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Ask any authority on marriage about what makes for a happy and enduring relationship, and they are likely to speak about the importance of common goals and values. Many supply chain managers might say the same holds true for successful and lasting relationships with third-party logistics providers.
Certainly Joyce Ables would agree. She is director, supply chain logistics, in the office of distribution, transportation and assembly for GlaxoSmithKline Consumer Healthcare in the U.S. market.
She presided over the transition from a business model that had multiple 3PLs managing several regional distribution centers to a single provider in charge of those facilities. Choosing that provider called for focusing not just on what services it offered but what its business culture was about. Would it work well with that of GSK's consumer group?
"If you are choosing a marriage partner," Ables says, "you want the partner to have the same values, integrity, goals and ambitions that you have personally."
What are those values? "People are an integral part of what we do," she says. "They are the real center of the business." Without training and a focus on common goals, the necessary synergy would likely be missing from the partnership.
"You have to be productive to remain in business," Ables says. "At the end of the day, the cost of distribution takes away from the bottom line, so every penny we spend is a penny taken away from the bottom line."
It was paramount that a new provider be cognizant of that in addition to having shared values.
Kenco Logistic Services is the partner that GSK chose. Kenco was already working with GlaxoSmithKline's pharmaceutical division, but it was hardly a foregone conclusion that it would marry up with the consumer group.
Pharmaceutical distribution is very different from consumer goods distribution, says Ables. Volumes, weights and throughput requirements are generally less than those in Consumer Healthcare, so the Kenco relationship, however successful, was not a deal clincher for the new initiative.
For many years, GSK Consumer Healthcare operated four regional distribution centers, three of which were managed by separate 3PLs. The fourth DC was operated by an in-house team. In addition, two other facilities that handled assembly, packaging and displays for promotions were involved. One of these operated inside a regional DC, the other was a stand-alone unit. Ables says they were relatively small at the time Kenco got involved, but they have grown into significant business units since then.
The multiple 3PL model was no longer viable once management decided that a single-provider approach would fit better with future growth plans.
"I'm not going to downplay those providers," says Andy Smith, president and COO of Kenco Logistic Services. But counting the in-house team, he says, "there were four different operating companies, four different thoughts - each with their own little areas of responsibility. By getting one provider, GSK was able to develop some consistency in execution.
"We took out some of the complexity because now they have a single source of contact through Kenco. We also have been able to take cost out of the network."
The vetting process began in 2003 and took about three months before Kenco was selected. Kenco has grown much larger since then, but at the time some managers had their eyes on larger 3PLs.
Regardless of the size of the 3PL that won the contract, the job called for a full panoply of services inside the DCs and promotions assembly facilities. From receiving to storage and inventory control and from packaging and labeling to shipping, the provider would have its hands full.
In addition to the day-to-day activities in the regional DCs, Kenco also would be responsible for the special repackaging, labeling, kitting and shipping of the promotional items.
GSK Consumer Healthcare markets such products as Tums, Polident, Nytol, Panadol, Aquafresh, Nicorette, Sensodyne and Citrucel. When any of these or other items are the subject of special promotions, different packaging and shipping are called for, Smith says. Additionally, displays may need to be ordered, shipped and set up for these promotions.
A small amount of the assembly services for promotions takes place inside GSK's regional DC on the West Coast. "But 99 percent of promotional pack assembly work, for all intents and purposes, occurs at the Northeast Assembly Facility located in Hanover, Pa.," says Ables. Assembly of promotional goods at that site - 108,000 square feet, with 240 employees - now accounts for 17.4 percent of total U.S. cases shipped to customers.
Under their agreement, each DC has a GSK manager who works in tandem with an on-site Kenco general manager. All orders are received by and managed through GSK-owned systems. Kenco is responsible for all operations inside the facilities, while GSK maintains responsibility for contracting and auditing all inbound and outbound transportation, Smith says.
Kenco took charge in January 2004. A look at the numbers shows why the relationship is happy and enduring. According to GSK, there has been:
--18% improvement in throughput productivity
--13% increase in customer case productivity
--10% reduction in labor cost per case
--46% reduction in case delivery errors
--51% reduction in damaged cases
--74% improvement in OSHA incident rate
Every year, the parties 're-baseline' key performance indicators," Ables says, "and Kenco's cooperative spirit has everything to do with the relationship's success."
A new development in the partnership involves a GSK Consumer Healthcare project to hire disabled workers. Ables says her company took the proposal to Kenco, which is employing the workers in the initiative, and found the 3PL highly receptive. That kind of business culture, with a focus on people, is what Ables says she values in a 3PL.
"I must tell you, [the transition to one provider] was painless to me," Ables says. Of course there were conversations along the way, but the important point was with the nature of our relationship. "We were able to openly communicate and focus on better ways of working rather than what specific language should be in the contract. While the contract is very important, a relationship cannot be built into a contract."
Kenco Logistic Services, www.kencogroup.com
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