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The last five years of explosive growth in world trade have been kind to global 3PLs that dominate supply chain management for major multinationals. Nearly every large, international 3PL has at least mirrored the growth rates of global trade that has increased about eight percent annually for several years. Many have exceeded this rate because of even higher growth in Asia, and because of a flurry of very large mergers.
"It has been a great run, but we might see a pause in the high growth rate of the global 3PLs," says Forte Industries' John Ennen, regional vice president of client services who consults with the 3PL industry. "The tremendous amount of acquisition activity among the big players is likely to slow down because the big deals are pretty much done for now. These 3PLs need to digest their acquisitions and focus more on organic growth, which is always harder to achieve."
On the other hand, mid-market 3PLs in recent years have enjoyed even higher growth rates than their larger brethren with rates routinely in double digits and sometimes reaching into triple digits. These 3PLs are earning their success, not just by rising with the tide of economic prosperity and world trade, but by finding unique niches, focusing on tough customer challenges, developing innovative solutions and simply by trying harder.
Consider ATC Logistics & Electronics, a mid-market 3PL based in Fort Worth, Tex., specializing in electronics distribution, reverse logistics and repair for Fortune 100 companies such as AT&T Mobility, Nokia, Motorola, GM and Ford. Its niche focus and its 99.5 percent service levels have allowed it to achieve annual growth between 20 and 30 percent over the past four years.
Another mid-market star is New Breed Logistics based in High Point, N.C., that is providing logistics support for final assembly of Boeing's new commercial aircraft, the 787 Dreamliner, at the aircraft manufacturer's facility in Everett, Wash. New Breed receives, stores, provides inventory control, kits, packages, distributes, and transports 787 parts, tools, and supplies to designated locations within Boeing's facility. This contract has catapulted New Breed's growth and status among mid-market 3PLs.
To be highly successful, a mid-market 3PL does not have to serve high-tech industries or cutting-edge customers. One of the fastest growing 3PLs in the U.S. is Los Angeles-based CaseStack, which focuses on mid-sized suppliers to retailers, distributors and other manufacturers in the consumer packaged goods (CPG) space. Besides transportation and warehousing services, Casestack provides its customers with web-based IT capabilities for end-to-end fulfillment services. This combination of logistics services, IT capabilities and highly focused marketing has resulted in astounding growth. CaseStack ranked 89th on Deloitte's 2006 Technology Fast 500 based on percentage revenue growth over five years. From 2001-2005 CaseStack grew 2,443 percent.
Its highly target market is CPG-oriented companies with annual sales of a few hundred million dollars that are looking for a one-stop outsource.
"Companies with sales over a billion dollars have the resources and the need to make logistics a core competency," says CaseStack CEO Dan Sanker, who gained his logistics experience at Proctor & Gamble and other CPG giants. "Few mid-market companies have such resources, so we give our customers the same logitics and IT capabilities as their much larger competitors, and without big investments in assets or technology."
Among Casestack's most successful programs is its retailer-driver consolidation program. Large retailers such as Wal-Mart and Target have extremely rigid vendor compliance procedures that small suppliers find difficult to deal with, especially for LTL shipments that the retailers often discourage. CaseStack has set up a program called retailer purchase order consolidation with Wal-Mart and other large retailers that removes costs and pain for all parties. The retailer creates a multi-vendor master purchase order that it sends to CaseStack facilities where the vendors store their product. CaseStack consolidates the small orders as one full truckload, creates the electronic document the retailer requires and delivers the shipments according to the retailer's procedures.
"We want to create efficiencies in the supply chain, not just cut costs," says Dan Sanker, who is in the process of setting up an office in Bentonville, Ark., to find new ways to build value in its offerings. "Wal-Mart is leader in developing a sustainable business strategy built on the premise that supply chains must become more efficient for companies to prosper in the years to come. We want to be part of that process, which requires new thinking about fuel, transportation, packaging and every other aspects of the supply chain."
One reason that many mid-market 3PLs are seeing great success right now is their willingness to develop innovation solutions and make riskier investments. In fact, Forte Industries' John Ennen believes that mid-market 3PLs are much better positioned to take the financial risks that can produce innovative services and new outsourcing business than the global 3PLs. Financial performance pressure is greater on the very large 3PLs because they are publicly owned or are dependent on bottom-line oriented private equity companies.
"Management focus for the very big 3PLs tends to be on bottom line performance, not necessarily investing in new services or solutions," he says. "Mid-market companies are usually privately owned, often by entrepreneurs who are less risk adverse when it comes to investment in assets, whether it is facilities or technology."
While many mid-market 3PLs are entrepreneurial startups, being part of a much larger company can provide important advantages.
For example, xpedx Supply Chain Services is owned and operated by xpedx, one of North America's largest wholesale distributors and a core business of Fortune 100-listed International Paper. Its 3PL service has the ability to leverage its parent's competencies in warehousing and distribution that many competitors, even larger ones, do not have. xpedx has a dedicated network of more than 105 distribution centers and a fleet of more than 1,200 trucks. It also provides specialized, customer-tailored offerings in demand planning, forecasting, supplier relationship management and IT integration. The company's access to a global IT network gives its customers total transparency and web-based reporting tools. Customers can see all inventoried items and status by sku, as well as detailed downloadable performance reports that measure the performance of xpedx and the suppliers xpedx may manage on their behalf.
And then there is the financial strength that only being associated with a Fortune 500 company can bring.
"For customers seeking additional balance sheet flexibility, xpedx Supply Chain Services can explore with them new ways of managing inventory-related assets," says Jeff Neely, director of sales for xpedx Supply Chain Services in Tampa, Fla. "Through the global presence of our parent company and the blue-chip alliances xpedx has established, we are strategically deployed across the Americas, Europe, the Middle East, Africa and Asia-Pacific.
Perhaps the largest group of mid-market 3PLs in the U.S. are value-added warehouse distribution (VAWD) providers that have served as the distribution center networks for major CPG companies and other manufacturers for decades. This group includes such VAWD providers as Kenco, Jacobson, DSC, TLC, OH Logistics and many other privately owned, well-established companies. This sector, which traditionally provides warehousing and fulfillment services, has not been at the upper end the 3PL growth spectrum. However, earlier this year the trade association for this group, the International Warehouse Logistics Association (IWLA) based in Des Plaines, Ill., predicted that 2007 would be a banner year with double-digit growth.
"That prediction is holding true," says IWLA President and CEO Joel Anderson, who adds that the success his members are seeing goes beyond a good economy. Manufacturers and retailers are eager to outsource more logistics activity to those 3PLs that can provide high-quality value-added services to include assembly, packaging, reverse logistics and other services.
"The marketplace wants more than basic logistics," says Anderson. "Our members are aggressively investing in the people and the tools to do more value-added tasks, not just in more square footage."
For example, Total Logistic Control (TLC), which is a wholly owned subsidiary of the food wholesaler Supervalu narrowly focused on grocery and food customers, has developed an ever-broadening variety of solutions for its many customers. According to Peter Westermann, COO of the Zeeland, Mich.-based 3PL, new customers come to them with a "compelling event" somewhere in their supply chain that needs a solution.
"That compelling event is our entry point," says Westermann. "We have deep knowledge in the food and grocery business, so we can help with just about any service from warehousing, to transportation, to management structure, to technology. Over time, our services to customers usually expand. Of our top 25, 19 use greater than two services."
For example, TLC started modestly with food giant Sara Lee by optimizing the company's existing DC network into a new one. TLC then ran two DCs for Sara Lee's meat products group, which grew into five DCs including two very large reefer warehouses. TLC next broadened its scope of work for Sara Lee to include transportation management for both meat and bakery products.
Most recently, TLC has started doing reconfigurations of products for Sara Lee and many other food manufacturers. Product reconfiguration allows food manufacturers to customize sku offerings for individual retailers, and it is proving to be one of the most sought-after value-added services TLC provides.
"Production lines are very efficient at making one product version at a time, but retailers want to offer customers unique packing combinations, and every retailer has a different idea of what that combination should be," says Westermann.
The configuration for a particular retailer may be a school pack that includes an assortment of lunch items. It may be a mix of drink flavors packaged for a promotion. The possible combinations are innumerable. The manufacturer is not equipped to deal with that level of customization, but TLC has embedded that capability into its distribution model, so the reconfiguration can happen close to the retailer.
"Just about all of our food manufacturer customers see this value-add as a great opportunity to provide a competitive advantage for their retailers," says Westermann.
So does their current success mean that all mid-market 3PLs will be big winners when it comes to logistics outsourcing?
Maybe not, according to Ben Gordon, managing director of BG Strategic Advisors. Gordon works with 3PLs of all sizes on their growth strategies, and he is upbeat on the prospects for some mid-market logistics providers. However, he cautions that there will be only a few winners and plenty of losers.
"Winner take all is a theme we are seeing in the logistics arena, and that includes mid-market providers," says Gordon. "Growth opportunities abound, but not everyone will not be a winner in the long run."
Developing new services, investing in technology and target marketing are important, but they are not enough. Strategic mergers and acquisitions will sort out the winners and the losers. Adding new value-added services is clearly important for mid-market 3PLs to grow, but doing this organically may be too slow for many customers looking for a one-stop 3PL.
"Service convergence is becoming a major driver for M&A activity in the 3PL market," says Gordon, who points to such recent deals as Jacobson Companies acquisition of Wilpak, which added packaging capabilities to traditional warehousing and transportation services.
"Companies willing to make bold acquisitions are the ones most likely to succeed in this market," he says. "Just like the ranks of the very large 3PLs have consolidated over the last few years, so will the mid-market players. There is still a lot of private equity money out there, and we will see big roll ups among mid-market 3PLs."
One aspect of the U.S./Mexican relationship remains constant - Americans have an insatiable appetite for cuisine from the other side of the Rio Grande. For the past 30 years Border Foods has been satisfying this hunger by giving Americans an authentic taste of Mexico. Border is one of the country's premier providers of Mexican food to restaurants and grocers to include green chili peppers, jalapeno pepper, salsa and enchilada sauce. Headquartered near Dallas with operations running out of Deming, N.M., Border provides its bulk ingredients and food service and retail products to national retail chains and major food service providers. Growth has been fast and expansive.
To meet the demands of this rapid growth, Border tried to service its nationwide customer base with an ever-growing patchwork of local public warehouses. This approach proved unworkable, according to David Gregory, Border Foods' director of planning and logistics.
"Processes were different at each facility, pricing was different and capabilities were different," says Gregory. "We could not manage all of these relationships and still achieve the service and cost levels we required. We needed a contract with one very good logistics provider."
The Border logistics team went to CaseStack, a third party logistics provider (3PL) that provides mid-sized customers a national warehousing and logistics network and proprietary web-based technology.
In 2005 Border Foods tried a four-month pilot test with to service several of its major retail customers. The test was so successful that the relationship quickly expanded. Now CaseStack handles the majority of Border Food's national logistics needs through its U.S. warehouse locations in Los Angeles, Dallas, Atlanta, Chicago and Scranton. Border products are manufactured at a plant in Deming, New Mexico and then self-shipped to CaseStack warehouses, with CaseStack handling all logistical needs from warehouse to retailer or food service provider. CaseStack can transport its clients' products to any U.S. location overnight while securing cost-effective transportation rates.
Border saw immediate benefits. No longer did Border employees have to manage freight out of several different warehouses run by various companies, each with its own set of procedures. ", "CaseStack has streamlined operations for us, so that we only have to deal with one methodology for tracking items," says Gregory.
CaseStack also has included Border in its consolidation program to Wal-Mart distribution centers nationwide. CaseStack's consolidation program combines less-than-truckload shipments from various vendors to create a full truckload, allowing for cost-savings on transportation and mitigating rising fuel costs -- and it's environmentally friendly too.
The CaseStack system also ensures consistency in the way orders are handled and inventory is managed. Moreover, a common set of procedures provides better service to customers by offering predictability and transparency so that clients can be constantly given accurate, up-to-date information regarding orders and availability. Border Foods relies on CaseStack to provide proper stock rotation practices. Rotation is extremely important when it comes to shipping food products, as older products must go out first.
Border derives further benefit from the fact that all CaseStack warehouses containing food are certified by the American Institute of Baking (AIB) - the industry standard for high quality for food service warehousing. All CaseStack warehouses containing food items have an AIB "superior" rating.
CaseStack's web-based execution system allows Border to track and manage inventory and shipments in real-time. Border is alerted automatically about any shortages, damages, and inbound vs. outbound discrepancies. The technology allows clients to either place orders directly into the CaseStack system or to integrate with their own electronic order systems. Border was already using electronic data interchange (EDI), so CaseStack linked the two companies' systems. As customers input orders via EDI into Border's system, the information populates the CaseStack system. This integrated arrangement not only saves time for Border employees but also reduces risk of error by simplifying the order-taking process.
CaseStack technology also allows Border Foods to manage inventory by "lot code," an essential feature in the food manufacturing industry, according to Gregory. In the event of a recall, this enables Border employees to link into production dates to certain lots of goods, making them easy to locate.
The highly integrated arrangement enables CaseStack to keep the Border team continually informed regarding what is going on at the warehouses, constantly communicating via email and phone so that they aren't caught off guard with shipments.
CaseStack has helped Border Foods achieve hard bottom-line results by lowering cost through less-than-truckload shipping and retailer consolidation. Additionally, the relationship has enabled Border to provide improved customer relations through supply-chain transparency, predictability and top-notch standards for quality that match its own reputation for excellence.
"Working with the CaseStack team has been a great experience," says Gregory. "Their goals are our goals - their vision is our vision. We are true partners in every sense."
Third party logistics companies come in all sizes, with different focuses and different business models. While everyone in the world knows the very large players such as UPS Supply Chain Solutions, DHL and others with global scope, the hundreds and perhaps thousands of smaller 3PLs are far less well known or understood. To help clarify the situation, industry guru Dick Armstrong, president of Armstrong & Associates has developed a rationale for classification all 3PLs into three tiers.
The top tier includes the big 3PLs with revenues usually in the billions of dollars and serving the most of the world or at least large portions of it (See Top 25 Global 3PLs, May 2007, GLSCS).
Tier two 3PLs, with a few exceptions, are important continental players usually involved in value-added warehousing distribution (VAWD) on a regional basis with networks of 500-600 miles in the U.S. In Europe, the distances covered are smaller. Christian Salvesen, Fiege and Rudolph are major European players with most of their revenues based on warehousing and distribution within Europe. Similarly, in North America, Landstar Global Logistics and Phoenix International are examples of Tier two providers with core competencies in transportation management and Menlo Logistics, NFI Industries, GENCO, Jacobson, Kenco and Ozburn-Hessey are important VAWD 3PLs.
Tier three 3PLs are normally niche operators that may specialize by function, industry vertical or geography. Transplace is an example of a systems-based transportation management specialist. STACI is a French VAWD. Aerospace Products International is a 3PL specialized in providing aircraft parts. Tier three providers normally have less than $200 million in net revenue. Most deliver high quality service for the specific, tactical requirements of their customers.
Gross Revenue ($M)
Total Logistics Control
Tier two 3PLs are usually VAWD operators, often with transportation capabilities and with a continental scope. Source: Armstrong & Associates
Net Revenue ($M)
Aerospace Products Intl
US/Canadian Customs Brokerage and VAWD
ATC Logistics & Electronics
North America/Returns and Repairs
North America/Transportation Management
Kane is Able
Singapore/Project Logistics & Auto Transport
North America/Transportation Management
Tier three 3PLs are usually niche players in terms of function, market or geography and are regional in scope with revenues under $200M. Source: Armstrong & Associates
Armstrong & Associates
BG Strategic Advisors
International Warehouse Logistics Association
Total Logistic Control (TLC)
xpedx Supply Chain Services
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