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How to Fulfill? Balancing Cost vs. Control

Published April 1, 2010

BY JASON NORMAN

VISTA, CA—One of the toughest decisions manufacturers have to make is whether or not to manage their own supply chain functions. Do they farm it out to a third-party logistics provider (3PL) or control it themselves?

Most of the time the answer is determined by the sheer size of the company. Larger manufacturers look at it as more cost effective to own and control their own operations, while smaller companies, such as Electra, tend to lean the other way.

Electra Bicycle recently partnered with LeSaint Logistics, a 3PL provider based out of Illinois. Electra had been using another 3PL provider for four years. “They were just more sophisticated,” said Bill Henry, vice president of sales for Electra Bicycles. “They were more advanced.”

Choosing the right 3PL can make or break a company, and Electra feels like it has made the right choice.

“LeSaint is giving us the best 3PL service we’ve ever had,” said Skip Hess, president and chief executive officer of Electra Bicycle. “Now we’ve got a handle on our inventory like we never had before—in the past we struggled with product damage and the lack of flexibility to develop a program that fit directly with our specific needs. With LeSaint, we’ve corrected these challenges plus gained some very vital technology support.”

Besides Electra, LeSaint also handles another bike manufacturer on the West Coast, along with Brunswick’s Life Fitness exercise bikes. But the company is looking to make more of a push in the bike industry.

“We’ve proven with Electra Bicycle that by providing hands-on touch to their products and co-developing a true solution specific to what they need, all backed by our real-time support technologies, we have created a real custom solution that works for the active market manufacturers and distributors,” said Jeff Pennington, LeSaint’s president. “We are a direct extension of their business, cognizant of the fact that their customers are also our customers.”

Electra’s Henry estimates that about half the industry’s manufacturers use 3PL providers and half bring that function in-house.

Specialized corporate distribution manager Kim Peterson agrees with that estimate, but said that if determined by market share alone, the split would be 75/25 with the majority handling supply chain in-house. He said that’s largely because Specialized and Trek have their own warehouses.

Before investing in its own distribution centers, Peterson said Specialized looked extensively at whether it made more sense to farm out this part of its operations or to do it themselves, because the company would rather invest in product technology than “brick and mortar.”

But while Specialized does use 3PL providers in its overseas markets, the company saw that the “cost was just too steep” to use one in the United States. At the end of the day, Peterson said going with its own distribution centers in Salt Lake City and Ohio about a decade ago was the right move.

“We’re able to take care of our customers better,” Peterson said. “We’re able to meet the delivery metrics and we’re better able to react. We do a pretty good job on order fulfillment,” Peterson said. “Some of our competition that uses third parties don’t have that reputation.”

Peterson did say that Specialized uses a third party for part of its logistics chain, specifically the “streamlining of our forwarding processes,” which includes the product getting on ships from Asia to the States.

Northern California’s Marin Bikes uses a hybrid model. The company has a warehouse in Marin County that services the West Coast, while using a 3PL provider on the East Coast. While in Canada, Marin uses two different 3PL providers that service Western and Eastern Canada.

Director of operations Mike Hersey said the company is also looking to possibly add a 3PL provider in the Southeast. “It would mean shorter transit times for our customers,” Hersey added.

Hersey’s in the unique position of knowing firsthand the strengths and weaknesses of the two different logistics models. “When you’re doing it yourself, it’s easier getting stuff out on the same day,” he said. “A disadvantage to using a 3PL can be getting one to perform up to your standards.”

He added that the time difference of three hours also sometimes poses communication problems for West Coast-based companies. “It could make you miss a [shipping] day,” he said.

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