Manufacturers are stepping up the pressure on vendors to participate in just-in-time delivery programs. Those that refuse - never mind the difficulty of compliance - are likely to lose the business.
It's a familiar story to Roberts, Stephens, Van Amburg Packaging (RSVP) Inc. In 1997, the Soquel, Calif.-based producer of specialized packaging was asked by a disk-drive maker in Thailand to place inventory right beside the factory, and pay all the costs of getting it there. The customer even suggested that RSVP set up a plant on site.
Previously, the manufacturer had bought packaging from RSVP in the U.S., where most of the product is made, then arranged for transportation to Thailand. Squeezed by heavy competition and mounting demands for service by its own account base, the company no longer wanted to deal with that particular headache.
The answer lay in creation of a vendor hub, a fast-growing trend among high-tech and automotive producers. But RSVP ended up taking the concept a step further than most.
Into the picture came Circle International, the San Francisco-headquartered logistics provider with roots in freight forwarding and customs brokerage. Circle offered RSVP an unusual program: Through its Circle Trade Services (CTS) division, it would purchase the customer's product outright, stock it at Circle's 60,000-square-foot warehouse in Thailand, and sell it to the manufacturer as needed.
The plan was attractive to RSVP, which couldn't afford to diversify distribution, let alone manufacturing, of its tightly engineered packaging materials. The company already has plants in Chicago; Sparks, Nev.; and Ireland. Nearly all its innovative product is sold to a handful of customers in Southeast Asia.
Formed in 1989, RSVP started out as a traditional distributor and reseller of foam, corrugated materials and tape, said President David Roberts. The company hit its stride with development of "thermoformed" material trays, produced under the trademarked name of Xerostat, to replace Styrofoam. Made entirely out of recycled, one-gallon plastic milk bottles, the new material was tougher, more compact and reusable. It proved ideal for protecting delicate items such as disk drives and finished computers from damage in transit.
Circle designed a door-to-door program for RSVP, tailored to the specific needs of the end-user. CTS's purchases from RSVP are keyed to production forecasts received from the manufacturer in Thailand, whom it charges a single fee which includes the cost of production, transportation and customs clearance. Deliveries are made within four hours of a request.
Even with Circle's built-in profit margin, the materials end up costing the manufacturer less than before, according to Kim Wertheimer, executive vice president of logistics. That's because Circle can draw on its overall volumes to get better ocean freight rates, and the buyer doesn't have to maintain a global purchasing infrastructure.
As for RSVP, it gets paid more quickly than before. It can eliminate foreign accounts receivable. And it needn't make a huge investment in overseas warehousing or manufacturing, Robert said.
Having seen Circle's proposal, the customer withdrew its request for an RSVP manufacturing facility in Thailand. Such programs are an increasingly popular way for manufacturers to meet local-content requirements at overseas plants, but not every vendor is able to comply. "It wasn't a deal-breaker," said Wertheimer. "Their objective was to have proper product there."
Circle hopes further to work with RSVP as the customer broadens its account base. It is already moving RSVP's packaging from the U.S. to a second disk-drive manufacturer in Malaysia, although that arrangement doesn't involve Circle taking title to the goods. Wertheimer sees the service as helping RSVP to attract new business around the world. "We've been able to prove the concept and package it," he said.
No other provider offered RSVP a similar program, said Roberts. Consequently, he feels comfortable sharing with Circle the most sensitive details of a highly proprietary product. "I can't envision that that's a typical relationship you can have very often," he said.
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