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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

Elena Malykhina

October 15, 2004

3 Min Read

There are many benefits to working with its current providers, Mahon says, but one of the biggest drawbacks of not having an internal system and dedicated partner is that Otis Spunkmeyer has limited control over routing decisions.

The company's orders are pooled with that of other manufacturers that ship similar consignments; the schedules are generally fixed, and delivery appointments must be coordinated to accommodate all shipment consignees. But more and more, the pool schedules can't easily accommodate Otis Spunkmeyer's customers' requirements. The company could benefit from deploying in-house transportation or exception-management tools or contracting for services that can maximize its transportation spending and also help it improve customer service, Mahon says.

Pressman Toy Corp., a $50 million-a-year company that counts among its customers Kmart, Target, Toys "R" Us, and Wal-Mart, says the challenges of being a seasonal business are such that it uses a third-party logistics company to handle most of its shipments. "As a toy manufacturer, we have the additional challenge of a compressed shipping season," says Alan Novick, director of information services at Pressman Toy.

But the company's biggest supply-chain challenge is the constant pressure from its customers for information about products and shipments, Novick says. For example, customers want Pressman Toy to load product information such as dimensions, weight, UPC code, and carton quantity into databases that they specify. They also require that a unique bar-code number be assigned to each carton and that those numbers be sent ahead electronically before the shipment arrives. And they want to know where an order is at every step in the chain.

So Pressman Toy uses mySAP Business Suite to electronically transmit order information to the toymaker's third-party logistics providers, who automatically send back details on order status to Pressman Toy. That information is stored in SAP's software and is automatically retransmitted to Pressman Toy's customers to meet their requirements.

At Carpenter Technology Corp., a manufacturer and distributor of specialty alloys that's just shy of $1 billion in annual revenue, the best way to handle warehousing and logistics challenges was to outsource them. Carpenter leases its six warehouses and their operation to Kenco Logistic Services, and Ryder System Inc. handles its transportation needs.

But since the stainless steel, titanium, and other engineered products made from metallic and ceramic materials Carpenter produces are very expensive to keep as inventory, the company has taken steps internally to ensure that it never has too great a backlog of inventory stored in warehouses.

The company has implemented Networks Demand and Networks Fulfillment software from Manugistics Group Inc. to help reduce inventory and forecast future demand, says David Bruek, manager of demand systems at Carpenter. The software forecasts or projects future sales based on past sales. Since the implementation of Networks Demand and Networks Fulfillment, Carpenter has been able to cut finished inventory in half, which has greatly reduced costs for the company, Bruek says.

The right way to handle warehouse and logistics operations will vary for different companies. But handling these functions is a critical element of the supply chain, necessitating that small and midsize companies work hard to get their strategies right.

Illustration by Doug Ross

About the Author(s)

Elena Malykhina

Technology Journalist

Elena Malykhina began her career at The Wall Street Journal, and her writing has appeared in various news media outlets, including Scientific American, Newsday, and the Associated Press. For several years, she was the online editor at Brandweek and later Adweek, where she followed the world of advertising. Having earned the nickname of "gadget girl," she is excited to be writing about technology again for InformationWeek, where she worked in the past as an associate editor covering the mobile and wireless space. She now writes about the federal government and NASA’s space missions on occasion.

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