Executive Briefings

SPECIAL ISSUE: GLOBAL SUPPLY CHAIN PARTNERSHIPS - Kodak Brasileira: Hiring of Third-Party Proves Key to Handling Volume Surges

Corporate sales teams are familiar with the practice of pushing large amounts of product through the pipeline at the end of a month, quarter or year, in order to make sales targets. But in Brazil, there's another reason for the surge of business at month's end.

Brazilian buyers go on a spending spree at that time in order to obtain an extra 30 days before they have to pay sales tax, says Cristina Bertoni, logistics director of Kodak Brasileira. As a result, the Brazilian subsidiary of Rochester, N.Y.-based Eastman Kodak Co. does 40 percent of its sales in the last two days of every month, she says.

Kodak Brasileira is happy to have the business. But it was finding it tough to manage distribution during those brief flurries of activity. Brazilian law reared its head once more on labor policy, making it difficult for Kodak to take on the extra temporary help it needed to cope with the rush. "We are still very bureaucratic in Brazil," says Bertoni. The result was unacceptable delivery delays to customers.

Kodak imports into Brazil a wide range of photographic products, including cameras, digital imaging equipment and entertainment products. Within the country, it manufactures such "bread-and-butter" items as colored paper, film and chemicals. It was for this latter group of domestically made products that Kodak Brasileira sought to revamp the supply chain.

At the time, Kodak had two production facilities, one in Sao Jose dos Campos, near Sao Paolo, and the other in Manaus, the Amazon state that has become rich in high-tech companies, according to Bertoni. Among other things, Kodak wanted a bonded warehouse for product made in Manaus. But it wasn't sure whether to take on the task itself, or outsource it to a third-party.

Following an intensive business-case analysis, Kodak chose to outsource a large portion of its domestic distribution. Four companies bid for the job; the winner was Danzas Logistica Brazil, the local business unit of Danzas AEI Intercontinental. Danzas, says Bertoni, had the best management and information technology infrastructure.

In November 1999, Kodak turned over to Danzas operation of a dedicated warehouse and distribution center in Sao Jose dos Campos. The 16,000-square-meter facility provides finished-goods storage for all product made in Brazil. It includes a bonded warehouse for imported merchandise.

With the Danzas contract, Kodak gained a new level of labor flexibility. The vendor could put on additional people as needed. Yet it could get by with fewer bodies the rest of the time. Currently the warehouse at San Jose dos Campos has a staff of 56, Bertoni says, down from 60 prior to outsourcing.

Danzas had been in Brazil only a few months before taking on the Kodak job, says marketing representative Fabio Filipini. Its first client there was DDS, a former subsidiary of Philips. But its earlier operations were restricted to freight forwarding. With the Kodak account, Danzas was bidding to take on all inbound and outbound distribution at San Jose dos Campos, along with storage, picking and inventory management.

In addition to the variance in labor needs, Kodak presented Danzas with the challenge of handling sensitive, temperature- controlled product. The DC provides three discrete environments: 8 degrees below zero Celsius, 13 degrees Celsius, and room temperature. Volumes there run about 250,000 units per month, with Kodak expected to respond to orders within 24 hours. End customers include mass-merchandisers, filmmakers, professional and amateur photographers, and supermarkets.

The project grew in stages. By August 2000, Danzas had taken over Kodak Brasileira's outbound transportation, in addition to warehouse management. It wasn't necessarily planned that way, says Bertoni. The expansion of outsourcing to Danzas took place "only when we saw how well it was working."

Kodak won't discuss hard figures, but says the arrangement with Danzas has yielded multiple benefits. The company has removed a significant amount of expense from its balance sheet, lessened its tax burden in Brazil, and boosted efficiency at the DC in Sao Jose dos Campos. At the same time, says Filipini, customer complaints about late or inaccurate shipments have dropped dramatically. The project has been so successful, in fact, that Kodak recently designated Danzas Logistica Brazil as a "certified supplier," recognizing the provider's "consistently outstanding" performance.

Danzas doesn't manage the Manaus facility, which is a just-in- time manufacturing operation with no standing inventory on hand. But Bertoni sees the opportunity for the vendor to do more for Kodak. The handling of international inbound freight, including customs clearance, is one possibility. At the same time, says Filipini, Danzas will work hard to retain its "certified supplier" status, which is reviewed annually.

Corporate sales teams are familiar with the practice of pushing large amounts of product through the pipeline at the end of a month, quarter or year, in order to make sales targets. But in Brazil, there's another reason for the surge of business at month's end.

Brazilian buyers go on a spending spree at that time in order to obtain an extra 30 days before they have to pay sales tax, says Cristina Bertoni, logistics director of Kodak Brasileira. As a result, the Brazilian subsidiary of Rochester, N.Y.-based Eastman Kodak Co. does 40 percent of its sales in the last two days of every month, she says.

Kodak Brasileira is happy to have the business. But it was finding it tough to manage distribution during those brief flurries of activity. Brazilian law reared its head once more on labor policy, making it difficult for Kodak to take on the extra temporary help it needed to cope with the rush. "We are still very bureaucratic in Brazil," says Bertoni. The result was unacceptable delivery delays to customers.

Kodak imports into Brazil a wide range of photographic products, including cameras, digital imaging equipment and entertainment products. Within the country, it manufactures such "bread-and-butter" items as colored paper, film and chemicals. It was for this latter group of domestically made products that Kodak Brasileira sought to revamp the supply chain.

At the time, Kodak had two production facilities, one in Sao Jose dos Campos, near Sao Paolo, and the other in Manaus, the Amazon state that has become rich in high-tech companies, according to Bertoni. Among other things, Kodak wanted a bonded warehouse for product made in Manaus. But it wasn't sure whether to take on the task itself, or outsource it to a third-party.

Following an intensive business-case analysis, Kodak chose to outsource a large portion of its domestic distribution. Four companies bid for the job; the winner was Danzas Logistica Brazil, the local business unit of Danzas AEI Intercontinental. Danzas, says Bertoni, had the best management and information technology infrastructure.

In November 1999, Kodak turned over to Danzas operation of a dedicated warehouse and distribution center in Sao Jose dos Campos. The 16,000-square-meter facility provides finished-goods storage for all product made in Brazil. It includes a bonded warehouse for imported merchandise.

With the Danzas contract, Kodak gained a new level of labor flexibility. The vendor could put on additional people as needed. Yet it could get by with fewer bodies the rest of the time. Currently the warehouse at San Jose dos Campos has a staff of 56, Bertoni says, down from 60 prior to outsourcing.

Danzas had been in Brazil only a few months before taking on the Kodak job, says marketing representative Fabio Filipini. Its first client there was DDS, a former subsidiary of Philips. But its earlier operations were restricted to freight forwarding. With the Kodak account, Danzas was bidding to take on all inbound and outbound distribution at San Jose dos Campos, along with storage, picking and inventory management.

In addition to the variance in labor needs, Kodak presented Danzas with the challenge of handling sensitive, temperature- controlled product. The DC provides three discrete environments: 8 degrees below zero Celsius, 13 degrees Celsius, and room temperature. Volumes there run about 250,000 units per month, with Kodak expected to respond to orders within 24 hours. End customers include mass-merchandisers, filmmakers, professional and amateur photographers, and supermarkets.

The project grew in stages. By August 2000, Danzas had taken over Kodak Brasileira's outbound transportation, in addition to warehouse management. It wasn't necessarily planned that way, says Bertoni. The expansion of outsourcing to Danzas took place "only when we saw how well it was working."

Kodak won't discuss hard figures, but says the arrangement with Danzas has yielded multiple benefits. The company has removed a significant amount of expense from its balance sheet, lessened its tax burden in Brazil, and boosted efficiency at the DC in Sao Jose dos Campos. At the same time, says Filipini, customer complaints about late or inaccurate shipments have dropped dramatically. The project has been so successful, in fact, that Kodak recently designated Danzas Logistica Brazil as a "certified supplier," recognizing the provider's "consistently outstanding" performance.

Danzas doesn't manage the Manaus facility, which is a just-in- time manufacturing operation with no standing inventory on hand. But Bertoni sees the opportunity for the vendor to do more for Kodak. The handling of international inbound freight, including customs clearance, is one possibility. At the same time, says Filipini, Danzas will work hard to retain its "certified supplier" status, which is reviewed annually.