Menlo Expands its Southeast Asia Network, Lean Management Culture and Corresponding Capabilities

Thailand, Malaysia, and Singapore Site Visits

July 26, 2011

By

Evan Armstrong

Key Personnel:

Bob Bassett, Vice President of Sales and Marketing

Tom Nightingale, Vice President of Communications and Chief Marketing Officer, Con-way, Inc.

Desmond Chan, Managing Director – South Asia

Thomas Koh, Director, Business Development – South Asia

Naeramit Panprommin, Country Manager – Thailand

Chew Kim Beng, Deputy General Manager – Singapore Operations

Resham Singh Rajput A/L Balgit Singh, Operations Manager – Malaysia

Menlo Southeast Asia Overview

Menlo has expanded its Southeast Asian operations dramatically since our last visit in 2007. Today it is running 27 value-added warehousing operations with a total footprint of 3.5 million square feet and has a workforce of 1,175. In addition to warehousing services, Menlo has added significant pieces of business increasing its regional transportation management capabilities. Although most of Menlo’s initial Southeast Asia business centered on meeting the needs of its multinational automotive and high-tech industry customers, Menlo has added many multinational and regional distribution customers in apparel, consumer packaged goods and retail. Menlo’s major South Asia customers include BMW, GM, Nike, Philips, Puma, Robert Bosch, Trane, Pernod Ricard, Bacardi, APB, Embraer, Net Appliance, Danfoss, Tata Automotive and Triumph.

While the traditional drivers of logistics outsourcing--manufacturers focusing on core competencies, leveraging third-party logistics providers (3PLs) for cost reductions, and improving operational efficiencies--are in play in Southeast Asia, 3PLs such as Menlo are increasingly becoming key allies in customers’ labor cost management strategies. In markets such as Bangkok, Thailand where unemployment is very low and labor costs are increasing above 10% per year, 3PLs provide companies with increased predictability when budgeting for logistics costs.

Menlo South Asia Operating Network

Bangna-Trad Road Multi-Client Value-Added Warehousing & Distribution Operation

The first operation we toured on our Southeast Asian trek was a modern 86,000 square foot multi-client warehouse on the outskirts of Bangkok, Thailand. The facility has a staff of 80 providing

services to five major customers. As a result of its ongoing process improvements, the operation received Menlo’s Bronze Lean Management Certification in November 2009. To manage operations, Menlo utilizes its proprietary “SIMS” WMS (warehouse management system) for almost all of the facility’s customers.

The facility provides warehousing and distribution services to local markets including retailers and hypermarkets such as Big C, Carrefour, and Tesco. The average monthly volume of products shipped is over 6,000 cubic meters.

In addition to outbound order fulfillment, Menlo performs inbound product receiving and inspection, labeling, product bundling and returns management for its customers.

Aisle of the modern, multi-client

Bangkok warehouse

Menlo Thailand started with its first customer at this facility in 2007 with a 50,000 square feet footprint and has expanded to three sites with 150,000 square feet over the last three years.

For a number of its automotive customers, Menlo manages service parts inventory and coordinates the distribution of parts to dealers and vehicle service centers throughout Thailand, Cambodia, Vietnam, and other Southeast Asia countries.

Each of these customers is pick/pack intensive and more than 500 daily outbound shipments are managed by Menlo. For shipments within a 1,000 kilometer radius of the warehouse, Menlo provides its customers with same-day, or next-day delivery.

Over and above warehouse and transportation management, Menlo is also performing country specific product labeling for the Thai market, repacking products as requested, and performing import labeling.

Country specific labeling for the Thai Market

Malaysia Tanjung Pelepas Distribution Center - Dedicated Service Parts Logistics Warehousing & Distribution Operation

Just across the border from Singapore in the Port of Tanjung Pelepas free trade zone in Malaysia, Menlo is running a dedicated 150,000 square foot service parts logistics warehousing and distribution operation for an automotive customer. The operation started in August 2004. Menlo has a current staff of 45 responsible for fulfilling spare parts and lifestyle item accessory orders to more than 80 auto dealers located in 21 countries throughout Southeast Asia and Oceania.

Over 52,000 locations: bulk, racks,

shelves and bins

The warehouse stores multiple model years of automotive and accessory parts in more than 52,000 inventory locations. The majority of larger parts are stored in rack locations and bulky items are stored on the floor. The warehouse has separate storage areas for dangerous goods and accessories. All parts are stored using an ABC inventory management approach with faster moving parts positioned closest to the shipping dock. Small parts are stored in bins and on shelves in a centrally located three-level mezzanine.

Warehouse tasks performed by Menlo include: inbound receiving, sorting and putaway; storage and inventory management; outbound picking, packing, and shipping; carrier dispatch and quality control.

Inbound parts are received via ocean container or as airfreight shipments. All inbound products are checked against invoices to validate product types and quantities prior to putaway.

To support operations, Menlo utilizes a robust system supported with RF scanners to manage tasks and provide real-time data updates throughout the operation. Daily cycle counts and an annual physical inventory are performed to ensure inventory accuracy.

Menlo is measured on four main KPIs (key performance indicators): claims errors (excess shortage, shipping error overage), inventory accuracy, inbound lead time, and outbound lead time. It also tracks an additional seven KPIs for Menlo’s own internal quality measurement. Together they make up a “Balanced Scorecard”

for the detailed measurement of operational performance. For 2011, Menlo is exceeding its customer’s and five of its own performance goals in all of the scorecard areas.

To support Menlo’s Lean Management objectives, Menlo has initiated a series for Kaizen process improvement events. Events completed in 2009-11 which resulted in significant process improvement savings included the following project titles:

Each of the four Menlo supervisors is responsible for supporting at least one Kaizen event per year. As a result of its Lean Management initiatives and the corresponding operational improvements, this Menlo’s operation was awarded with a corporate Silver Certification in November 2010. In addition, the client also awarded Menlo with its Gold Award in 2010.

Boon Lay Singapore Warehouse

The last operation we visited is the largest of Menlo’s seven warehouses in Singapore. The 284,000 square foot Boon Lay multi-client warehouse has both domestic distribution storage areas and bonded areas for export products. Just under half of the operation focuses on handling imports and providing regional and local distribution for wine and spirits customers. Each of the operations detailed below utilize Menlo’s SIMS WMS for warehouse management.

The first operation we toured was a distribution hub for Menlo’s Wine & Spirits customers. It occupies approximately 180,000 square feet of the warehouse including five separate temperature and humidity controlled rooms. Some of the well known brands stocked in this facility include Beefeater Gin, Chivas Regal, Glenlivet, Malibu Rum, Jack Daniel's, Martell, and Johnnie Walker.

Inbound containers of product are received and checked against orders to verify quantities. Next, they will be putaway into the respective storage areas based on their storage requirements.

Some of the value-added services include tracking of each case and bottle and labeling to meet the regulatory requirements of the final countries of distribution; these countries include China, Indonesia, Singapore, and Vietnam.

In November 2009, Menlo began its warehouse and local distribution operations for athletic

Preparing bottles for local distribution

Puma Singapore Operation

shoe, apparel, and accessories manufacturer Puma. Menlo’s experience in retail logistics was key in landing the Puma account.

Services performed include inbound product receiving and quality/quantity inspections, premium product handling, price tagging for domestic orders, and returns management. Menlo also supports Puma’s ad-hoc promotional events such as tradeshows and campaigns.

Menlo is currently exceeding its KPI performance benchmarks for Puma. They include: Web visibility to reflect real-time data of inbound/outbound orders and stock availability, over 99.9% on-time receiving performance, 100% order fulfillment, delivery and reporting performance; inventory accuracy of 99.95%, and 99.99% data accuracy for system updates.

As a result of Menlo’s performance in Singapore, Puma awarded Menlo its Malaysian distribution business in March 2011.

Menlo Southeast Asia Operations Summary

Menlo has expanded extensively in Southeast Asia over the past three years. As it continues to grow its automotive and high-tech customer base, it has progressively brought on more retail and consumer products local and regional value-added warehousing and distribution business. Based upon its new business gains and solid new customer “pipeline”, Menlo is adding warehouse space and growing operations throughout Southeast Asia. It has solidified its management team and business approach. With Lean Management process improvement skills, Menlo has done well securing multinational and regional customers. From what we’ve seen, we predict that its successes will continue.

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