Logistical nightmares Featured

9:52am EDT July 22, 2002

Want to lose money in business faster than you could in a casino? Fail to deliver a part to, for example, a Chrysler plant in Delaware, which causes a line shutdown, and the meter starts running to the tune of $38,000 a minute.

Not every late delivery or jackknifed tractor trailer results in such staggering losses, but how you handle the shipment of your product to market can prove costly in time and money — especially if you don’t set things up efficiently or hire someone to do it for you. Consider the following experience:

Vince Santelmo, an onsite manager for Pittsburgh Logistics Systems Inc., which manages shipping logistics for other companies, remembers an inventory nightmare he encountered when his company stepped in to overhaul the shipping and supply chain performance of a large steel producer.

When Santelmo arrived, a dock intended to hold 2,500 to 3,000 tons of steel coil was laden with 7,000 to 8,000 tons.

Each day, the company had to allocate workers and devote capital to move excess coil to warehouse space, which they were forced to rent to make room for new product coming off the line. Inventory had become inundation.

Pittsburgh Logistics is a third party logistics company (3PL in industry jargon), a firm specializing in the cost-effective coordination and administration of all transportation functions necessary to firms that ship product to distributors or customers. They may do as little as consult for companies which decide to run the shipping functions — and assume the liabilities — themselves.

Or they may take over and move into a company’s transportation and warehouse facilities to directly oversee day-to-day operations.

Two types of 3PLs exist: asset based and nonasset based. An asset based company such as Penske Logistics owns its own fleet of vehicles. A nonasset based company such as Pittsburgh Logistics owns no shipping vehicles, outsourcing customer shipping to a transportation company.

3PLs typically can pry savings from shippers because of the volume their customers move as a whole. But they also offer the expertise and costly technology that many smaller companies can ill afford on their own.

Says Santelmo of the economies of scale Pittsburgh Logistics takes advantage of on behalf of clients: “I can promise a trucking company eight loads up to Cleveland and eight loads back every day. That’s important to them, because they don’t want to deadhead any trucks back to Pittsburgh [send back empty trucks].

“Because of that, I can get the trucks for $1.30 a mile instead of the $1.50 a mile he charges to the guy who ships two loads a week.”

In general, logistics experts also coordinate shipping transportation, whether it includes trucks, trains or barges, for companies that choose to handle the logistics in-house but don’t have the time or resources to coordinate themselves.

Santelmo says many customers he initially evaluated ignored rail going east, which in most cases results in a 25 percent savings over trucks. He also instituted the use of barges when possible, arranging for cargo to be unloaded at certain points down the Mississippi River to be taken to its destination via rail or truck to other parts of the country.

3PLs often utilize satellite tracking technology, giving their customers an estimated time of arrival. This not only provides peace of mind to both shipper and customer, but also helps them pinpoint any problem that might arise.

Telling the clerk at a receiving dock that a truck is now 56 miles outside Chicago rather, than giving a vague, ‘It shouldn’t be too much longer,’ lets the manager assign dockworkers to other tasks for an hour rather than having them stand idle, waiting for a truck that could arrive in five minutes or an hour and a half.

A 3PL assumes the risk when it coordinates the shipping via its own network of shippers. Remember that $38,000 a minute the parts manufacturer owed Chrysler? If that company had coordinated the shipment through a 3PL, the loss would have been the responsibility of the 3PL.

The claims process in the case of damaged goods is always a dull headache, if not a terribly costly one. For most businesses, though, and especially smaller ones, it can quickly grow into a debilitating migraine. 3PLs handle claims on a regular basis, and shippers are more prone to expedite the process fearing the loss of an important customer if they don’t.

What’s the catch? Santelmo says that when a 3PL company moves into a location to take over operations, interpersonal tension between company employees and the 3PL managers often results, at least initially. Trust has to be built up. Pittsburgh Logistics, he says, tries to use as many workers from the company’s own staff as possible to prevent a partisan environment. Time, he stresses, usually heals the wounds, especially when the combined team gets results.

Whether you choose to handle your own shipping or hire a 3PL likely will come down to bottom line costs and efficiencies. If you think the complexity of your logistics system requires expert attention, consult a third party logistics firm.

Bill Chalmers, president of 21st Century Logistics, says it best: “No one ever asks you how cheaply you fail.”

How to reach: Pittsburgh Logistics at (724) 232-0353