3PL Case Study

April 26, 2024
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The Client

Our client is a 3PL specializing in the fulfillment of company apparel and accessories. They have a single, multi-client location on the West Coast of the United States and have been in business for five years. They have annual revenues of $3.5M and have struggled to make a profit each year. Over 80% of the company’s sales are through a single customer, and annual growth is tracking at 15%. They moved to a larger facility in 2022 to accommodate the growth in sales and have additional capacity to take on new customers.

The Challenge

Experiencing material year over year growth, the customer was struggling to make a profit and retained The TAC Group to perform an operational assessment aimed at determining improvement opportunities in cost, service, and overall business sustainability. Following the operational assessment, The TAC Group provided a detailed roadmap to streamline processes, enhance workflows, and reduce labor costs. TAC provided the customer with two high impact initiatives estimated at improving labor performance by 30%. Ultimately, The TAC Group was retained for 12 weeks to lead implementation efforts.

The Process

Operational Assessment – TAC reviewed the customer’s operations to determine improvement opportunities in cost, service, and overall business sustainability. The assessment was performed via data analysis and on-site visit. 

Elements of the Operations Assessment included: 

Financial Review – Review of a 12-month period to assess overall financial health, identify which areas of the business are profitable and which are not. Assessed the cost allocation to gain understanding of fixed and variable costs relative to industry averages. 

Billing and Pricing Review – Gain understanding of current pricing model/structure through conversation with company President. Perform full cost analysis of the warehouse space, review labor cost allocation and tracking and comprehensive review of supply charges.

Paid Hour Review – Review a 1 month sample to understand how hours are used across the operation. Assess allocated and unallocated hours, overtime, vacation/sick, and client allocation. Gain understanding of management review process.

Inventory Review – Review total locations, SKUs, and Units in inventory and identify the location types available and in use. Perform MTM labor analysis associated with SKU search time. Gain understanding of inventory control practices.

Process Review – Assess each of the following: Unload, Receiving, Staging, Put-Away, Replenishment, Picking, Packing, Shipping, and VAS (Value-Added Services).

Management – Review workflows, workstations, leadership communication, KPIs, operational plans, productivity metrics, labor management programs, etc. Identified gaps in workflow design, labor tracking, communication effectiveness, productivity metrics and operational KPIs.

Roadmap Review

Elements of the Roadmap

Labor Reduction Opportunities – Identified 8 labor reduction opportunities and provided estimate of the impact of each initiative. Highlighted 2 high impact initiatives that could change the overall labor performance by 30%.

Pricing Review – In addition to the labor gains needed, the overall pricing model was evaluated to quickly impact new business.

High Impact Initiative #1 – KPI, Performance, and Labor Tracking

  • Develop operational KPIs at the facility, department, and team level that reflect volume processed, productivity, and quality metrics to track at a daily level.
  • Create a communication plan for the leadership team to meet daily to plan and review workload, staff deployment, KPIs, results, plans, performance, and goals.
  • Develop communication boards to provide employee visibility.
  • Refine job codes to provide a more granular view of hours spend (task type with a function)
  • Enhance management focus on labor spend.
  • Create management accountability for operational results.

High Impact Initiative #2 – Cluster Picking and Packing Improvements

  • Implement Cluster Picking logic.
  • Purchase and utilize carts and totes to support cluster picking.
  • Change packing layout to create more dense pack area.
  • Enhance product/workflow by eliminating clutter from area, positioning stations back-toback, repositioning conveyor to allow for takeaway to palletization area.
  • Enable each pack station to pack and ship, consolidating all activities for an order to a single pack station.
  • Create supplies presentation based on velocity of use. 
  • Move to wicketed poly bags to improve pack rate.

Supporting Activity for High Priority Impact – Pricing Review

  • Review existing cost structure, creating a more granular account structure to assign cost between activities, and developing a more detailed cost model for each process and area.
  • Define billing structure, reviewing full capacity potential for each operational area.
  • Develop billing modeling, allocating costs across processes, defining process variation impacts for each billing element, and developing overall margin goals by element type.
  • Model billing across clients to assess impact.

  • Update billing structure to new elements.

The Process

Following the completion of TAC’s 12 week engagement with the client, significant improvements were made to the overall financial health of their organization. Major achievements include:

  • Successful implementation of cluster picking, resulting in a 32% improvement in productivity
  • Established KPIs, Performance Metrics, and Labor Tracking, helping drive a 26% reduction in the overall cost per unit (CPU).
  • Automated process flows that allowed for the reallocation of 4 indirect functions, resulting in $200k of annualized savings.
  • Provided leadership training focused on labor management, accountability, workforce planning, and effective communication, leading to a 20% improvement in employee turnover.
  • Daily service level improved from 93% to 99.5%
  • Roll-out of a standardized, robust pricing tool based on historical information.
  • Overall efforts resulted in $470k in annualized savings.

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