MIT) program that creates complete orders out of shipments with multiple origins. Under the MIT program, GeoLogistics blends items from Lucent's manufacturing centers in Denver and Shreveport, La. with material from outside vendors, then ships the consolidated lots to Lucent's field offices. By relying on a single provider to handle its shipments nationwide, Lucent simplifies the order-tracking process.

GeoLogistics works closely with local installation teams to surmount potential problems such as narrow stairways and high-rise buildings. "It's like a customer-service value added on at the end of delivery," said Rick Forti, now Lucent BCS's director of manufacturing and logistics.

The shipments are monitored every step of the way by GeoLogistics' proprietary information systems, which provide line-item detail. The data they gather in the course of handling can then be used to create daily performance reports by region.

Distribution services under the Lucent contract, which covers the entire United States, include pick-and-pack, inventory control and freight forwarding of export shipments. In Little Rock, Ark., GeoLogistics supports Lucent's repair and returns facility, providing material to a network of maintenance stocking locations around the country.

GeoLogistics also maintains warehouses in the United Kingdom and the Netherlands, through which Lucent distributes product overseas. The Netherlands facility services Lucent customers in Asia, the Middle East and Africa. A distribution center in Miami acts as a jumping-off point for Latin America.

Further enhancements in Lucent's supply chain will come as it completes installation of enterprise resource planning (ERP) software from SAP America. That will allow for the monitoring of order entry, manufacturing and warehousing. Both shipper and vendor will be able to track customer orders all the way from shop floor to installation, on a real-time basis.
Benefits of the partnership to date have been significant. The MIT program, with its emphasis on reducing redundant stock, has led to nearly $8m in inventory savings since its inception. Installation costs have been cut by nearly $3m a year through better coordination of all materials required in the field. In some cases, delivery time has been reduced by 10 weeks. Lucent also has seen overall reductions in product cycle-time from direct shipments to installation sites, and in transportation costs through more efficient routing and flexible delivery schedules.

To Forti, a partnership occurs when both parties have a common understanding of the supply chain and how to improve it. When problems crop up, as they always will, "you need to look at them objectively, and mutually go after them without finger-pointing."
Barker names trust as the key factor in any working relationship. But he doesn't see it as developing overnight. As with Lucent BCS and GeoLogistics, the two sides may take years to build a partnership, slowly adding services to the mix, until they reach a level of comfort. Said Forti: "I think it's something you have to learn."

Hub Group Taps into Guinness Supply Chain
The most successful supply-chain partnerships often begin slowly.

Eight years ago, Hub Group Inc. started out handling just one product line of the Guinness Import Co. - shipments of Moosehead beer from Canada into the U.S. But as Guinness's American sales grew, so did Hub's share of the business.

Today, Lombard, Ill.-based Hub is responsible for nearly all of the volumes imported by Guinness into the U.S. That means not only the famous Guinness brand itself but other popular imports, including England's Bass Ale, the Czech Republic's Pilsner Urquell, and Jamaica's Red Stripe. In fact, the importer has become so diversified that it recently changed its name to the Guinness-Bass Import Co.

Hub's duties on behalf of Guinness are wide-ranging. It takes control of most imported product from the time it clears U.S. Customs, then arranges for final delivery to distributors throughout the country. Hub also negotiates rates with carriers and monitors their performance. And it provides tracking and tracing for all shipments to destination, including the ocean leg of the journey.

Hub, Guinness and the shipper's U.S. customs broker are linked electronically via a common, proprietary database, according to Nick Piscitelli, director of national accounts for Hub's eastern region. Orders are monitored from the moment they are placed at the overseas brewery. Updates are entered into the system with each change in a shipment's status.

The database also serves as an important tool for measuring performance, said Colin Funnell, vice president of operations in the U.S. headquarters of Guinness-Bass in Stamford, Conn. The shipper can keep close tabs, not only on Hub's performance, but on that of the customs broker and ocean carrier as well. Hub submits detailed report cards to Guinness on a monthly basis.

Guinness measures service in three major areas: the time it takes for the customs broker to make import loads available to domestic carriers, the correlation between published transit times and actual delivery dates, and overall customer satisfaction. The responsibility for that last factor lies squarely with Hub -regardless of who might be responsible for a service failure.

"If you don't have the fundamentals and good information, it's very hard to build high levels of trust."
- Colin Funnell of Guinness-Bass Import

Funnell said Guinness strives not to segment the supply chain by singling out parties for blame. "Our customer sees all complaints as Hub's performance." Guinness, he said, prefers to pose this question to Hub: "What are you as a supply-chain partner doing to make sure a service failure doesn't happen?"

Hub, in turn, places strict requirements on the carriers whom it hires to move Guinness's product. To qualify, a trucker must demonstrate adequate profitability, size, capacity, insurance, and safety record. And with more than 5,000 preapproved carriers in the Hub database, the competition for business can be intense.

Funnell said Hub's service record has been consistently good. On-time delivery performance to distributors hovers in the 95- to 100-percent range. "They're definitely the most reliable part of our supply chain - more so than ocean carriers and our own production sites," he said.

The Guinness import supply chain consists of six breweries, with production levels varying widely according to brand. Often the importer must find ways of combining small lots in full containers in order to keep transport costs down - yet avoid overwhelming a customer with beer.
Last year, Guinness moved more than 22 million cases of beer from 17 U.S. entry ports to some 430 distributors around the country. For Hub, that translated into 13,000 full containers of product - or about 1,100 shipments a month. "It's quite a tangled web at the end of the day," said Funnell.

Hub recently lost about 15 percent of Guinness's North American business when the importer opened a U.S. distribution center in the Northeast. The contract was awarded to a provider with direct trucking and warehousing experience. Funnell said Guinness is studying the possibility of adding up to five more distribution facilities in order to enhance product freshness and deal better with small shipments.

With the pilot project deemed a success, Hub intends to resubmit its bid for managing any new domestic warehouses for Guinness. "We're going after it aggressively," Piscatelli says.

Imminent restructuring of the Guinness distribution network notwithstanding, both sides appear committed to their ongoing partnership. Funnell calls the sharing of business goals crucial to the success of any venture. "There's got to be enough value that you can confidently challenge the status quo and move forward," he said.

Information about ongoing operations must be freely shared as well. "If you don't have the fundamentals and good information," said Funnell, "it's very hard to build high levels of trust."

Hub and Guinness meet regularly at multiple levels of the organization, particularly customer service, to iron out potential problems. Piscatelli said the level of communication between the two companies has improved markedly over the past 16 months, ensuring that snags are far and few between.

"Only twice in two years have I had to get involved in motivating Hub to improve a day-to-day issue," Funnell said. "That's pretty unusual."

MedSurg Finds a Niche In Surgical Supplies
Considering what MedSurg Industries is up against in the surgical-supply business, it needs all the help it can get.

MedSurg, the Herndon, Va.-based division of Isolyser Co. Inc., has found its niche in the customized surgical tray market. It makes kits containing everything a surgeon requires to conduct an operation, from gowns and towels to disposable instruments. Each tray is packed according to the hospital's own requirements, its contents arranged in strict order for maximum accessibility.

With $60m a year in sales, MedSurg faces a handful of much bigger rivals. Companies such as Baxter HealthCare and Maxim Medical not only supply trays, they make what's in them. MedSurg is the only player in the business that is not also a manufacturer, said Scott McMartin, vice president of sales and marketing. In many cases it buys from the same companies against whom it competes for kit sales. "Our competitors are essentially manufacturers trying to protect market share by vertically integrating," he said.

The role of the kit supplier has taken on added importance with the elimination of sterile supply warehouses by hospitals. That places a new emphasis on service - the one area in which McMartin feels MedSurg can compete. He argues that only MedSurg has the neutrality to build kits with what surgeons really want, not products that merely enhance the bottom line of suppliers. "MedSurg can't play a price game," he said.

One of MedSurg's value-added services is barcoding by universal product numbers (UPNs). The program helps to optimize hospitals' supply chains by weeding out the use of multiple suppliers and excess inventory. McMartin cites recent studies showing an annual price tag of $23bn for the movement of products into U.S. hospitals. "About half of that is waste," he said.

The UPN program requires a sophisticated information-systems solution, as do other aspects of the medical supply chain, including consignment programs, vendor-managed inventories and make to order. To fill that requirement, MedSurg looked to the MK Group, the Islandia, N.Y.-based applications business unit of Computer Associates International.

The MK Manufacturing product is an ERP package with a tightly integrated warehouse management system (WMS). It contains more than 40 functional modules, ranging from analysis of demand patterns to order-taking, according to Gary Layton, vice president of marketing with MK.

Scott McMartin expects his software providers to deliver the same level of
value-added service that MedSurg offers
its own customers.

For MedSurg, the system's selling point was its flexibility. It had to allow for a product whose packaging is constant, but whose internal configuration varies sharply between hospitals, even individual surgeons.

MedSurg's distribution requirements are equally complex. It ships to distributors as well as direct customers. It employs both make-to-stock and make-to-order strategies. The level of its safety stocks must reflect actual usage, not some vague forecast.

MedSurg further needed a state-of-the-art application that would help to minimize, if not eliminate, finished goods inventories. Old-style materials requirement planning (MRP) programs don't work because they automatically assign a future date for shipping to every item that comes off the line. "By definition, every order we get has to be shipped immediately," said McMartin.

For a company that lives or dies by the quality of its customer service, response time is paramount. "The competition is pretty sophisticated," said McMartin, "but most customers say we're much faster in terms of order changes."

Cost-control is another prime factor in the company's continuing success. MedSurg acquired the MK Manufacturing system in October 1997. Since that time, said McMartin, its sales of around $60m a year have remained constant. But its annual inventory investment has dropped from $9m to $6m.

So far, MedSurg has managed to hold its own against the competition, in an industry where the number of players continues to shrink. It has become the sole provider of trays to eye surgeons using Bausch & Lomb products. But the company's future success depends on its ability to resist a price-oriented strategy, in the face of relentless pressure on hospitals to cut their cost of supplies.

"If we can help our customers become better at supply-chain optimization, that's the value we bring," said McMartin. "But we don't have time for that if we're busy getting profitable."

Systems will play a crucial role in that effort. McMartin, who previously worked for the MK Group, expects his software providers to deliver the same level of value-added service that MedSurg offers its own customers. They must also have a thorough understanding of the medical-supply business.

MK, he said, is strong on customer support, especially when it comes to making modifications to the basic package. "It's not just the physical product," he said. "It's the product and the company behind it."

Added Layton: "It's as simple as making an ongoing commitment to the client to support its business through its various changes."

Xylan Corp.: A Company At the Crossroads
Xylan Corp. is a small company on the verge of becoming big. For Catherine McCallum, traffic manager of worldwide logistics, that has meant forging a supply chain that can handle rapid growth in an industry with near-unlimited potential.

Tucked away in Calabasas, just over the mountains north of Los Angeles, Xylan makes network switching equipment that allows for the digital transfer of data, voice and video. Major customers include phone companies, cable companies and banks.

Xylan faces stiff competition from rivals such as Cisco Systems and 3Com Corp., but it's growing fast. Founded in 1993, it has seen revenue climb from $30m to last year's total of $350m. This year, the company expects to do between $600m and $700m worth of business, McCallum said. Even so, that pales in comparison with the overall size of the worldwide switching market, estimated at $5.7bn.

In coping with its dizzying rate of growth, Xylan faced the dual challenge of selecting a third-party logistics (3PL) provider to help manage its expanding global supply chain, and a software package that could automate key functions and documentation in its export program. McCallum turned to Danzas Corp. for the first need, and Syntra Ltd. for the second.

Danzas, a Basel, Switzerland-based forwarder that has recently branched into third-party logistics in the U.S. and elsewhere, had to prove itself to Xylan before getting a substantial piece of the business. Early last year, McCallum found herself needing to move product between the San Francisco Bay Area and Los Angeles on a daily basis. Pickups had to be late at night to allow for early-morning delivery.

Primarily an international forwarder, Danzas jumped at the chance to handle an ostensibly small piece of domestic over-the-road business. For Xylan, it designed a dedicated truck service that could make the run in eight hours. It began by shipping between two and three pallets a day, but volumes soon increased. So did the variety of business that Xylan was willing to hand over to Danzas.

In May of 1998, Xylan appointed Danzas its exclusive handler of heavyweight domestic and international shipments. Services under the new arrangement included warehousing, trucking, air export, customs brokerage, and pick-and-pack activities. Xylan's other freight-forwarding partner is Federal Express Corp., which handles small packages.

An effective software package "has to offer a program that's going to do all my logistics needs today... and come up with input as to what I can't visualize."
- Catherine McCallum of Xylan Corp.

The Danzas/Xylan relationship has since extended even further, to the point where the vendor now has an employee permanently located at Xylan's offices, to coordinate shipping activities throughout the world and solve any problems that might arise, according to Steve Olsen, district vice president of Danzas in Los Angeles.

Danzas employees are also on site at Xylan's European service center in Amsterdam, established to get Xylan closer to its overseas customers. Danzas utilizes the European network of United Parcel Service to deliver Xylan product throughout the region. Similar facilities are planned for Asia, Latin America and the Middle East, although Xylan already brings in some manufactured product from Taiwan.

The choice of Syntra arose from Xylan's need for a software package to handle export documentation and compliance, said McCallum. But Syntra's Global Logistics Systems (GLS) had more features than that. It manages three separate "areas of constraint" within the supply chain, according to Pano Anthos, chairman and co-founder of the New York City-based software provider.

The first area is regulatory, covering compliance and documentation requirements in the U.S. and elsewhere. The second is logistics, including global distribution, carrier interface, tracking and tracing, and reverse logistics. The third is financial, including letters of credit and the posting of charges back to Xylan's internal ERP system. Among GLS's specific features is the automatic transmission of packing lists, commercial invoices and airway bills via fax, electronic data interchange, or the internet.

Syntra signed the deal with Xylan in October 1998, and full implementation wasn't expected until June or July of this year. But refinements are already in the works. Anthos said Xylan will soon take advantage of GLS's merge-in-transit functionality for the Amsterdam service center. McCallum is looking forward to acquiring shipment status, flight availability and ordering capability over the Internet.

To McCallum, the notion of partnership boils down to a single word: service. A software product such as GLS, she said, "has to offer a program that's going to do all my logistics needs today and what I can visualize in the future, and come up with input as to what I can't visualize." Anthos said the dynamic works both ways; Xylan has helped to mold the GLS product based on knowledge of its own customer base.

Olsen speaks of the intricate ties between partners, with Danzas keeping an employee at Xylan headquarters, and Xylan staffing a Danzas warehouse at the Los Angeles International Airport. An effective partnership produces tangible value on all sides, he said. "Both parties gain. Both parties win."

Wyse Technology: Ballad Of a Thin Client
yse Technology would have gotten around to outsourcing its logistics functions eventually. But the Y2K crisis hastened the decision.

With dual headquarters in San Jose, Calif. and Hsin Chu, Taiwan, Wyse is among the leading providers of so-called "thin client" technology - network computer terminals that lack hard drives, depending instead on centralized servers at sites remote from users. Last year, Wyse reportedly shipped six times as many Windows-based terminals to distributors and manufacturers as its closest rival. Worldwide, its installed base numbers more than eight million terminals and thin-client devices.

Wyse, which recently went public on the Taiwan stock exchange, proudly offers a range of products that are Y2K-compliant. But its own logistics systems were less sophisticated, and to upgrade them would have involved spending money in an area that was not considered to be among Wyse's core competencies, said Director of Operations Sharon McCorkle.
Instead, Wyse went looking for a third-party provider that could handle a wide range of supply-chain activities while erasing assets from the balance sheet. At the same time, the company hoped to streamline its information systems and eliminate any lingering Y2K problems.

Following a six-month selection process, Wyse chose Emery Worldwide Global Logistics, a subsidiary of CNF Transportation Inc. based in Redwood City, Calif. Under a three-year contract, Emery will manage much of Wyse's North American distribution, including both inbound and outbound transportation. Value-added services include product testing, customer support, management of returns, repairs and final assembly. The result, Wyse hopes, will be reduced handling of its product, shorter cycle times, and improved customer responsiveness.

Emery's center of operations for Wyse is a 170,000-square-foot facility in Milpitas, Calif. There, Emery maintains a customer service center and repair operation. It also reconfigures and customizes units shipped from Wyse's manufacturing plant in Taiwan. By relying on Emery's expertise in logistics, Wyse hopes to increase the ability to enhance product at the last possible moment.

The contract features generous incentives for Emery. "To bring about change and promote efficiencies, both companies must be rewarded."
- Don Cox of Emery Global Logistics

At the heart of Emery's offering is a Y2K-compliant information system for documentation and inventory control. Although the system will operate on Wyse's thin-client model, it will be owned and maintained by Emery. To develop up-to-date warehouse management software internally, Wyse would have had to spend up to $1.5m, said Don Cox, managing director of Emery Worldwide Global Logistics.

Emery relieved Wyse of some existing overhead by shifting the client's 63-person distribution staff onto its own payroll. Culture clashes were avoided, and the entire transition smoothed out, with the help of personnel from Emery's Electronics and Computer Technology group.

Wyse retains control over its supply chain by continuing to perform worldwide planning and purchasing of logistics. "That's a core competency," said McCorkle. The company also oversees the process of postponement and configuration, telling Emery how each shipment must be altered according to individual customer needs. Order administration and the management of finished goods continue to be handled by Wyse employees as well.

The transition to Emery management is being carried out in two stages. The 63 Wyse employees moved over to Emery's payroll in mid-April. Emery's information and warehouse management system was scheduled to hook up with the Wyse operation in July.

Wyse was equally careful about the selection phase. It started out with six candidates, then narrowed the field to three. McCorkle said the company wasn't interested in a standard vendor's demonstration of generic abilities. "Rather than having a cookie-cutter approach, we looked at their willingness to adapt to our business."

The final choice, made by a nine-member, cross-functional team within Wyse, was unanimous. "Emery impressed us up front," McCorkle said. "It provided both content and form." The third party called on skilled engineers from within its ranks to help create the level of mutual trust that is essential to any long-term logistics partnership.

Wyse was equally committed to a team approach, said Cox. Initially, it would compensate Emery for services on a cost-plus basis. But the contract also features generous incentives for the provider, built around cost savings and improved productivity. "To bring about change and promote efficiencies," Cox said, "both companies must be rewarded."

In fact, both sides were reporting tangible benefits in the first weeks of the new arrangement. "It's gone incredibly well," McCorkle said in early May. "We're looking forward to the transition."

The U.S. market for manufactured goods remains strong, and no international shipper would have it otherwise. But a vibrant economy places even greater demands on suppliers to provide top-notch service to their customers.

Micron cut its core suppliers from 156 to 87, and crafted tight alliances with the remaining players.

Many companies, especially those in the high-tech sector, are in the throes of rapid growth. They need supply-chain partners who can keep product moving even as sales explode. Less likely than bigger shippers to possess in-house expertise, they are more inclined to seek the help of third-party logistics providers.

Much work remains to be done. For all the talk of more efficient supply chains, U.S. logistics costs haven't gone down. They have remained at around 10.6 percent of gross domestic product throughout the 1990s, according to the latest report on logistics productivity by Cass Information Systems, Inc. and ProLogis.

As for inventory performance, the record is mixed. U.S. high-technology industries saw a rise in annual inventory turns from 2.5 to 4.8 between 1977 and 1997, said Jeffrey Berg, a director in the Stamford, Conn. office of Pattiglio Todd Rabin & McGrath. In terms of overall turns on assets, however, the sector hit a high of 1.2 in 1993 "and has been losing ground ever since," said PRTM manager Rich Fredricksen.

Individual companies, such as Apple Computer and Dell Computer, have done far better. Like the companies highlighted in the following pages, they have embraced outsourcing as a means of shedding unneeded assets. The result has been fewer inventories and better customer responsiveness - a combination few companies would have thought possible a decade ago.

In One Door and Out the Other
major reengineering program at Micron Electronics Inc. has resulted in a better way of feeding parts to the high-tech assembly line.

In April of this year, Skyway Systems opened a material logistics center (MLC) near Micron's headquarters and main manufacturing site in Nampa, Idaho. The facility acts as a go-between for some 50 suppliers and the Micron plant, which turns out personal computers on a direct-sale, build-to-order basis.

The Micron business model follows that of industry pioneer Dell Computer. But it wasn't until a year ago that Micron's supply chain began to take full advantage of the concept.
Reengineering at Micron was spearheaded by newly appointed Chief Executive Officer Joel Kocher, who came to the company from Dell. For his new vice president of materials, he named a former employee in Austin, Lyle Jordan.

Jordan immediately set to work cutting costs and streamlining Micron's bloated supply chain. In a single year, he reduced parts inventory levels from $136m to $24m, and days sale of inventory (DSI) from 36 days to seven. At the same time, he increased inventory turns from 10 a year to 52.

Much of the improvement stemmed from working more closely with core suppliers. Jordan cut their numbers from 156 to 87, and crafted tight alliances with the remaining players. He stressed long-term relationships over spot buying.

Another big target for change was the way in which parts flowed into the plant. Micron had a third-party logistics provider set up shop right across the street to handle orders and replenishment. But Jordan vowed to take things further. He wanted suppliers to manage the schedule of materials, and retain ownership of inventory right up to the moment that parts were needed on the line. "We don't bring any value-added [benefits] by having a receiving and stockroom function," he said.

Micron's needs happened to dovetail with development of the MLC concept by Skyway. Significantly, Skyway's first successful MLC account was Dell. Jordan said Micron was further drawn to the provider by its extensive Internet capabilities, part of a menu of supply-chain services dubbed Concerto.

The MLC is a short-term staging point for raw materials, components and partially finished product destined for the assembly line on a just-in-time basis. Items remain in the center until they are called by Micron, either by telephone or via the Web link. Skyway then has between two and four hours to get them to the line.

Skyway manages the flow of information so that Micron and its suppliers can see at a glance how much inventory is on hand, on order, and en route to the MLC. They also can view the purchase order against which a particular item was shipped, and how much remains on it. Skyway will not pull more product than is allowed by a P.O., a rule that eliminates the need for suppliers to undertake costly reconciliations, said Louise Smith, vice president of marketing and supply-chain technology at Skyway's headquarters in Watsonville, Calif.

Suppliers further benefit because they receive immediate notification of shipment to the manufacturer, and can replenish inventories accordingly. Frequently they can invoice Micron directly off pull records, said Smith.

"We find it's a great way to keep the customer supplied and up and running," said Ed Tymick, OEM supply-chain manager of 3Com Corp., the Santa-Clara, Calif.-based maker of desktop modems and network-interface cards for personal computers. 3Com pushed Micron to choose Skyway for the Nampa MLC, having participated in Dell's facility in Austin, Tex.

By receiving fast and accurate data on the manufacturer's consumption patterns, 3Com can better plan its own factory output and cut down on excess inventory, Tymick said. Micron, too, is able to work with suppliers to determine the optimal level of inventories in the pipeline. Otherwise, said Jordan, "we're constantly either expediting material or slamming on the brakes."

Suppliers such as 3Com are as much customers of Skyway as the end manufacturer, and both pay Skyway for the use of the MLC. In return, Skyway furnishes detailed performance reports based on five key metrics: accuracy in receiving, inventory management and shipment, on-time delivery from hub to customer, and how well Skyway manages the small amount of safety stock that resides in the facility.

Micron appears well on the road to further reducing inventory levels, eliminating line-down situations, and shortening its cash-to-cash cycle. Jordan expects ultimately to be measuring inventory levels in terms of hours, not days. The company already receives payment from its customers between 18 and 21 days before it has to pay its suppliers. That, he said, is a record for the computer industry.

Micron's next step is to implement a third-party database that will allow its suppliers to see exactly what has been assembled, fulfilled and shipped out to the manufacturer's customers. He also expects to get a better hold on sales forecasts through volume purchase agreements with key customers. The provider of the new software, to be implemented over the next year, will likely be i2 Technologies.

A Partnership That Deepened With Time
t took more than 10 years for the supply-chain partnership of Lucent Business Communications Systems and GeoLogistics to evolve into its current form.

GeoLogistics began by performing traditional freight forwarding for Lucent BCS, which makes telephone systems for businesses around the world. In fact, GeoLogistics was one of several freight forwarders that the company used, basing its choice on pricing and shipment characteristics.

Gradually, GeoLogistics took on a broader range of services for Lucent, culminating in sharply reduced inventories, transportation costs and delivery times. And the partnership continues to deepen.

Change has been the hallmark of both companies in recent years. Lucent BCS is a unit of Lucent Technologies, formed in 1996 when AT&T spun off Bell Laboratories, its research and development division, along with the parent's systems and technology units.
Now one of 11 business units of Lucent Technologies, Lucent BCS is headquartered in Murray Hill, N.J. Customers range from small shops to hotels and Fortune 50 companies in need of integrated systems.

Golden, Co.-based GeoLogistics was born in 1998. Previously known as International Logistics Ltd., it was formed when the investment group of William Simon & Sons merged three forwarding and logistics entities: Bekins Van Lines, LEP International, and Matrix International. LEP was GeoLogistics' predecessor on the Lucent BCS account.

GeoLogistics got its first crack at providing value-added services to Lucent when the customer asked it to create an expedited surface network, according to Darryl Barker, the 3PL's vice president of business development. Lucent needed to move large pieces of equipment that could only fly on freighters operated by expensive integrators. The obvious alternative, assuming GeoLogistics could move the product fast enough, was over the road.

When problems crop up, "you need to look at them objectively, and mutually go after them without finger-pointing."
- Rick Forti of Lucent BCS

From there, GeoLogistics went on to add such services as direct delivery to the end customer with inside placement, and a merge-in-transit (MIT) program that creates complete orders out of shipments with multiple origins. Under the MIT program, GeoLogistics blends items from Lucent's manufacturing centers in Denver and Shreveport, La. with material from outside vendors, then ships the consolidated lots to Lucent's field offices. By relying on a single provider to handle its shipments nationwide, Lucent simplifies the order-tracking process.

GeoLogistics works closely with local installation teams to surmount potential problems such as narrow stairways and high-rise buildings. "It's like a customer-service value added on at the end of delivery," said Rick Forti, now Lucent BCS's director of manufacturing and logistics.

The shipments are monitored every step of the way by GeoLogistics' proprietary information systems, which provide line-item detail. The data they gather in the course of handling can then be used to create daily performance reports by region.

Distribution services under the Lucent contract, which covers the entire United States, include pick-and-pack, inventory control and freight forwarding of export shipments. In Little Rock, Ark., GeoLogistics supports Lucent's repair and returns facility, providing material to a network of maintenance stocking locations around the country.

GeoLogistics also maintains warehouses in the United Kingdom and the Netherlands, through which Lucent distributes product overseas. The Netherlands facility services Lucent customers in Asia, the Middle East and Africa. A distribution center in Miami acts as a jumping-off point for Latin America.

Further enhancements in Lucent's supply chain will come as it completes installation of enterprise resource planning (ERP) software from SAP America. That will allow for the monitoring of order entry, manufacturing and warehousing. Both shipper and vendor will be able to track customer orders all the way from shop floor to installation, on a real-time basis.
Benefits of the partnership to date have been significant. The MIT program, with its emphasis on reducing redundant stock, has led to nearly $8m in inventory savings since its inception. Installation costs have been cut by nearly $3m a year through better coordination of all materials required in the field. In some cases, delivery time has been reduced by 10 weeks. Lucent also has seen overall reductions in product cycle-time from direct shipments to installation sites, and in transportation costs through more efficient routing and flexible delivery schedules.

To Forti, a partnership occurs when both parties have a common understanding of the supply chain and how to improve it. When problems crop up, as they always will, "you need to look at them objectively, and mutually go after them without finger-pointing."
Barker names trust as the key factor in any working relationship. But he doesn't see it as developing overnight. As with Lucent BCS and GeoLogistics, the two sides may take years to build a partnership, slowly adding services to the mix, until they reach a level of comfort. Said Forti: "I think it's something you have to learn."

Hub Group Taps into Guinness Supply Chain
The most successful supply-chain partnerships often begin slowly.

Eight years ago, Hub Group Inc. started out handling just one product line of the Guinness Import Co. - shipments of Moosehead beer from Canada into the U.S. But as Guinness's American sales grew, so did Hub's share of the business.

Today, Lombard, Ill.-based Hub is responsible for nearly all of the volumes imported by Guinness into the U.S. That means not only the famous Guinness brand itself but other popular imports, including England's Bass Ale, the Czech Republic's Pilsner Urquell, and Jamaica's Red Stripe. In fact, the importer has become so diversified that it recently changed its name to the Guinness-Bass Import Co.

Hub's duties on behalf of Guinness are wide-ranging. It takes control of most imported product from the time it clears U.S. Customs, then arranges for final delivery to distributors throughout the country. Hub also negotiates rates with carriers and monitors their performance. And it provides tracking and tracing for all shipments to destination, including the ocean leg of the journey.

Hub, Guinness and the shipper's U.S. customs broker are linked electronically via a common, proprietary database, according to Nick Piscitelli, director of national accounts for Hub's eastern region. Orders are monitored from the moment they are placed at the overseas brewery. Updates are entered into the system with each change in a shipment's status.

The database also serves as an important tool for measuring performance, said Colin Funnell, vice president of operations in the U.S. headquarters of Guinness-Bass in Stamford, Conn. The shipper can keep close tabs, not only on Hub's performance, but on that of the customs broker and ocean carrier as well. Hub submits detailed report cards to Guinness on a monthly basis.

Guinness measures service in three major areas: the time it takes for the customs broker to make import loads available to domestic carriers, the correlation between published transit times and actual delivery dates, and overall customer satisfaction. The responsibility for that last factor lies squarely with Hub -regardless of who might be responsible for a service failure.

"If you don't have the fundamentals and good information, it's very hard to build high levels of trust."
- Colin Funnell of Guinness-Bass Import

Funnell said Guinness strives not to segment the supply chain by singling out parties for blame. "Our customer sees all complaints as Hub's performance." Guinness, he said, prefers to pose this question to Hub: "What are you as a supply-chain partner doing to make sure a service failure doesn't happen?"

Hub, in turn, places strict requirements on the carriers whom it hires to move Guinness's product. To qualify, a trucker must demonstrate adequate profitability, size, capacity, insurance, and safety record. And with more than 5,000 preapproved carriers in the Hub database, the competition for business can be intense.

Funnell said Hub's service record has been consistently good. On-time delivery performance to distributors hovers in the 95- to 100-percent range. "They're definitely the most reliable part of our supply chain - more so than ocean carriers and our own production sites," he said.

The Guinness import supply chain consists of six breweries, with production levels varying widely according to brand. Often the importer must find ways of combining small lots in full containers in order to keep transport costs down - yet avoid overwhelming a customer with beer.
Last year, Guinness moved more than 22 million cases of beer from 17 U.S. entry ports to some 430 distributors around the country. For Hub, that translated into 13,000 full containers of product - or about 1,100 shipments a month. "It's quite a tangled web at the end of the day," said Funnell.

Hub recently lost about 15 percent of Guinness's North American business when the importer opened a U.S. distribution center in the Northeast. The contract was awarded to a provider with direct trucking and warehousing experience. Funnell said Guinness is studying the possibility of adding up to five more distribution facilities in order to enhance product freshness and deal better with small shipments.

With the pilot project deemed a success, Hub intends to resubmit its bid for managing any new domestic warehouses for Guinness. "We're going after it aggressively," Piscatelli says.

Imminent restructuring of the Guinness distribution network notwithstanding, both sides appear committed to their ongoing partnership. Funnell calls the sharing of business goals crucial to the success of any venture. "There's got to be enough value that you can confidently challenge the status quo and move forward," he said.

Information about ongoing operations must be freely shared as well. "If you don't have the fundamentals and good information," said Funnell, "it's very hard to build high levels of trust."

Hub and Guinness meet regularly at multiple levels of the organization, particularly customer service, to iron out potential problems. Piscatelli said the level of communication between the two companies has improved markedly over the past 16 months, ensuring that snags are far and few between.

"Only twice in two years have I had to get involved in motivating Hub to improve a day-to-day issue," Funnell said. "That's pretty unusual."

MedSurg Finds a Niche In Surgical Supplies
Considering what MedSurg Industries is up against in the surgical-supply business, it needs all the help it can get.

MedSurg, the Herndon, Va.-based division of Isolyser Co. Inc., has found its niche in the customized surgical tray market. It makes kits containing everything a surgeon requires to conduct an operation, from gowns and towels to disposable instruments. Each tray is packed according to the hospital's own requirements, its contents arranged in strict order for maximum accessibility.

With $60m a year in sales, MedSurg faces a handful of much bigger rivals. Companies such as Baxter HealthCare and Maxim Medical not only supply trays, they make what's in them. MedSurg is the only player in the business that is not also a manufacturer, said Scott McMartin, vice president of sales and marketing. In many cases it buys from the same companies against whom it competes for kit sales. "Our competitors are essentially manufacturers trying to protect market share by vertically integrating," he said.

The role of the kit supplier has taken on added importance with the elimination of sterile supply warehouses by hospitals. That places a new emphasis on service - the one area in which McMartin feels MedSurg can compete. He argues that only MedSurg has the neutrality to build kits with what surgeons really want, not products that merely enhance the bottom line of suppliers. "MedSurg can't play a price game," he said.

One of MedSurg's value-added services is barcoding by universal product numbers (UPNs). The program helps to optimize hospitals' supply chains by weeding out the use of multiple suppliers and excess inventory. McMartin cites recent studies showing an annual price tag of $23bn for the movement of products into U.S. hospitals. "About half of that is waste," he said.

The UPN program requires a sophisticated information-systems solution, as do other aspects of the medical supply chain, including consignment programs, vendor-managed inventories and make to order. To fill that requirement, MedSurg looked to the MK Group, the Islandia, N.Y.-based applications business unit of Computer Associates International.

The MK Manufacturing product is an ERP package with a tightly integrated warehouse management system (WMS). It contains more than 40 functional modules, ranging from analysis of demand patterns to order-taking, according to Gary Layton, vice president of marketing with MK.

Scott McMartin expects his software providers to deliver the same level of
value-added service that MedSurg offers
its own customers.

For MedSurg, the system's selling point was its flexibility. It had to allow for a product whose packaging is constant, but whose internal configuration varies sharply between hospitals, even individual surgeons.

MedSurg's distribution requirements are equally complex. It ships to distributors as well as direct customers. It employs both make-to-stock and make-to-order strategies. The level of its safety stocks must reflect actual usage, not some vague forecast.

MedSurg further needed a state-of-the-art application that would help to minimize, if not eliminate, finished goods inventories. Old-style materials requirement planning (MRP) programs don't work because they automatically assign a future date for shipping to every item that comes off the line. "By definition, every order we get has to be shipped immediately," said McMartin.

For a company that lives or dies by the quality of its customer service, response time is paramount. "The competition is pretty sophisticated," said McMartin, "but most customers say we're much faster in terms of order changes."

Cost-control is another prime factor in the company's continuing success. MedSurg acquired the MK Manufacturing system in October 1997. Since that time, said McMartin, its sales of around $60m a year have remained constant. But its annual inventory investment has dropped from $9m to $6m.

So far, MedSurg has managed to hold its own against the competition, in an industry where the number of players continues to shrink. It has become the sole provider of trays to eye surgeons using Bausch & Lomb products. But the company's future success depends on its ability to resist a price-oriented strategy, in the face of relentless pressure on hospitals to cut their cost of supplies.

"If we can help our customers become better at supply-chain optimization, that's the value we bring," said McMartin. "But we don't have time for that if we're busy getting profitable."

Systems will play a crucial role in that effort. McMartin, who previously worked for the MK Group, expects his software providers to deliver the same level of value-added service that MedSurg offers its own customers. They must also have a thorough understanding of the medical-supply business.

MK, he said, is strong on customer support, especially when it comes to making modifications to the basic package. "It's not just the physical product," he said. "It's the product and the company behind it."

Added Layton: "It's as simple as making an ongoing commitment to the client to support its business through its various changes."

Xylan Corp.: A Company At the Crossroads
Xylan Corp. is a small company on the verge of becoming big. For Catherine McCallum, traffic manager of worldwide logistics, that has meant forging a supply chain that can handle rapid growth in an industry with near-unlimited potential.

Tucked away in Calabasas, just over the mountains north of Los Angeles, Xylan makes network switching equipment that allows for the digital transfer of data, voice and video. Major customers include phone companies, cable companies and banks.

Xylan faces stiff competition from rivals such as Cisco Systems and 3Com Corp., but it's growing fast. Founded in 1993, it has seen revenue climb from $30m to last year's total of $350m. This year, the company expects to do between $600m and $700m worth of business, McCallum said. Even so, that pales in comparison with the overall size of the worldwide switching market, estimated at $5.7bn.

In coping with its dizzying rate of growth, Xylan faced the dual challenge of selecting a third-party logistics (3PL) provider to help manage its expanding global supply chain, and a software package that could automate key functions and documentation in its export program. McCallum turned to Danzas Corp. for the first need, and Syntra Ltd. for the second.

Danzas, a Basel, Switzerland-based forwarder that has recently branched into third-party logistics in the U.S. and elsewhere, had to prove itself to Xylan before getting a substantial piece of the business. Early last year, McCallum found herself needing to move product between the San Francisco Bay Area and Los Angeles on a daily basis. Pickups had to be late at night to allow for early-morning delivery.

Primarily an international forwarder, Danzas jumped at the chance to handle an ostensibly small piece of domestic over-the-road business. For Xylan, it designed a dedicated truck service that could make the run in eight hours. It began by shipping between two and three pallets a day, but volumes soon increased. So did the variety of business that Xylan was willing to hand over to Danzas.

In May of 1998, Xylan appointed Danzas its exclusive handler of heavyweight domestic and international shipments. Services under the new arrangement included warehousing, trucking, air export, customs brokerage, and pick-and-pack activities. Xylan's other freight-forwarding partner is Federal Express Corp., which handles small packages.

An effective software package "has to offer a program that's going to do all my logistics needs today... and come up with input as to what I can't visualize."
- Catherine McCallum of Xylan Corp.

The Danzas/Xylan relationship has since extended even further, to the point where the vendor now has an employee permanently located at Xylan's offices, to coordinate shipping activities throughout the world and solve any problems that might arise, according to Steve Olsen, district vice president of Danzas in Los Angeles.

Danzas employees are also on site at Xylan's European service center in Amsterdam, established to get Xylan closer to its overseas customers. Danzas utilizes the European network of United Parcel Service to deliver Xylan product throughout the region. Similar facilities are planned for Asia, Latin America and the Middle East, although Xylan already brings in some manufactured product from Taiwan.

The choice of Syntra arose from Xylan's need for a software package to handle export documentation and compliance, said McCallum. But Syntra's Global Logistics Systems (GLS) had more features than that. It manages three separate "areas of constraint" within the supply chain, according to Pano Anthos, chairman and co-founder of the New York City-based software provider.

The first area is regulatory, covering compliance and documentation requirements in the U.S. and elsewhere. The second is logistics, including global distribution, carrier interface, tracking and tracing, and reverse logistics. The third is financial, including letters of credit and the posting of charges back to Xylan's internal ERP system. Among GLS's specific features is the automatic transmission of packing lists, commercial invoices and airway bills via fax, electronic data interchange, or the internet.

Syntra signed the deal with Xylan in October 1998, and full implementation wasn't expected until June or July of this year. But refinements are already in the works. Anthos said Xylan will soon take advantage of GLS's merge-in-transit functionality for the Amsterdam service center. McCallum is looking forward to acquiring shipment status, flight availability and ordering capability over the Internet.

To McCallum, the notion of partnership boils down to a single word: service. A software product such as GLS, she said, "has to offer a program that's going to do all my logistics needs today and what I can visualize in the future, and come up with input as to what I can't visualize." Anthos said the dynamic works both ways; Xylan has helped to mold the GLS product based on knowledge of its own customer base.

Olsen speaks of the intricate ties between partners, with Danzas keeping an employee at Xylan headquarters, and Xylan staffing a Danzas warehouse at the Los Angeles International Airport. An effective partnership produces tangible value on all sides, he said. "Both parties gain. Both parties win."

Wyse Technology: Ballad Of a Thin Client
yse Technology would have gotten around to outsourcing its logistics functions eventually. But the Y2K crisis hastened the decision.

With dual headquarters in San Jose, Calif. and Hsin Chu, Taiwan, Wyse is among the leading providers of so-called "thin client" technology - network computer terminals that lack hard drives, depending instead on centralized servers at sites remote from users. Last year, Wyse reportedly shipped six times as many Windows-based terminals to distributors and manufacturers as its closest rival. Worldwide, its installed base numbers more than eight million terminals and thin-client devices.

Wyse, which recently went public on the Taiwan stock exchange, proudly offers a range of products that are Y2K-compliant. But its own logistics systems were less sophisticated, and to upgrade them would have involved spending money in an area that was not considered to be among Wyse's core competencies, said Director of Operations Sharon McCorkle.
Instead, Wyse went looking for a third-party provider that could handle a wide range of supply-chain activities while erasing assets from the balance sheet. At the same time, the company hoped to streamline its information systems and eliminate any lingering Y2K problems.

Following a six-month selection process, Wyse chose Emery Worldwide Global Logistics, a subsidiary of CNF Transportation Inc. based in Redwood City, Calif. Under a three-year contract, Emery will manage much of Wyse's North American distribution, including both inbound and outbound transportation. Value-added services include product testing, customer support, management of returns, repairs and final assembly. The result, Wyse hopes, will be reduced handling of its product, shorter cycle times, and improved customer responsiveness.

Emery's center of operations for Wyse is a 170,000-square-foot facility in Milpitas, Calif. There, Emery maintains a customer service center and repair operation. It also reconfigures and customizes units shipped from Wyse's manufacturing plant in Taiwan. By relying on Emery's expertise in logistics, Wyse hopes to increase the ability to enhance product at the last possible moment.

The contract features generous incentives for Emery. "To bring about change and promote efficiencies, both companies must be rewarded."
- Don Cox of Emery Global Logistics

At the heart of Emery's offering is a Y2K-compliant information system for documentation and inventory control. Although the system will operate on Wyse's thin-client model, it will be owned and maintained by Emery. To develop up-to-date warehouse management software internally, Wyse would have had to spend up to $1.5m, said Don Cox, managing director of Emery Worldwide Global Logistics.

Emery relieved Wyse of some existing overhead by shifting the client's 63-person distribution staff onto its own payroll. Culture clashes were avoided, and the entire transition smoothed out, with the help of personnel from Emery's Electronics and Computer Technology group.

Wyse retains control over its supply chain by continuing to perform worldwide planning and purchasing of logistics. "That's a core competency," said McCorkle. The company also oversees the process of postponement and configuration, telling Emery how each shipment must be altered according to individual customer needs. Order administration and the management of finished goods continue to be handled by Wyse employees as well.

The transition to Emery management is being carried out in two stages. The 63 Wyse employees moved over to Emery's payroll in mid-April. Emery's information and warehouse management system was scheduled to hook up with the Wyse operation in July.

Wyse was equally careful about the selection phase. It started out with six candidates, then narrowed the field to three. McCorkle said the company wasn't interested in a standard vendor's demonstration of generic abilities. "Rather than having a cookie-cutter approach, we looked at their willingness to adapt to our business."

The final choice, made by a nine-member, cross-functional team within Wyse, was unanimous. "Emery impressed us up front," McCorkle said. "It provided both content and form." The third party called on skilled engineers from within its ranks to help create the level of mutual trust that is essential to any long-term logistics partnership.

Wyse was equally committed to a team approach, said Cox. Initially, it would compensate Emery for services on a cost-plus basis. But the contract also features generous incentives for the provider, built around cost savings and improved productivity. "To bring about change and promote efficiencies," Cox said, "both companies must be rewarded."

In fact, both sides were reporting tangible benefits in the first weeks of the new arrangement. "It's gone incredibly well," McCorkle said in early May. "We're looking forward to the transition."