Tag Archives: Enterprise resource planning

Third Party Logistics (3PL) Implementation Methodology

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In order to partner with a 3PL, instead of building your own warehouse, the following is the successful method:

Create a 3PL Project Plan with a target date and Project Leader/Manager

Create a cross-functional team to address all 3PL implementation  issues

Investigate all 3PLs and consider which 3PLs will have the best fit for you

Have Sales do a frequency distribution of which of your commodities is sold in which states and place the 3PL close to those most frequently shipped to states

If you import your commodity, insure that there is a major port near the 3PL and that you have an effective Freight Forwarder and Customs Broker to monitor your imported shipments and clear your freight through US Customs

Choose at least three (3) 3PL candidates

Send an RFQ (Request for Quotation) to all three (3) 3PL candidates, including your  estimated volumes

Always have a fail safe/fall back plan should any of these 3PLs fail. You have to have other 3PL ready to use should any of your chosen 3PLs fail during negotiations/visitations

Analyze your IT requirements in order to integrate your current ERP system to the 3PL’s Warehouse Management System (WMS) or integrate and use their WMS system only

Analyze prices from your RFQ: who has the best value for you? (A cheap price brings cheap service) ALSO REMEMBER that your ESTIMATED volumes will be matched against your ACTUAL volumes, and prices will be adjusted if the two: estimates versus actual volumes are far off: Negotiate a Change Process Clause to review the SLA/KPI and pricing every 30 days, especially during the “honey moon period.”

Put together a Service Level Agreement (SLA) to manage your 3PL’s service level and add Key Performance Indicators (KPIs) to the services you require to be monitored by both parties. Some KPIs are: Customer Service, Inventory Levels, Inventory Records Accuracy, Returned Material Authorization(RMA) Process, Cost Reduction Expectations, LTL Customer Service/Turnaround time/Future Cost Reduction, Penalties for missing KPIs and a Change Process Clause to Negotiate SLA/KPIs and Prices frequently

Negotiate Prices face-to-face along with Miscellaneous Pricing from the 3PL: pallets, banding, labor rates, and overtime, etc

Negotiate the contract and terms an conditions with the 3PL, before the lawyer reviews the contract to look for obvious problems in the contract.

Visit the local 3PL facility with an agenda sent in advance to see their warehouse organization and initiatives: 5S, Cleanliness, Location Control, Organization, OSHA Requirements, Kaizen/Continuous Improvement, Kanban, Gemba, Six Sigma, Safety, etc

After the tour, critique the 3PL warehouse and organization in the 3PLs Conference Room

Visit the 3PL out of state facility you choose to warehouse your commodity to insure all specifications are met and that you have good chemistry with the management and staff of the 3PL facility you will be using. Visit some of their customers in  the area after you have a long list of customers so the 3PL does not know which customers you will visit. Ask these customers about the pros/cons of the chose 3PL

When all areas are negotiated and prices are set, have your lawyer review the contract, with your suggestions, before it is signed by your CEO.

It is good business to have your Project Leader/Manager stay at the out of state 3PL for a month to monitor all 3PL activities and report back to the CEO and the 3PL cross-functional team.

You have met your target date and have the 3PL in place, with review periods set.

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Daily Cycle Counting for 98-100% Inventory Records Accuracy in the Warehouse

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Enterprise Resource Planning (ERP) has two foundation pillars: Inventory Records and Bills of Materials. Both of these pillars need to be 100% accurate, as a goal.

The effective plan for Inventory Records Accuracy is as follows:

We begin with a clean Warehouse using basic cleanliness discipline, security, LEAN and 5S techniques. The Warehouse is to be treated like a bank, and the parts, cartons and pallets are money. There must be a “teller” to watch over security. No one is allowed in the Warehouse unless they ask the “teller” if it is acceptable and why they are entering the Warehouse.

The Warehouse must have locations: Aisle, Bay, Shelf, and Slots; if necessary, floor locations are implemented.

Everyone who touches the inventory in the Warehouse must take basic Cycle Counting education. The cycle counters  must know how to do a “blind” count: a count of the Warehouse location is done first, before they match it against the on-hand balance in the ERP system, so as not to prejudice the Warehouse count by seeing the ERP on-hand number in advance. The cycle counters have to know the various ”root causes” to look for if the Warehouse on-hand balance does not equal the ERP on-hand balance.

The essence of Daily Cycle Counting is to find the various root causes of variances and solve them as they occur, with Standard Operationd Procedures (S.O.P.s) to eliminate their reoccurrence. A frequency distribution of root cause problems will lead you to the top root causes to solve.

Next, a wall-to-wall, very accurate, Physical Inventory must be taken before Daily Cycle Counting begins. Physical Inventories are expensive and time consuming.

No transactions can take place during the Physical Inventory and during Daily Cycle Counting. There must be a daily “cut-off” time for processing orders and pulling those orders in the Warehouse in preparation of the next days Cycle Count.

The Daily Cycle Count should be a mixture of A, B, C and D items. The Cycle Counters continually go around the Warehouse,  and when complete, start over in the beginning of the Warehouse.

Each days Cycle Count accuracy numbers are posted on the Cycle Count Board in the Warehouse for the Warehouse team to see and/or into the ERP System for everyone to see the progress of Daily Cycle Counting: the goal is a sustained 98-100% accuracy. Daily counts are calculated by divding the total number of items counted  into the total numbers of items that are correct, example: 10 items counted and eight correct equals 80% or short of the 98-100% goal set. This means it is time to investigate the root causes for all inaccuracies.

When you obtain the 98-100% accuracy goal, and run Material Requirements Planning (MRP) Reports off the ERP system, you will order (Purchasing) and produce (manufacturing) the accurate numbers you require to  meet the Master Production Schedule (MPS).

If you can maintain a sustained 98-100% Daily Cycle Count accuracy level, you can approach top management about eliminating costly, time consuming, Physical Inventories. At times, there is a company financial policy to take a Physical Inventory at least once a year.

Bills of Material should also be checked randomly, every day, for accuracy by the Manufacturing Engineering (M. E.) Department. The Bill of Material is printed out and the equipment itself is matched against the Bill of Material for 100% accuracy. If errors are found, the necessary corrections are made by the M. E. Department.

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