Got Supply-Chain Issues? Third-Party Logistics Providers Can Offer Assistance Customized operational software and systems can help finishers manage and control inventory, plan production, and institute quality and traceability measures. December 2006 - Metal Finishing Magazine By Steve Bjerklie

It’s natural for metal finishers to focus on all that happens within the four walls of their shops or operations. But, of course, metal finishing is but one link in a long chain of businesses that, step by step, create products from raw materials, add value to those products, and ship, distribute and sell them. Simply put, supply-chain management is the way a single link in that chain manages its obligations and costs in the overall extended sequence. “It’s not about taking out big chunks of time or saving big money in single steps,” said Tom Giovingo, executive vice president of Fidelitone Logistics, a third party logistics provider, or 3PL. “Supply-chain management is about using strategy and technology to identify incremental ‘wins’ in savings that collectively add up to substantial savings over the chain.”

Because supply-chain management can be particular to individual companies, supply chains or industries, an entire category of supply-chain management advisors, consultants and software providers has sprung up to help clients better control the sequence of supplies and products they engage.

“In the end, what you have with good supply-chain management, whether you use a 3PL or do it on your own, is a streamlined supply chain that’s easier and cheaper to control,” Giovingo said. “For example, you utilize appropriate technology and software to zero in on specific controls and processes. You can bring a sense of order, a sense of discipline to the picking process. It helps you think differently about inventory and lead time.”

When your supply chain is managed well, according to Giovingo, you won’t need to have weeks and weeks of inventory. “You’ll already know what you need [at a given time], when you’re going to ship and how much you’re going to ship,” he explained. “You’ll also know the same things about your own suppliers. It’s a way of smoothing out the stream—of taking the rocks out of the river, as it were, to create a smoother, more even flow.”

In metal finishing, supply-chain management is most effective for larger firms, experts say. Small job shops maintaining close relationships with a handful of long-time customers, or specialty shops that finish for a very specific small-market need, already manage their supply chains in a more traditional, personal fashion. But larger finishers with multiple industrial customers, and sourcing from cost-driven supplier lists, find that supply-chain management can be a moving target—unless, that is, information and controls keep processes and flows in order.

A good illustration of supply-chain management at work involves R.R. Donnelly, a huge Illinois-based commercial printer. It’s also a business Giovingo likens to metal finishing. “The essence of the businesses is similar,” he said. “Donnelly buys paper just as finishers buy metal, and then Donnelly adds value to that paper by printing on it—magazines, newspapers, commercial material, all sorts of stuff. Finishers add value, too, by chroming, finishing, etc. Then comes the warehousing and distribution of the value-added product, which is where supply-chain management comes in.”

“What you have with good supply-chain management, whether you use a 3PL or do it on your own, is a streamlined supply chain that’s easier to control.” Tom Giovingo, executive vice president, Fidelitone Logistics

As a 3PL, Fidelitone Logistics is a contracted third party—an outsource, in a word. “I realize that there’s a negative connotation to outsourcing,” Giovingo said. “For many companies, it implies a loss of control. But the last thing a true 3PL wants is to control a client’s supply chain. If we’re doing that, we’ve failed completely. When we’re successful, a company, such as a metal finisher, has a level and control of supply-chain management that they’ve never had before.”

Moreover, outsourcing need not even be visible. An official Fidelitone Logistics communication points out that “[for] many organizations, outsourcing logistics is like giving up a first-born. The distribution of product serves as an interface with the customer—an opportunity to touch them and create a positive experience. For this reason, many 3PLs distribute products without the end customer ever knowing. The customer believes the product came from the retailer or manufacturer, not the silent partner who is tasked with distributing goods.”

Acting as an unknown entity is just one part of the value that a 3PL brings to a supply-chain link. Not only can using a 3PL create cost reductions in capital investments and potential inventory reduction, according to Fidelitone Logistics, but companies that outsource to 3PLs also transfer many of their fixed expenses to variable costs. (Although fixed costs are typical in 3PL contracts, most of the services paid to a 3PL is transaction-based by the order, line or piece shipped.) Procurement and inventory forecasting is updated with historical data and other variables, all researched by the 3PL.

By outsourcing a portion or all of their supply chain, companies can focus on what they do best while benefiting from the 3PL’s specialization and best practices gleaned from other clients, according to Fidelitone Logistics. In short, when a 3PL helps a client improve on a process, the other clients benefit as well. By using a 3PL, companies also gain access to more advanced supply-chain technology that they might not otherwise be able to afford or maintain if the services were kept in-house.

But what about implementation? According to Fidelitone Logistics, a finisher can expect a 3PL’s system to take anywhere from six weeks to six months to gain full control and management of the finisher’s supply chain, with complexity being the chief variable. “A great deal of time and money is invested to make the outsourcing decision and get the relationship started,” Giovingo said. “To be successful, 3PLs and their clients must work together as honest partners, with a focus on accomplishing goals together as two companies appearing to be one.”*

*Excerpts from the December 2006 article.

Steve Bjerklie is a freelance journalist based in northern California. He also writes for The Economist and other publications.