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The definition of a value-added service depends on the customer for whom it was designed. In all cases, however, it goes beyond the old-style model of warehousing, based on "pallet in, pallet out." Faced with higher costs and uncertain markets, customers over the years have transferred more of their internal processes to third-party providers. The strategy allows them to focus on their core competencies, and make best use of limited capital.
"Value-added services are those things that don't fit the model of old contract logistics," says Sargunaraj. Examples include specialty packaging, display building, kitting and the customizing of product for specific end markets.
One of the most common forms of value-added service today is postponement, whereby a generic product is configured at a late stage to meet the needs of a particular region or group of customers. Power adapters and manuals are among the electronics items that can be customized at this point in the fulfillment process. One of UTi's distribution centers is devoted entirely to non-product-oriented items such as displays and packaging, Sargunaraj says. Postponement also works further up the supply chain, with suppliers serving manufacturing sites with sequencing, light assembly and other processes.
The desire for cost savings is the first and most obvious motivation for a company to seek help from a third-party logistics provider. But it's more than a case of slashing overhead, says Sargunaraj. A strong logistics outsourcing relationship can lead to reduced costs in less obvious ways, such as decreased cycle time. Sargunaraj cites the example of a Canadian cell-phone maker who had been relying on one group of individuals to store the product, another to do the blister packaging, and a third for finished-goods warehousing. UTI took over the entire process and reduced a 21-day cycle time to between two and three days. In the process, he says, the customer achieved greater flexibility in the marketplace, along with lower costs.
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