Choice Logistics Builds Upon its Service Parts Management Expertise
New York, New York USA
July 21, 2008
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
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.
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.
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
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 thorough 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.
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.
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
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.
Sources: A&A Primary Research, http://www.choicelogistics.com/