What can the rest of us learn from 3PLs?

Here’s something I’ve always wondered about: How can a 3PL store the same inventory and fill the same orders as its customers, save the customer money and still turn a profit?

In other words, what can the rest of us learn from a 3PL?

That’s a question I posed to John Beckett, vice president of global operations for Menlo Worldwide Logistics. The company should know a trick or two: Menlo ranked number 20 on Modern’s 2007 list of the top 20 warehousing providers in North America. In total, Menlo has more than 5,000 employees, procures $800 million worth of transportation services each year, and has a 15 million square feet of space under contract worldwide.

Part of Menlo’s success at lowering distribution costs comes from the economies of scale: Typically, the 3PL can manage the distribution requirements of three or four clients from one facility, spreading the cost of running a facility over a larger base of customers.

That works for a 3PL, but not for the rest of us, unless we become 3PLs. But dig a little deeper, and you find that Menlo has adapted lean manufacturing principals to its warehousing operations.

“We have developed a continuous improvement mindset across the company in order to survive and make money,” says Beckett.

Necessity was the genesis for Menlo going lean. Menlo has a number of clients in the automotive industry, where year-over-year price reductions is just part of the deal, and in high tech, where Moore’s Law rules. “Our customers have to continually improve their performance and lower their prices and the expectation is there for us to do the same,” says Beckett.

The result: Menlo studied how its customers deployed lean in their manufacturing operations and adapted that to their distribution centers.

The first DC to go lean was a new 250,000-square-foot facility in Brownstone Township, Mich.To make that happen, the 3PL translated three manufacturing principles into the language of the distribution center.

1. Just-in-time meant doing only what is needed when it’s needed at the rate of consumer consumption. For that reason, work is assigned in 20-minute increments, not four-to-eight hours that are common in most facilities.

2. Focusing on personnel meant developing a flexible and motivated workforce engaged in the improvement of the facility.

3. Built-in quality relies on tools from error-proofing and designing for warehousing to the elimination of variations. The bottom line: When we first wrote about the facility a few years ago, Menlo had just shipped 8,000 orders in a two-week period without a single wrong part or quantity. Meanwhile, inventory in the facility was 99.9906% accurate.

If there is a fourth principal at work that any facility can learn from, it’s that Menlo strives to empower associates on the floor to make their jobs easier and more productive. “Our associates are in a better position to know how to do their work than we in management are,” says Beckett.

To get that input, Menlo operates on a principal known as 30/30’s. In regularly-scheduled meetings everyone from floor associates to upper management is asked what they have done in the past 30 days to improve operations and what do they plan to do over the next 30 days. 

Examples: Menlo installed a second time clock in one facility when associates pointed out how much time they were wasting walking from the time clock to their work in far flung areas of the facility.

Beckett believes the proof of the strategy is illustrated in the state of Menlo’s business. “Our customer satisfaction ratings have gone up in each of the last three years,” Beckett says. “What’s more, we’ve been able to maintain our profit margins while keeping up with price reductions.”

That’s a lesson we can all learn.