It took some time, but in the end, FujiFilm Medical Systems USA Inc. got expedited distribution right. And contrary to what you might expect, it wasn't a matter of finding the fastest carrier on the planet to move its critical shipments. It was a matter of finding the right company to manage its parts logistics.
Just what's involved in managing parts logistics? In FujiFilm's case, it meant storing and tracking more than 10,000 small parts—everything from nuts and bolts, to assemblies weighing several pounds—for FujiFilm's hospital X-ray equipment and shipping them out—stat!—to service engineers in the field. Service had to be both quick and 100-percent reliable: Customers who dial into FujiFilm's call center tend to be hospitals in a crisis—with a crucial piece of X-ray equipment down. And a field engineer without a part isn't any good to them.
As it turned out, managing parts wasn't a job for just any 3PL. FujiFilm, which readily admits it knows a lot more about diagnostic equipment than about the logistics of parts delivery, had been working with a third-party logistics service provider (3PL) for years. But the provider it chose wasn't meeting expectations. "It was hard for us to put our hands around what we had [in the warehouse]," says Rachel Arterberry, FujiFilm's sourcing and materials manager, who's responsible for service. "They were holding inventory but I wouldn't say they were managing it. We were expecting them to provide more."
Dissatisfaction with the former provider, which Arterberry prefers not to name, eventually led the company to start the search for a new partner. And this time around it had a better idea of exactly what it wanted. For example, FujiFilm had to have a customer call center operating 24 hours a day, seven days a week, and it had to be able to send out shipments as soon as they were needed. "We're in the medical industry and we can't afford to shut down," says Arterberry, who's based in Stamford, Conn.
"We were looking to them to be more of a partner than a supplier, "Arterberry explains. "We were looking for someone who could provide stability and consistency—a partner, not just a warehouse. [We sought] a partnership that would bring that relationship to a different level because you're both heading for the same goal, that is, [meeting] the ultimate customer's needs."
But that partnership couldn't break the budget. "We needed someone who would manage the inventory for a reasonable expense," Arterberry adds. That meant the 3PL would have to be happy with doing the work with no efficiency-sharing fees during the term of the three-year contract.
And the job wouldn't be simple: FujiFilm Medical needed a logistics partner that could handle parts singly, rather than in cases or pallets. "The parts are typically a very small bin bulk item. It could be little washers or assemblies weighing several pounds. Not all companies have that experience. We needed shipping and inventory accuracy," says Arterberry. FujiFilm's partner would also need a system for parts substitution—a method of identifying which out of the thousands of different parts could be substituted if something was out of stock.
All the right moves
In the end, FujiFilm called in Kuehne + Nagel Contract Logistics US (formerly known as USCO), based in Naugatuck, Conn., for help. Among other things, K+N did something astonishingly simple but astonishingly effective: It moved FujiFilm's parts warehouse from Louisville, Ky., to a location right next to FedEx's package delivery network hub in Memphis, Tenn. Once the new warehouse was up and running, the company soon found that parts ordered through FujiFilm Medical's call center in Naugatuck could be shipped out for next-day delivery as long as they were ready in the warehouse by 11: 30 p.m. Most of FujiFilm Medical's orders must go out either overnight or on the next flight out.
Of course, it wasn't so simple to execute the plan. The relocation meant 11,000 SKUs—hundreds of thousands of parts—had to be moved from Louisville to Memphis. It took 20 people working 20 hours a day, seven days to do, and involved 12 trucks pulling 53-foot trailers. All told, it took a full year's worth of planning to work out the contract details and formulate the new system. "In our world, that's kind of typical," admits Todd Anelli, director of supply chain solutions at K+N Contract Logistics US, who handles the account. "I wish it was quicker, but it's what you need to get it right."
All the preparation was worth it, though, as far as Arterberry's concerned. "They used experience from moving other customers to ensure the transition was transparent, which was key to us. We needed the least amount of downtime, primarily because we are a medical company. We couldn't afford to have a single customer without a part," says Arterberry. Luckily, despite headaches such as trucks turning up in the wrong order at Memphis, K+N was able to fulfill that requirement.
And in June 2003, when the dust settled on the move, FujiFilm found itself paying for 8,000 square feet inside a shared warehouse instead of 16,000 square feet—the size of the old one—as K+N had reorganized the inventory.
In particular, Arterberry says she was impressed by K+N's willingness to share its experience with her company. "We had our own ideas of what we were looking for, but they were always suggesting ways we could better manage our parts logistics," she says. "They demonstrated the software tool they use in call centers, they took us around the central warehouse we chose but also around smaller regional stocking locations in case we wanted to go that way. They gave us several EDI transmission options so we could be automated. As for cost effectiveness, they were really great at providing us with that: not necessarily guiding us toward one particular solution, but giving us several options to choose from."
Delayed gratification
K+N's ability to adapt to ongoing needs has meant that a Phase Two in the operations, designed to automate the process of parts substitution (as well as offering online parts ordering for field service engineers), has been postponed. Under the original arrangement, K+N was to create a customized program for automating parts substitution— pricey for FujiFilm, but desirable. However, on reflection, K+N realized many of its other customers would benefit from such a system and has decided to develop a more generally useful system that it can offer to several customers, including FujiFilm.
The down side is that FujiFilm will have to wait until the first quarter of 2005 for the system, instead of the first quarter of 2004 as initially planned. The up side is that it will cost a great deal less. "It will save money," says Arterberry, "and we've been operating just fine with what we have."
In the end, did Arterberry end up with the partnership she was looking for? Absolutely, she says. "We're a true extension of their day-to-day business," adds K+N's Anelli. "And now, there are no service failures."
