Small Business' Big Supply Chains - InformationWeek

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10/14/2004
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Small Business' Big Supply Chains

Outsourcing logistics operations can make sense when small and midsize companies grow larger or have special needs

Ikor Industries Inc., a $3.5 million-a-year manufacturer of specialized industrial filtration products, has seen its business grow rapidly in recent years. The added business put pressure on the company's supply chain to make sure products produced in its Costa Rica manufacturing center were delivered to clients around the world in a cost-efficient and timely way.

Just a few years ago, only two people on Ikor's 50-person staff handled the company's logistics operations, coordinating the activities of customs brokers, air freight carriers, warehouse facilities, shipping lines, and trucking companies. Ikor ships anywhere from 1,800 to 3,000 units per week and has customers in 50 locations across the globe, and the manual approach to logistics just wasn't cutting it. The company began losing customers because of late shipments and poor control over logistics, says Paul Lesniak, president and CEO.

So Ikor turned to UPS Supply Chain Solutions, a unit of United Parcel Service Inc. that now handles all customs brokerage and ground, air, and ocean transportation for Ikor, using its UPS Trade Direct Cross Border software. The proprietary software compiles and consolidates orders, routing them for transport and expediting customs clearance.

Having a single point of contact for all its logistics needs has made a world of difference to Ikor, Lesniak says. It enables his company to focus its resources on its core business, while benefiting from UPS's expertise in logistics processes, systems, and infrastructure. Ikor no longer spends time setting up the logistics and tracking of orders.

Small and midsize companies that don't have complex operations often can make do managing logistics in-house. They serve as a major source of revenue for large supply-chain software suppliers, says Steve Banker, an analyst at ARC Advisory Group. But as they grow larger or if they have special shipping needs, outsourcing those operations starts to make sense, AMR Research analyst Lora Cecere says.

Outsourcing "gives small and medium companies an edge because it helps them form [deeper] relationships with carriers who help them move their freight," Cecere says.

But there are challenges to these relationships, as well, she says. Third-party logistics providers can't always give small and midsize customers updates on their orders' delivery status as quickly as they would like, for instance.

Otis Spunkmeyer Inc., a $350 million-a-year manufacturer and distributor of frozen gourmet cookie dough and baked goods, has found benefits as well as challenges in the outsourcing model. Otis Spunkmeyer's major logistics provider is Millard Refrigerated Services Inc., a warehouse and distribution company in the Southeast, Midwest, and Northeast regions of the country. The company also works with P&O Cold Logistics Ltd., an operator of temperature-controlled warehouses on the West Coast.

Both of those logistics providers give Otis Spunkmeyer access to systems that provide it with full visibility of its products in the warehouse to ensure accurate inventory control, product rotation, and delivery by production code.

Otis Spunkmeyer has been growing fast, with sales increasing by 10% or more in the last three years. It's evaluating whether to invest in its own transportation and warehouse-management systems and work more closely with an outside partner that can prioritize its delivery requirements, says Mike Mahon, director of distribution operations at Otis Spunkmeyer.

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