Competition is becoming much fiercer, with an increasing number of logistics, solutions, and 3PL companies vying for the same piece of the pie. Offering similar services and rates, what distinguishes one provider from another is beginning to blur. To stand above the rest, building relationships and becoming a true solutions provider for customers has become paramount.
Along with the transition of what a traditional logistics provider offers customers, the conventional model of where they fit in the supply chain is also evolving. Typically, a provider’s role has been near the end of the supply chain, after a manufacturer has produced the goods. Providers are often tasked with the warehousing and transportation of finished goods, and this is where they have been helping for many years.
The input side of the equation, with the raw materials used to manufacture goods, has its own special segment of the supply chain that’s often closely guarded. This attitude is common, especially for manufacturers who are in food related production, for the fear of what could happen if something goes wrong. Overcoming these concerns, some manufacturers are realizing that the same type of benefits they receive on the finished end with outsourcing can be realized on the other end as well. However, they don’t just pick anyone, and it takes a special provider to earn and keep their trust.
DSV Solutions’ long standing track record with many of their current clients has led them to begin offering the same type of rock solid service they’ve been providing for customers on the finished end for the input side as well. One of their close customers, Dumex, is a well-known producer of baby formula, which is a product that needs to be well taken care of for the health and safety of the infants consuming their finished product.
We spoke with Mr. Edward Haapala, Managing Director, DSV Solutions Thailand / APAC Director Quality Management; Mr. Tanakun Jariyatanabenya, Dumex Logistics Manager; and Mr. Satit Juthangka, Dumex Supply Chain Operations Manager about their relationship and the benefits that have become realized.
The control of inbound raw material for primarily food related manufacturing is an underserviced sector across the board. A big reason for this is that there are many requirements a provider must have in order to be compliant, including GMP ratings and certain ISO standards. Not just any provider and any facility will work for this type of special product.
Mr. Haapala said, “There’s a few reasons this market is underserved, the largest being that because of the requirements there’s a lot of risk. Not many companies are outsourcing this activity yet, because they’re not confident that anyone will accept that risk, and I don’t think many other 3PL’s are pursuing this area yet. At the end of the day, many companies think that if they keep this end of the supply chain under their control they assume the risk under their own business, but if they outsource to someone else and the provider fails it can negatively impact their brand. The biggest hurdle has been overcoming this fear, and the way we’ve done that is by earning our customers trust, ensuring full quality compliance (including accreditation) and delivering on what we promise.”
On the provider’s side, a barrier against offering this service is that while you must provide and run a premium facility with more controls than a normal environment, you’re not really able to charge a premium price. More work for not much more money, and there’s increased risk; what exactly does the provider get out of this arrangement?
Mr. Haapala explained, “The benefit for providers is that you get to develop business relationships with market sectors that you might not be able to develop otherwise. For example, if a major manufacturer goes out to RFQ on finished goods, every provider in town is participating. However, if a provider is already assisting on the raw material end first, and perhaps are the only 3PL being used, they end up being in the right place at the right time and will have a higher probability of increasing business scope without going to RFQ.”
Manufacturers are well within their right to be cautious, as they are often dealing with very sensitive material. Beyond just the normal issues that all warehouses must address, like pest control, there are many specific requirements that must be adhered to. For example, some products are reactive to ambient light. This is a problem when many warehouses have transparent pieces in the ceiling to avoid using fluorescent lights. Odor contamination is another issue that can arise by simply storing different company’s products within close proximity of each other. Odor can cross contaminate from one to another; this issue and many more are not something a warehouse storing only finished product would normally have to worry about.
For these reasons, some companies are skeptical in offloading this part of their supply chain to a service provider. There is little risk in someone storing finished goods, as it’s sealed, packaged, and ready to go to market; it’s made to sit next to other products. There’s a lot more inherent risk in the input end of the supply chain. While there are many issues, a quality service provider helps to ensure that all of their customers’ needs are addressed.
For DSV and Dumex, their relationship began many years ago with DSV assisting with their finished goods. As the relationship developed, Mr. Haapala and the DSV Solutions team came to Dumex with a proposal to help them with their inbound raw material. Currently, DSV mainly provides warehouse services for Dumex’s raw materials, which are imported from abroad, and also take care of overflow finished products as well.
Mr. Jariyatanabenya said, “For the raw material that DSV stores for us, about 95% is imported and transported directly from Laem Chabang port. Most of the raw materials we import includes milk powder and some additional vitamins. For these materials, we require DSV’s warehouse to have ambient conditions. Since we are working in the food business, and in particular baby food, we need to pay extremely close attention on food safety and food security. So, having GMP and ISO certification is a must. Our vendors need to pass the audits and global checklist for food safety before signing a contract with us. In addition, we also send our quality checkers to audit the warehouse every month. Before moving our raw materials, we need to make sure whether the temperature and storage conditions fit to our raw materials special conditions, which DSV has passed all of the requirements so far.”
One of the biggest hurdles to overcome for both providers and manufacturers is managing the risk involved on the input side of the supply chain. There are many requirements and certifications that help assure quality, however it’s only through trust that a relationship can thrive and prosper. The only way to build up good will for providers is by fulfilling their promises to customers.
Mr. Juthangka said, “For this type of business, we need to have a consistency plan to manage risk, and DSV offers solutions that fit to our standards and policy. They have no problem with the ISO or GMP certifications, and one of their biggest strengths is the flexibility of their services. Even though we sometimes have many different types of finished goods, as well as raw materials in different forms for them to handle, I can trust that they can manage each of the goods accurately. Furthermore, traceability along the entire supply chain, upstream to downstream, is crucial for our food business. Our partners and warehouses we outsource to need to work in the same direction. When we choose suppliers, we look at who is able manage supply chains effectively, and DSV has met all of our requirements, gaining our trust.”
Mr. Haapala said, “There’s a real need for this service, as the logic that applies to the finished goods end of the supply chain, and why it makes sense to outsource, is equally applicable to the inbound part of the supply chain. Really, what you need to overcome is fear and risk. The only way that we’ve been able to do that is to establish a track record with a number of reputable companies where we’ve been doing this service over an extended period of time with no incidents. This is a barrier to entry for a lot of companies, but by working in tandem with our customers, we’re proving that this service works and is beneficial for all involved.”