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Choice Logistics Builds Upon its Service Parts Management Expertise
New York, NY
July 21, 2008
By
Evan Armstrong
Key Personnel:
Michael Katz, CEO
Gary Weiss, EVP of Global Operations
Paul Malamet, EVP of Client Services
Choice Logistics
Company Background
Choice
Logistics has roots going back to a New York City ground courier--Choice Courier
Systems--founded in 1964 by the Katz family. Due to dynamic changes in the
courier and overall logistics marketplace, a strategy to target high-tech
customers with service parts inventory management and distribution needs was
developed. In 1994, Choice Logistics started up its first service parts
logistics operation for Tandem Computer. Since then it has capitalized on its
service parts expertise and has grown to become a global third-party logistics
provider (3PL).
Today, Choice
Logistics has revenues of over $70 million, approximately 200 employees and over
350 global parts stocking locations. Its well defined market targets include
companies in the data storage, data networking, medical equipment,
point-of-sale, and telecommunications industry verticals. Choice's customers
include: Avaya, Cisco, Dell, EMC, Fujitsu, Hitachi Data Systems, Occam Networks,
Pitney Bowes, and Quantum.
Choice Logistics Operations Review
Choice manages over 1.1 million parts globally
for its customers in over 350 forward strategic stocking locations (SSLs). In
general terms, Choice specializes in managing service parts inventories at the
SSLs for customers, fulfilling parts orders, and arranging inbound and outbound
transportation. All of Choice’s SSL operations in its global network are run by
contract providers. To coordinate internal and external processes, Choice
Logistics has developed specialized operational functions with separate
performance objectives to keep the network running efficiently. These functions
are detailed below:
1.
The Global Logistics Center (GLC) is the live order fulfillment
group and runs 24/7.
a.
The Tier One call center receives phone orders from customers for
parts and arranges transportation.
b.
The Tier Two call center consists of dedicated operations for large
customers and operations for multiple customers. It is also responsible for
managing all exceptions to orders received via EDI, XML, or entered remotely
using the Choice system.
c.
Special Services handles mass order entry and fulfillment,
commercial invoice entry exceptions, returns processing, and auto-replenishment
programs for some customers.
2.
The SSL Support Group focuses on controlling inbound shipments to
SSLs and managing exceptions.
a.
Advance ship notices (ASNs) are sent by electronic data interchange
(EDI) via a file upload from suppliers, or manually entered into the Choice
system.
b.
Received ASNs create open expedited tickets in the Choice system.
c.
Inbound parts orders to SSLs are tracked by the group. The SSL
Support Group is split up by region and tracks approximately 100,000 orders per
month.
d.
If a shipment is not received by the SSL within a given delivery
window, the group follows up and resolves any problems.
3.
The Field Service department works with SSLs on operating issues.
a.
Each of the five Choice operating regions has a field service
manager who is responsible for the operations of all SSLs in their respective
region.
b.
The department follows up on all compliance failures. This includes
coding all late parts deliveries with reason codes, performing root-cause
analysis, and driving process reengineering efforts.
c.
It is also responsible for new SSL operation startups and ongoing
training.
d.
Storage allocation analyses are performed to ensure that SSLs are
not allocating too much or too little storage space for customers.
4.
The Inventory Control Group is led by a director responsible for
managing approximately 2,700 separate inventories across the Choice Logistics
network.
a.
Each region has inventory control analysts who track parts
inventories at each SSL, oversee the cycle counting process, and notify the
regional field service manager of any SSL problems.
b.
Client inventory analysts work in the best interest of customers in
managing inventory, inventory turns, and in ensuring timely cycle counting and
physical inventory practices are adhered to.
c.
Most Choice contracts require a minimum 80 percent cycle count of
all inventory items and one physical inventory per year.
5.
The International Trade and Compliance Group facilitates
international shipping processes for customers.
a.
The senior manager of the group is a licensed customs broker.
b.
Commercial invoices are created in the Choice system for
import/export orders.
c.
It prepares documentation on behalf of customers and specifies
which customs broker to utilize.
d.
The group has developed relationships with multiple customs
brokers.
Overall, the operation is well synchronized and
has implemented sufficient checks and balances to ensure that customer service
levels are met and operations run as efficiently as possible. It is truly a
six-sigma style operation.
Pitney Bowes Case Study
Company Background
Pitney Bowes is a mail-stream technology provider
focused on helping companies manage the flow of information, mail, documents and
packages. It manufacturers and services equipment that supports the flow of
millions of pieces of mail on a daily basis, from customizing and printing, to
sorting and attaching postage for invoices and direct mail. Customers with
postage meter needs are supported through its Global Mailing Division and
customers with high velocity mailing requirements are supported through its
Document Messaging Technology Division (DMT). Much of the focus of these
operations is to serve the needs of large-scale customers such as credit card
and utility companies.
Supply Chain Challenge
The Pitney Bowes Document Messaging Technology
Division employs 900 service personnel to support hundreds of customer
locations. Its customers rely on DMT to provide near-perfect uptime. At a
processing rate of 22,000 pieces of mail per hour for some equipment, only a
couple of hours without the ability to invoice end-customers can translate into
a significant loss of revenue. To meet extremely demanding service level
agreements (SLAs), Pitney Bowes attempted to stock the majority of parts on-site
at each client installation. This included both lower-cost, more frequently
replaced parts, as well as high-value, low-turn parts at all locations resulting
in significant expense, despite excellent customer service ratings.
In 2007, Pitney Bowes evaluated its service
supply chain strategy with a goal to reduce its service parts inventory from
$26.1M to $22.5M.
Solution
Choice Logistics was selected as the 3PL for
service parts and was challenged to develop and establish a pilot program to
demonstrate the value of a more streamlined service parts logistics process.
Choice and Pitney Bowes collaborated to create a business case for strategic,
rather than on-site, stocking of service parts and instituted the pilot program.
The program focused on two primary geographic
locations:
Columbus,
Ohio and Edison, New Jersey. This was based on the high concentration of Pitney
Bowes customers in these regions that could be served within a two-hour
timeframe by a strategic stocking location (SSL). Once the Choice and Pitney
Bowes team identified the two locations to meet client demands, they began
stocking expensive, low-usage critical parts in both locations.
Results
The first pilot in
Columbus, allowed
Pitney Bowes to consolidate parts from eight customer operations into one
centrally located SSL that can deliver within a two-hour SLA. For the Edison
location, Pitney Bowes stocked parts in the SSL that were previously distributed
from 16 customer sites.
The results were dramatic and tangible. First,
Pitney Bowes successfully maintained its superior customer service levels.
Second, after just one year the company realized a 25 percent reduction in
service parts inventory at each of the pilot locations.
Additionally, the two locations are now
supporting other markets for the next-day delivery of parts that were typically
stocked at Pitney Bowes’ primary distribution center located in an area that is
unable to meet many same-day or next-day parts delivery requirements. This
provides additional benefits by increasing points of distribution and improves
customer service, while reducing overall cost.
Occam Networks Case Study
Company Background
Established in 1999, Occam Networks (www.occamnetworks.com)
has grown to become a well-known business-to-business supplier of broadband
products and solutions to hundreds of telecommunications service providers. Its
headquarters is in
Santa Barbara, CA
and Occam has additional facilities throughout the state.
Occam
offers high-value products for scalable broadband access networks including:
blades, chassis, optical network terminals, remote terminal cabinets and
management tools. Occam’s “Broadband Loop Carrier” equipment utilizes Internet
Protocol and Ethernet-based solutions to improve voice, data and video
applications.
Supply Chain Challenge
Occam’s customers rely on it to provide network
equipment and high-value service parts on a mission critical
“faster-than-next-day” basis. With an average of over 500 service parts shipped
on a monthly basis ranging in value from $5,000 to over $25,000, Occam must
deploy first-rate inventory management capabilities to maximize resources,
reduce over-stocked inventory and eliminate lost parts. It is also imperative
that parts and less time sensitive primary equipment deliveries are kept
separate for efficient operations.
To meet the
requirements of its service level agreements, Occam cannot afford inefficiencies
at any point in its service parts supply chain. Occam’s customers rely on it to
prevent downtime in their telecom infrastructures and help them build revenue
and customer loyalty with end-users. In addition, critical emergency
communication services are carried out over the network, which can have
significant implications on public safety.
Because of these
demands, Occam requires near-perfect forward and reverse critical inventory
logistics operations to meet customer’s essential service parts needs. With
advanced customer service commitments and a desire to remain focused on its core
competency of providing the best redundant high-speed access equipment
available, Occam sought a 3PL with the expertise to meet its service parts
logistics needs.
Additionally, Occam’s ongoing global expansion dictated the need for a 3PL with
the network scale to support international growth. After a through evaluation
and selection process, Choice Logistics was selected to streamline and simplify
Occam's complex service parts operation without disrupting its standard
equipment delivery process.
Solution
Choice conducted an in-depth review of Occam’s
service parts logistics needs. From this information, it developed a customized
supply chain solution to maximize service efficiency at the lowest cost possible
for both forward and reverse logistics operations. It assigned a dedicated
specialist to oversee Occam’s global service parts logistics
operation. In-turn, this allowed Occam to focus
on its core competencies of supplying primary equipment and servicing its
customers’ support needs.
As part of
the project, Choice worked with Occam in identifying an optimally located
distribution center in Atlanta to enable Occam to meet its customer service
level agreements. Choice also leveraged its market-tested reverse logistics
processes helping Occam better control its repair and refurbishment operations.
To support the operations, Choice built interfaces between its proprietary
Web-based supply chain management applications and Occam’s internal systems for
inventory management and complete item visibility.
Results
By
developing an operation focused on meeting a high level of customer service
requirements with flexible operations, Choice provided Occam with a scalable
logistics solution ensuring that Occam's parts orders are processed and
distributed as efficiently as possible.
As a result, Occam has reduced its service
parts inventory globally, creating less overhead and now has an optimized supply
chain for critical parts. In addition, by streamlining the reverse logistics
process, new service parts replenishment has also been significantly improved.
Due to its increasingly strategic relationship, other continuous improvement
projects between Occam and Choice are currently underway.
Benefits from Occam’s relationship with Choice
logistics include:
- Reduced overall service parts inventory by
approximately 25 percent
- Improved next-day delivery SLA performance
by 20 percent
- Reduced shipping and freight costs by 30
percent
- Provide next-day replacement service to
remote locales
Summary
While Choice
Logistics may not be a household name, it has definitely developed
market-leading skills in service parts inventory management and distribution. It
has built a nice niche business that is customer-driven. We anticipate that
Choice Logistics’ biggest challenge will be controlling growth as the word of
its successes gets out.
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