Fully grasping the logistics of the supply chain isn’t easy. What should be priorities? What questions do you ask? Where do you even begin? Here we address these questions and more in this one-stop need-to-know guide to Logistics 101, as well as offer some basic tips and additional sources for all your logistics needs.

Editor’s Note: The following are basic step-by-step guides to the respective topics. In this post, IMT’s resource(s) appear at the end of each “tip,” as opposed to the end of the post, for easier access. We recommend you check out the resource(s), which offer the unabridged, in-depth looks at each topic, as our roundup is just a starting point. Good luck!

TIPS TO SAVE ON LOGISTICS COSTS
Supply chain logistics costs account from 5 percent to 50 percent of a product’s total cost, depending on the industry, according to Shipping-Exchange.com. Following is the online shipping resource’s basic four-step process for lowering logistics costs:

1) Determine customer service targets and organizational goals.
2) Compute the current logistics costs.
3) Benchmark the cost of performing a given set of activities against the best companies in similar business.
4) Develop a plan and implement the lowest cost method that meets the core business needs.

Tips to Save On Logistics Cost
by Paras Yadav
Shipping-Exchange.com, Feb. 5, 2007

SUPPLY CHAIN STRATEGY
For many organizations, a supply chain strategy is something they know they need but are still uncertain how to go about it. To help, Lora Cecere, a research director in AMR Research’s consumer products practice, suggests the following key elements to consider in starting a successful supply chain strategy:

• Holistic design — Look at product, service and business platforms as a whole to determine the impact on total supply chain costs, service delivered at the point of consumption, and product commercialization.

• Process evolution — How are processes and technologies changing, and how does this change what is possible?

• Talent — What staff and staff needs best support the supply chain strategy, and how do you best use your partners to accomplish goals?

• Shifts in power today and tomorrow — How are channel and supplier relationships changing? How do these shifts in power change the requirements of the supply chain strategy?

• Key relationships — Determine key relationships, and map how they change. What is the role of required relationships at each point?

• Relationships translating into networks — How are demand, supply and design networks integrating? How do they support the business strategy, and how do you use them to redefine value?

• Simulate and test — Use scenarios to test the supply chain response of what is being recommended as compared to competitor networks.

In its annual trends report, consulting firm PRTM identifies the differences between the followers — or, companies focused on basic functions and internal integration — and the leaders — companies that are collaborating with strategic partners, often in real-time:

Credit: PRTM, via IndustryWeek

In Search of a Supply Chain Strategy, Part 1
by Lora Cecere
AMR Research, Feb. 22, 2007

Supply Chain Management Priorities
by David Blanchard
IndustryWeek and PRTM, May 1, 2007

IMPROVE INVENTORY ACCURACY
“Out-of-stock items cause profit loss, but paying for inventory storage and transportation also impacts the bottom line,” Mike Honious, VP of engineering, Ozburn-Hessey Logistics, recently told Inbound Logistics. Here are Honious’s 10 practical ways to improve inventory accuracy:

1) Pick a quality program and stick with it.
2) Know your inventory accuracy rate, establish a benchmark, and set an improvement goal.
3) Keep your processes simple.
4) Examine your entire supply chain.
5) Establish product traceability during the distribution life cycle.
6) Select technology that fits your needs.
7) Implement a continuous cycle-counting program.
8) Make sure your employees are trained and informed.
9) Choose supply chain partners that offer systems that interface with your inventory system.
10) Make sure everyone throughout the organization “owns” inventory accuracy.

Improving Inventory Accuracy
by Deborah Catalano Ruriani, Mike Honious
Inbound Logistics, Ozburn-Hessey Logistics, March 2007

TIPS FOR LOGISTICS SOFTWARE SELECTION
Not only is buying logistics software getting more complicated, there is also more at stake. A variety of factors must be considered in making the right choice. Moreover, selecting logistics software is typically a massive capital expenditure so it is imperative that you research each package’s offerings from every angle.

Purchasing magazine recently featured five considerations for selecting logistics software, scaled down here:

1) Know the problem you want to solve.
2) Look to your 3PL for software.
3) Evaluate a logistics software provider for value-added services.
4) On-demand versus installed: depends on the process.
5) Consider the level of collaboration required from the software.

Provided by freight transportation knowledge provider SMC3 (via Purchasing magazine), the following are six questions to ask your logistics software provider:

1) Does the solution have a built-in process for notifying key individuals of important milestones and other events in the process?
2) Is the exchanged data complete and accurate?
3) Are there automated processes for analyzing data?
4) Are there accurate processes for analyzing specific data?
5) Can process results be viewed at a detail level?
6) Does the solution effectively manage complex processes?

Five tips to buying the right tool from the right provider
by David Hannon
Purchasing, Dec. 14, 2006

Advanced evaluation: Six questions to ask your logistics software provider (sidebar)
Purchasing and SMC3, Dec 14, 2006

DATA QUALITY
In his recent “The Next Big Thing In Logistics” report, Adrian Gonzalez, an analyst for the ARC Advisory Group and its specialist in the supply chain, said that solving the data quality issues continues to plague most companies, a problem that will only get worse if companies don’t address it seriously soon.

If shippers and logistics service providers addressed data cleansing and collecting in a standardized manner to streamline processes, maximize value and achieve all sought-after goals and benefits out of software implementations, it could in fact be the next big thing in logistics.

In a recent interview with Forbes, Gonzalez says the poor quality problem will be solved through the following three steps:

1) First, data quality management must become a strategic initiative for companies. Like Social Security, it is the big problem in the room that everyone agrees needs to be solved but everyone is afraid to tackle.

2) Second, companies must work with industry peers and trading partners to develop and adopt electronic messaging and document standards. “Can companies quantify the business value they’re getting by deviating from these standards?” the ARC analyst asks. “Most cannot, and if there is value, it is arguably minuscule compared to the potential value whole industries can achieve by adopting true messaging and document standards.”

3) Finally, Gonzalez believes many companies will use standards-based logistics communication and process execution networks, a fancy term for the “logistics utility companies,” to exchange electronic information and execute business processes with their trading partners, customs and regulatory agencies that companies use.

The Next Big Thing in Logistics
by Adrian Gonzalez
ARC Advisory Group, March 15, 2007

The Big Things In Logistics Q&A
by Robert Malone
Forbes, March 28, 2007

ALL ABOUT 3PLs
The third-party logistics (3PL) industry experienced double-digit growth both domestically and internationally last year, largely on continued expansion in China and the Asia-Pacific region, according to a report released last month by supply chain management firm Armstrong & Associates. The findings show gross revenues for the global 3PL market reached $391 billion in 2006, with the U.S. comprising $113.6 billion (a 9.5 percent increase) and European 3PLs $139 billion of the total. Last year was the first time gross revenues for the U.S. broke $110 billion.

As companies expand their supply chains worldwide, logistics complications grow and solutions become more problematic. The pressure to outsource has never been greater, yet the emergence of hundreds of providers of 3PL services has placed the question of if, when and how to use 3PL services and assets squarely in front of every large, medium and small logistics organization.

When it comes to the right questions to ask when choosing a 3PL provider, “the questions haven’t really changed that much,” World Trade magazine recently acknowledged — “but the level of urgency has. Everything in logistics now has a time dimension that didn’t exist before, and the complexity of shipping has increased dramatically.”

It is crucial to understand the basics of 3PLs. Then you can decide…

Which 3PL is Right for You?
Understanding all costs involved in outsourcing compared with in-house fulfillment, and with calculations in hand, you’ll be prepared to interview potential 3PLs in order to “develop an apples-to-apples comparison of their services and costs with your own,” according to Patrick S. Sedlak, a principal of supply chain and distribution consulting firm Sedlak.

Sedlak recommends considering the following points:

1) Common measurement unit — 3PLs may price their services in different units, which can cause confusion (pallet? carton? hourly labor?). To compare 3PL costs with yours, you’ll have to convert quotes for the different services into a common measurement unit. It’s worth the time and effort to develop a comparison matrix.

2) Savings in freight costs are possible — In today’s multi-carrier environment, a 3PL should be an expert in choosing the right carrier for your shipments. Find out which carriers are chosen and why. Ask about their use of consolidators that are part of the USPS Parcel Select Program to reduce costs.

3) Initial implementation cost — 3PLs often charge a fixed cost upfront based on the complexity of the service; this cost is for planning and development of material handling, operational and information systems required for the distribution operation and implementation of the proposed system.

4) Fees identified — Distribution costs are calculated using a fixed and variable fee structure. All costs should be identified clearly. As a rule of thumb, total distribution cost per unit should be no more than 8 percent to 10 percent of the product’s sales value, without shipping costs.

5) Facility and information systems infrastructure — Scrutinize facility operations, material handling equipment and information system infrastructure, as these indicate ability to deliver in a timely and accurate manner. For information systems architecture, decide what level of sophistication is necessary to handle your products so you do not pay for more than you need.

6) Location of fulfillment centers — You will be responsible for freight costs to ship customer orders and receive supplier goods, no matter what the 3PL charges for order fulfillment. The location of the 3PL’s facility or facilities must enable reaching maximum customer population in the shortest amount of time with minimal shipping cost.

7) Minimum commitment — Make sure the amount of time commitment fits with your business plan. No matter how the contract period is defined, understand the penalties for breaking the contractual agreement or not meeting the minimum commitment.

8) Customer service level — It is most important that a 3PL meets your customers’ requirements for time between order and delivery. Make sure you and the 3PL are using the same measurement. Look at all the details of customer service, e.g., sample orders.

9) Your management team and business plan — 3PLs are eager to partner with companies that have an experienced management team, a strong financial history or backing from well-established venture capitalists, and ambitious yet realistic business plans and projections. Arriving prepared at the start puts you in a position of strength and provides greater leverage in negotiating contractual terms and agreements with 3PLs.

Which 3PL is Right For You?
by Patrick S. Sedlak
Material Handling Industry of America, Dec. 3, 2006

GET WHAT YOU WANT NEED FROM YOUR 3PL
The key to a successful relationship with a 3PL starts with a clear Request for Proposal (RFP) and excellent communications between your company and the 3PL, says Michael J. Stolarczyk, FourPointStar founder and senior director of business development at supply chain management firm Excel, at his BlogOnLog. Here are his 10 tips to help improve the relationship between your company and its 3PL.

1) Send a Request for Information (RFI) before a RFP, as the RFI will help you collect better data, define your true needs, and involve your 3PL candidates in developing a solution.

2) Be open and honest about issues that could affect your logistics operation. Include issues that don’t necessarily make you look good; you need honest assessments.

3) Be specific. Give 3PL providers detailed information about what you want them to accomplish, and make sure they understand those expectations fully.

4) Empower your 3PL personnel through training and sharing. Train your 3PL employees as if they were your own. Invite key 3PL members to the same conferences your own management attends.

5) Treat the 3PL as a partner, not just a supplier. Be realistic about what you expect the 3PL to accomplish. Encourage them to be change agents rather than order-takers.

6) Don’t rush responses to the RFP. Rush the process and you will get a quick answer — not thorough analysis.

7) Ask the 3PL for solutions, but leave room for creativity. Experienced 3PLs can add valuable consulting strengths and creativity. Don’t miss out on a solution that might be more appropriate than the one you originally had in mind.

8) Be diligent about collecting data from internal locations or departments when putting together your RFP. Be smart about filtering and evaluating results you receive to avoid a vague or inaccurate RFP that may lead the potential 3PL down the wrong path.

9) Fix the problem instead of looking for a new partner. If your 3PL provider has been a good performer and has added value to your brand and it happens to stumble, help to fix the problem. Second chances bring out the best in a good logistics provider — and that, in turn, will bring out the best in your logistics operations.

Logistics 101 – RFI / RFP / Gets You ROI
by Michael J. Stolarczyk
BlogOnLog, Jan. 31, 2007

Earlier: 3PL: Matters of Size

Additional Resources

3PL Defined – Back to Basics in 2007
by Michael Stolarczyk
Web Pro News, Jan. 23, 2007

Global Logistics Solutions: A Guide to the Problems Shippers Face
by Andrea MacDonald
World Trade, May 1, 2007

Managing Third Party Logistics Relationships
by Alexander Gordon
E-zine, Dec. 24, 2006