Menlo Worldwide Logistics Continues its North Asia Expansion

Shanghai and Suzhou, China

January 6, 2010

By

Evan Armstrong

Key Personnel:

Gary So – Managing Director, North Asia

Jess Goldberg – Vice President, North Asia

Bryan Yan Fu – Business Development Manager, North Asia

Tom Song – Operations Manager, Suzhou China

Zhang Qiang – Warehouse Operations Manager

Menlo China Overview

In a recent visit to Shanghai, we had the opportunity to review Menlo Worldwide Logistics' expanding Chinese operations. Menlo Worldwide Logistics has over 47 years of experience in China. In 1962, it established a Hong Kong office and in 1999 Menlo Worldwide Logistics established a wholly-owned subsidiary, Shanghai-Menlo Worldwide Logistics (Shanghai) Company Ltd., in the Waigaoqiao Free Trade Zone. In 2006, Menlo formed a wholly owned foreign enterprise (WOFE) allowing it to provide domestic warehousing and transportation services. In 2007, Menlo greatly expanded its domestic mainland Chinese supply chain management network through the acquisition of Shanghai based Chic Logistics. Chic was a significant domestic Chinese provider of non-asset based transportation management and value-added warehousing services. In 2009, Menlo rebranded the Menlo/Chic China operations as Menlo Worldwide Logistics, North Asia. Its growth timeline is shown in the figure below.

Figure 1 - Menlo North Asia Growth Timeline

Operated by a staff of 1,400, Menlo North Asia had gross revenue/turnover of over $68 million in 2008 and has developed significant warehousing and transportation network coverage in mainland China. Its total warehousing network has 2.1 million square feet (197,000 square meters) of warehouse space and Menlo’s transportation capacity exceeds 9,100 trucks. Significant warehousing operations have been established in 12 key cities: Beijing, Chengdu, Guangzhou, Hong Kong, Shanghai, Shenyang, Shenzhen, Suzhou, Tianjin, Urumchi, Wuhan, and Xian. Menlo’s network operations are managed from seven regional branch offices including its centralized transportation management operation collocated with its Shanghai headquarters. The operations network is highlighted on the map (Figure 2) below. In North Asia, Menlo serves customers in the consumer packaged goods, automotive, industrial, medical equipment, health & beauty, and high technology vertical industries.

Figure 2 - Menlo North Asia Operations

Menlo’s North Asia warehouse network processes approximately 3,000 to 10,000 customer orders per day. It also provides customers with solid domestic transportation management capabilities for less than truckload, truckload, domestic air, in-land barge, and rail shipments. In 2008, Menlo managed in excess of 1,080,000 shipments between approximately 700 cities. In addition to its use of outside carriers, Menlo maintains a fleet of 50 trucks equipped with GPS (global positioning units) for satellite tracking. Its annual freight under management exceeds $50 million.

The best benchmark of Menlo's value-added warehousing and distribution capabilities in China is its Mary Kay operation. We had a chance to visit this operation in February 2008 and it has grown considerably since then. In our opinion, it is one of the most sophisticated logistics operations we have seen in China.

Menlo processes over two million outbound sales orders per year for Mary Kay from its central distribution center in Shanghai, seven regional distribution centers, and 73 direct sales counter (order pick up point) operations throughout China.

Mary Kay Shanghai Operations

In the Songjiang District of southwest Shanghai, Menlo is running a 23,000 square meter (247,570 square foot) warehouse for Mary Kay cosmetics. 19,400 square meters of the warehouse is dedicated to a central distribution center (CDC) operation that manages the replenishment of cosmetics inventories for seven Mary Kay regional distribution centers (RDCs) within China.

The CDC operation receives a daily average of 30 inbound truckloads of Mary Kay product from its manufacturing operation in Hangzhou. The CDC is staffed with 18 people responsible for replenishing inventories in Mary Kay's seven China RDCs located in Beijing, Chengdu, Guangzhou, Shanghai, Shenzhen, Wuhan, and Xian. Over 1,000 stock keeping units (SKUs) of product are maintained in on-hand inventory.

Menlo uses a proprietary warehouse management system (WMS) with an EDI interface to Mary Kay's JD Edwards enterprise resource planning (ERP) system. Menlo’s WMS is used in conjunction with radio frequency (RF) devices to manage overall work flows. The connected systems ensure accurate order information flows and inventory levels in the CDC and RDC operations.

The Shanghai RDC operation is collocated in 3,600 square meters of the warehouse and has an approximate staff of 25. Seventy percent of the thousands of orders it fulfills each day are direct to salesperson residential orders. The remaining orders are delivered overnight to 19 Shanghai area Mary Kay pickup counter operations.

Most of the high-volume RDC order picking is performed by 14 pickers in two main pick modules. An average of over 200,000 order lines of product are picked each day. Both pick modules are segmented into seven picking zones and stations. Paper orders have incorporated barcodes which are scanned using RF devices at each station. Specified products are picked from rack positions and placed into cartons on a roller conveyor. Every individual carton of Mary Kay product has an enclosed RFID (radio frequency identification) tag to identify its contents and specifications. The RFID tag is also scanned at each station to verify order accuracy during the picking process.

Mary Kay Shanghai CDC & RDC

One of two main Mary Kay RDC pick modules

Each Mary Kay order contains a unique barcode

Barcoding, RF, and RFID are utilized

After picking, the orders are packed out and a label is generated for each carton containing shipping and order number information.

All of the outbound transportation from the RDC is managed by Menlo using China Post, a small number of outside carriers, and its own trucking fleet.

Powerwave Warehouse

Three-high racking with open shipping/receiving

Suzhou Powerwave Dedicated Warehouse

Approximately 50 miles west of Shanghai in Suzhou, China, Menlo runs a dedicated value-added warehousing and distribution operation for Powerwave Technologies, a wireless communications network solutions company.

The 7,200 square meter (77,500 square foot) Menlo Powerwave Suzhou warehouse began operations January 1, 2008 after a three-month start up. It is located in a newer warehousing campus and is very modern with three-high storage racking and open shipping and receiving areas. It is very similar to other Menlo warehouses we have visited in the U.S. and Europe.

The operation has a staff of 21 managing several hundred SKUs of finished goods inventory and wireless communications components. Warehousing services performed include product receiving, business-to-business order fulfillment, picking, packing and repacking, and overall inventory management. One-hundred percent of all outbound orders are checked before shipping to ensure order accuracy. The operation also prepares export documentation as needed for outbound shipments. Powerwave has approximately 20 to 60 outbound shipments per day from Suzhou.

The Powerwave operations are run using RF devices interfaced with Menlo’s proprietary SIMS WMS. SIMS in-turn interfaces with Powerwave’s Oracle ERP for order management and visibility.

The operations staff has also been trained using Menlo’s key lean management principles. This training has paid off; for the four key performance indicators (KPIs) being tracked for Powerwave, Menlo is currently running at 100% in each. The KPIs include shipping and inventory accuracy and inbound receiving and outbound order processing metrics.  

North Asia Operations Review Summary

Menlo has taken significant steps in becoming a key 3PL in the domestic Chinese market. It is one of the largest players in contract logistics on the mainland, and the level of sophistication of its operations is closer to those of Western 3PL operations when compared to most of the manual-intensive Chinese operations we have visited.

By leveraging its local expertise, deploying its lean management principles and solid information systems, engineering, and contract logistics skills, Menlo Worldwide Logistics has gained a solid footing for future growth in China.

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