Three's company, four is a partnership

Companies that break the mold of the traditional logistics partnership are reaching new levels of performance.

By Jim Thomas -- Logistics Management, 7/1/1999

Traditionally, the term "logistics partnership" referred to a relationship between two companies--a carrier or third-party logistics vendor (3PL) and a shipper. The alliance was based on a simple principle: In exchange for offering the customer a lower price, the vendor received more of the customer's freight.

In the late 1990s, the partnership concept has undergone a number of transformations. Partners no longer discuss low price; they discuss value. The line between shipper and vendor has blurred; today vendors often manage portions of their customers' distribution networks. And the relationship no longer is confined to two partners.

The experience of Alcatel USA exemplifies this trend. In 1997, the Plano, Texas, telecommunications giant decided to adopt a new logistics strategy, says Dennis Stanley, director of logistics. Alcatel (then DSC Communications Corp.) would reduce its carrier base and focus on its primary modes of transportation: international air and ocean, and domestic air and van line. "The plan called for the selected primary carriers to come in house and manage our transportation business," says Stanley. "We believed the asset-owner or service provider was perfectly capable of managing the supply chain on our behalf and working in conjunction with potential competitors."

Alcatel's primary business is selling 96- by 24- by 8-inch steel racks containing shelves of printed circuit cards and wire to top communications companies, including MCI WorldCom, Sprint, and Bell Atlantic. Depending on the call capacity required, as many as 28 racks, each weighing 500 pounds, may be wired together. These shipments require specialized services, including crating and rigging.

The company hoped to develop a partnership that would reduce the multiple, often repetitive, steps that occurred in booking these specialized shipments. "We wanted to get the service partner embedded in our internal processes, such as planning, shipment scheduling, and procurement," says Stanley. "The idea of a carrier's just showing up on a dock to do us the favor of signing a bill of lading was unacceptable."

After reviewing carrier bids, Alcatel selected Circle International for international shipments, Pegasus TransAir for domestic shipments, and McCollister's Moving & Storage, an agent of United Van Lines, for van-line operations. Today, representatives of each company work side by side in Alcatel's facility. That way, says Doug Word, vice president and general manager of McCollister's, "when the customer has a transportation need, there is only one place to go."

Alcatel stresses that each company focuses on its core competencies. This includes subcontracting to each other, Stanley says. The teamwork also reaches beyond domestic moves: Circle and Pegasus combined their international programs to establish Alcatel USA's global transportation network.

This new network has yielded a 44-percent reduction in unit freight costs on inbound moves to Alcatel's plants, more efficient use of company staff, "and positive teamwork across functions and companies," says Stanley.

Behind the Success

According to representatives of all four companies, the Alcatel partnership works because it is based on sound business practices. From the start, Alcatel set clear demands for its partners, but gave its vendors the flexibility to meet those demands as effectively as possible. For example, when the telecommunications company requested that partners participate in Alcatel's internal processes, it did not automatically assume that vendors would work in house. "We only wanted carrier staff on-site if it made sense to be on our concrete," says Stanley. "In today's virtual world, the actual location of where tasks are performed is less significant than in the past."

Alcatel also encouraged partners to take complete control of their portions of the supply chain. On a typical van-line delivery, for example, McCollister's not only coordinates the shipment pickup and delivery times with the carrier, but it also takes care of crating and schedules the rigging company at the installation site. "The idea was that the partners would not necessarily replace in-house staff, but fight the daily fires and allow us to do our jobs more effectively," says Craig Blake, Alcatel's senior transportation planner.

This management structure has allowed the vendor partners to exercise their core competencies to Alcatel's advantage. Marva Washburn, director of global accounts for Circle, says Alcatel's international transit times have dropped to the point where shipments that formerly took seven to 10 days now require as little as two. Circle reduced time by managing the entire logistics process--transportation, handling, customs clearance, and specialized services--through its international network of offices. "We have 323 locations around the world," says Washburn, "so we are familiar with local business practices. That knowledge becomes invaluable when you need to move a shipment quickly."

Not only does each vendor partner concentrate on its core competency, but the three also have developed ways to work together when needed. "In a typically cutthroat industry, three companies are doing what's best for one customer," observes Ken Beam, president of Pegasus.

Last year, for example, a customer in northern California needed to replace a damaged telephone switch. "The customer wanted the shipment yesterday," says Word. Normally, Pegasus would schedule an air delivery. Due to flooding, however, there was no air service to northern California. The van line and freight forwarder worked out a solution whereby McCollister's transported the switch to a Dallas company for crating. It then moved the shipment to Dallas/Fort Worth Airport. From there, Pegasus arranged air transportation into southern California. McCollister's offloaded the freight and drove it through a July snowstorm to the customer. "We worked together to make the delivery happen without missing a beat," says Word. "If Alcatel did not have that kind of transportation environment in house, imagine how difficult that move would have been."

To keep things running smoothly, each partner participates in a unified daily reporting system designed to let Alcatel monitor performance. The partners provide status updates and take part in monthly brainstorming meetings with Alcatel's transportation team. Through these meetings, Alcatel forms the ideas that will take the partnership into the future. Stanley says Alcatel will continue to use electronic- and Internet-based tools for improved information management and to reduce process steps and increase efficiency.

What advice do the partners have for shippers contemplating similar arrangements? "Customers should seek vendors who are willing to adapt and change and look out for their best interests," says Beam. "They should demand a company that understands their business and offers flexible, state-of-the-art systems. They also should identify the vendors who invest in people--not just sales staff, but logistics people."

Editor's note: Alcatel USA, Circle International, Pegasus TransAir, and McCollister's Moving & Storage have earned the 1999 Partnership Award presented by the American Society of Transportation and Logistics and Logistics Management & Distribution Report magazine. The annual award recognizes logistics excellence and innovation achieved by two or more organizations working together.

To obtain an award application or additional information about the partnership award program, contact the AST&L at 320 East Water St., Lock Haven, PA 17745. Phone 717) 748-8515, or email info@astl.org.