Reprinted from GLOBAL LOGISTICS & SUPPLY CHAIN STRATEGIES, February, 2005
A Frozen-Food Expert Seeks Help in Dry Distribution
J.R. Simplot enters unfamiliar territory in acquisition of a dried-potato distribution network, seeks partner to handle the warehousing challenge.
Every company talks about being customer driven. J.R. Simplot Co. does something about it.
When Simplot, one of the world's largest processors of frozen potatoes, went looking for a third-party logistics (3PL) provider to manage its new dry distribution network, it put customer needs ahead of cost.
Based in Boise, Idaho, Simplot produces three billion pounds of frozen french fries and related products annually. Its customers include the biggest names in fast food: McDonald's, Burger King, KFC. Yet when it comes to dry products, Simplot is relatively inexperienced. Having taken over a dry operation of nationwide scope, the company sought help from outside experts.
Steve L. Brown, senior director of logistics, had previously worked for a large food-service company that had a line of dehydrated potatoes. In addition, Lewisville, Idaho-based Idahoan Foods was piggybacking on that company's sales and distribution channel. When Simplot purchased the processed-potato division of the food-service giant, it took on Idahoan's distribution business as well. Simplot and Idahoan would enter into a co-packing arrangement, but it was Simplot that was expected to provide the new distribution network for dried potato products from both companies.
Brown, who moved over to Simplot with the acquisition, had just 60 days to create a new network, without any interruption in service. In addition, he had to replicate the transportation efficiencies that the acquired operation had previously enjoyed, as part of a much larger organization. While Simplot was a dominant shipper of frozen potatoes, it had no corresponding clout with carriers on the dry side. For Simplot, coming up with its own chain of warehouses was out of the question. Nor could it afford the time to build new facilities. The only solution lay in the hiring of a 3PL that already had a network in place, and could combine Simplot's dried-potato business with the freight of other shippers, creating cost-efficient truckloads and consolidated lots.
Simplot canvassed the 3PL landscape, starting with 15 candidates and eventually narrowing them to two. It chose Des Plaines, Ill.-based DSC Logistics for four distribution sites, in Roanoke, Tex.; Allentown, Pa.; Joliet, Ill., and McDonough, Ga. States Logistics Services Inc., headquartered in Phoenix, got the nod to operate a fifth facility in Buena Park, Calif.
The main criterion, says Brown, was proximity to the distribution centers operated by the previous owner of the dried-potato network. The aim was to cause minimal disruption to customers. Only after that goal was satisfied did Simplot address the issue of cost.
Customer Pickups Prevalent
Simplot's priorities made sense, given that a significant number of customers picked up product at the distribution centers. Any change in location would have altered their arrangements with carriers, and possibly increased their own costs.
Buyers were used to getting consolidated truckloads with a variety of products from the big food-service provider. That volume would have to be replaced with items from other suppliers. Both DSC and States were already serving many of the end users' existing vendors, whose product could be used to fill out the trucks and maintain truckload economies.
Simplot made its choice of DSC and States in early May 2004, with the first shipment set for June 30. Within that time, all systems would have to be integrated and switched on, and all product moved into the 3PLs' warehouses.
Ken Heller, DSC's vice president of new operations development, would have liked another month to finish the job. Still, DSC wasted no time in getting up to speed. The 3PL immediately sat down with Simplot managers in Boise to learn as much as it could about the customer's supply chain—its order lead times, performance metrics, ways of handling damaged goods and product from multiple vendors, and customer service expectations.
One complication was the need to create a dual lot control quality process. DSC's lot coding only addressed Simplot products, says John Kelly, the 3PL's senior manager of supply-chain solutions. It needed to be tweaked to account for the co-packer role of Idahoan, which required a different set of lot-control markings for its products. "The lot numbers had to be separated in our system, yet integrated as one customer," says Kelly.
The presence of Idahoan also created complexities in the communications process. DSC had to set up an electronic data interchange (EDI) link to keep Simplot apprised of product coming in from its co-packing partner.
Much of the prep work was done in the dark. Kelly says DSC had little up-front knowledge about product handling characteristics and customer pickup practices, since the goods in question had previously been part of a larger supply chain with which the 3PL was unfamiliar. Nevertheless, the transfer of operations went smoothly. "To my knowledge," says Brown, "we didn't short a single order or turn anybody away."
Critical Mass Achieved
Annual volumes of dry food-service products moving through the network are between 50 million and 60 million pounds, or just under 2 million cases a year. The average order size is around 15,000 pounds, says Ron MacCulloch, a consultant to Simplot, with the company handling a combination of truckload lots and smaller orders ranging from 5,000 to 10,000 pounds. Brown says Simplot likes customer pickups because they help its customers to achieve "critical mass" through the loading of products from multiple vendors.
"Where we are with consolidation is about as good as it gets," says Brown. "Most of it is going out in pretty full trucks."
DSC performs a variety of tasks on behalf of Simplot and Idahoan, including shipping and receiving, warehousing, order picking and processing, physical inventory and cycle counting and performance metrics. Most orders are received and shipped within 24 hours, says Heller, with the intention of turning inventory between nine and 11 times a year.
DSC maintains tight control over the carriers that it books directly. Monthly carrier report cards rate on-time delivery; over, short or damage (OS&D) claims; invoice accuracy; and EDI capability. The 3PL also keeps tabs on carriers that are secured by Simplot's customers. Statistics show when a truck arrived, whether it was on time, how long loading took, and when it left. And while DSC doesn't have as much control over such carriers, "we haven't had a significant problem with customer pickups," Heller says.
Another of Simplot's criteria in the selection process was that each distribution facility be served by rail. A heavy user of rail on the frozenpotato side of its business, Simplot is one of the largest perishable shippers on both the Burlington Northern Santa Fe and Union Pacific railroads. It intends to increase the amount of dry business moving by rail on the inbound side. "We've been able to negotiate a favorable position [with the railroads]," says Brown.
Simplot probably won't make additional incursions into the dry business, beyond potato products and a small number of miscellaneous prepared food items it already sells. Now that the dry distribution network is in place and operating smoothly, however, the company does see the potential for increased sales in that area. "We've stabilized the business," says Brown. "Now we're preparing it for growth."
© Copyright 2005. Global Logistics & Supply Chain Strategies February 2005.
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