Benchmarking UTi Integrated Logistics

By

Richard Armstrong

UTi Worldwide’s contract logistics revenues quadrupled from the fiscal years ended January 31, 2003 through 2006.  UTi’s acquisition of Standard Corporation, which has now been re-branded as UTi Integrated Logistics, was a primary building block in this expansion.  Contrary to normal acquisition patterns, profitability steadily increased to an EBIT (earnings before interest and taxes) of 13% for fiscal 2006.  In third-party logistics where integration and reduced profitability normally apply, why did UTi’s contract logistics expansion proceed so smoothly?  Analogously, why has UTi’s contract logistics business quickly become one of the most profitable warehousing-based 3PLs? 

The answers lay in executing a smart strategic plan.  Smart marketing choices, winning “good” new business, executing to Six Sigma levels and a culture of quality improvement are the core.  Standard Corporation brought a strong quality system to UTi.  UTi absorbed and expanded on the system. 

Standard started work on getting the right system in 1989.  It began with the Crosby approach and moved to the more rigorous Deming style TQM in the early 1990s.

By the late 1990s, Standard had an ISO 9002 registration and had implemented Six Sigma practices.  Most importantly, it had committed to following the Baldridge National Quality Program criteria.  This approach emphasizes strategic planning, a customer focus, process management and business results.  The last, business results, is the absolute measurement for all of the activities.  In short, do revenues and profits increase at or above strategic plan levels?

To accomplish these goals, UTi has to satisfy and exceed the needs of its customers.  The tools used involve customer relationship management, quality process improvement, metrics and transparent procedures.  These tools are critical to maintaining and expanding business with current customers.  About 65% of UTi’s organic growth is an expansion of service to existing customers.

Of course, UTi Worldwide’s customer/quality relationship tools are an important part of new business development.  For most UTi prospective customers, the customer/quality relationship tools are a prerequisite for consideration.  In addition, customers expect a high level of IT capability, integrated services and global reach.

UTi has freight forwarding, customs brokerage and value-added warehousing/distribution as its global integrated logistics offering.  VAWD has distribution, manufacturing support and transportation components.

UTi’s emphasis has been placed on developing global supply chain customers.  Sara Lee, S.C. Johnson, Dupont, GE, Fisher & Paykel, INVISTA and a dozen others are in UTi’s core group.  Cultural matches tend to be good between UTi and these strategic customers.  A couple of other major prospects should close by year-end.  The parent company brand and its freight forwarding business have contributed a host of opportunities to UTi Integrated Logistics.  This pattern is reflective of an industry-wide pattern in which the larger and more well-known companies are getting the lion’s share of new business opportunities.

 Quality of UTi Integrated Logistics

Once contracted, customer relationships are managed by account owners using reviews, customer satisfaction surveys, problem resolution and continuous improvement.  Most metrics involve key performance indicators reported on a regular basis.  These metrics include orders shipped, cases per hour, head count, cases cycle counted, space utilization and others.  The normal emphasis is to focus on 4-5 KPIs chosen with the customer.

As a tool to keep performance high, UTi generates a Service Quality Index corporately.  Logistics Accuracy, Inventory Accuracy, and Claims Ratio are measured.  For 2006, the respective results were 99.9%, 98.3% and 99.9%.  A Quality Index report by account is generated monthly.  Following Ed Frazelle’s methodology, shipping accuracy is multiplied by inventory accuracy to provide a quality index.  As an example, the quality index for the Wal-Mart/Baytown operation in July exceeded 99.5%.

Not surprisingly, overall satisfaction levels expressed by customers are high.  Two-thirds of customers rank UTi Integrated Logistics very good to excellent.

Specific methods for maintaining and improving customer satisfaction are listed in Table 1.  The Annual Customer Survey and Business Review are items for listening to the voice of the customer.  AQP is used for implementing new accounts.  The Management Review is an operations review conducted by the project leader and senior UTi Integrated Logistics personnel.  Audits are performed by UTi Integrated Logistics’ corporate auditor to ensure high standards for all areas involving quality, safety, metrics and reporting.

 Table 1.

Within operations, team-oriented processes and Six Sigma projects are used regularly.  These processes utilize standard process quality improvement techniques like Pareto diagrams, statistical process control and affinity diagrams.

The auditing process lead to development of a standardized facility profile.  The facility profile is a comprehensive record of each separate warehousing location.  The categories of information are shown in Table 2.

Table 2.  UTi Integrated Logistics Facility Profile

Coupled with financial results, audit management review and customers reports, senior managers have good information for evaluating each facility.  For an overall corporate view, executives and managers rely on a report called 20 Performance Metrics.  It reports the business results which close the loop on the Baldridge process.

Table 3.  20 Performance Metrics

Summary

UTi Integrated Logistics has embraced a top-to-bottom quality management approach to keep its customer retention rate above 95%, which has led to rapid organic growth and produced acceptable financial results.  The current standard operating process took over a decade to develop.  It is now incremental as UTi expands to being a true global supply chain manager.