Outsource Decision: Warehouse, Delivery, Deluxing

In the quest for improved profits and competitive advantage, retailers are more frequently reviewing their outsourcing options.

Contributing Editor’s Note: Credit for most of this article goes to David Grass. Starting as a craftsman in furniture repair, he has held management positions in furniture repair, quality control and transportation with John M. Smyth Homemakers, Harlem Furniture, Plunkett Furniture, American Home Furnishings (NM), Montgomery Ward and has been a consultant on these issues. Thanks also to Richard Mihalik, VP of Operations at Legacy Classics Furniture; Don Spears, Service Manager at Kittle’s Furniture and Jeff Forgash at Manray Logistics. Information was also obtained from companies providing operations services to the furniture industry.

In the quest for improved profits and competitive advantage, furniture retailers are more frequently reviewing their options for warehousing, deluxing and home delivery. This review process may be triggered by dissatisfaction with in-house operations, an existing third party source, or by management’s realization that there is a need to shift more attention to merchandising and sales.
If you are considering outsourcing, what should you do? Where might you start? What are the Pro’s and Con’s of each option?

BEGINNING STEPS

•Write down your goal(s).
•Set a timetable.
•Appoint someone to be accountable for the project.
•Do the necessary research.
•Benchmark your progress.

IDEAS, RECOMMENDATIONS "RULE OF THUMB" EXAMPLES

1. Measure the size of your business.

2. Gather your data, examine your operating expenses and then compare them to any benchmark figure you have from industry sources or friends with similar operations.

3. Outsourcing shouldn’t cost you tremendously more than similar in-house services.

4. Sales revenue will justify the type of outsourcing (see below under "cost gauge").

Look for buried costs. The key to solving any outsource decision is to understand all your hidden costs. Conduct a thorough review of your expenses. Go beyond the surface. Are you operating within your budget or have costs exceeded your expectations? Once you’ve established "all" costs, then benchmark them, listing what it costs for each service. Then compare the cost effectiveness of outsourcing versus internal operations on an item by item basis.

JUDGING THE COSTS

Warehousing (Dedicated): If sales volume is $10-15MM or above, consider a dedicated warehouse. Smaller operations should consider using a multi-client warehouse.

Home Delivery: Sales volume of $4-5MM can justify using dedicated trucks imprinted with a company logo. Smaller companies will find that there are numerous companies that can be hired to deliver merchandise. Retailers must carefully consider the impression delivery trucks and personnel make on their customers at the time of delivery. Remember that delivery is the first step toward repeat orders.

Deluxing (Full): The pricing of deluxing services varies with two important variables, quantity of pieces to be deluxed and price point. A rule of thumb is that a 50-piece minimum per day operation with an annual volume of $4MM can expect a charge range of $6-8 per piece. Again, your piece volume, price point and the level of necessary prepping will affect your negotiations with deluxing companies. Larger retailers can expect economies of scale.

SELECTING AN OUTSIDE SERVICE COMPANY

The cost and level of professional service provided by outside companies that specialize in warehousing, deluxing and home delivery services are variable. Generally, you get what you pay for. If you negotiate for the lowest price possible and neglect the quality of service, the possibility of increased damage and dissatisfied customers will quickly emerge. Another factor to consider is the length of time you’ll need the service. Longer-term contracts will generally get more favorable terms. Before selecting any outsource provider, ask these kinds of questions:

• Are they specialized in this field?
  
• What is their tenure in this field?
  
• Where is their physical location?
  
• What is their financial condition?
  
• How well organized are they within their own company?
  
• What internal measurement reports will be made available?
  
• Do they have a customer service department, with an operations manager and sufficient staffing?
  
• How responsive will they be in handling a crisis or treating your customers and your own associates?
  
• What are their hours of operation?
  
• How will they handle damage claims?
  
• Will they ever sub-contract out for services?
  
• Can you tour their headquarters and visit some of their non-competing customers?
  
• What terms and conditions can they offer that will allow you to revise or cancel the service.

SELECTING OUTSIDE WAREHOUSING
Begin the process of evaluating your warehouse operation by examining your entire system. Look closely at the following critical elements that are a part of any warehousing process. Profile your total operating expense for each element.

• $ per square foot; leasing, renting, owning.
  
• Utilities (Gas, electric, water).
  
• Building maintenance.
  
• Insurance (Property, liability, causality).
  
• Taxes ($ per square foot).
  
• Capital improvements (Roof, HVAC, lighting, dock doors. Etc.).
  
• Costs of capital.
  
• Equipment (Hi-lifts, renting/owning, maintenance).
  
• Security.
  
• Racking.
  
• Refuge.
  
• Shrinkage.
  
• Inventory control.
  
• Labor (Wages, FICA, unemployment, health & welfare, vacations, turnover, workmen’s comp insurance).
  
• Materials.

Possible Advantages of Outsourcing Warehouse Operations:

• Allows flexibility to address sudden growth or a change in market direction.
  
• Utilizes methods and technologies to track inventory and minimize capital expense.
  
• Provides opportunities for transferring or increasing manpower as needed at any given moment.

Possible Disadvantages of Outsourcing Warehouse Operations:

• Contract bound with no flexibility adjustments (time or space).
  
• Sub-contracts may result in accountability and control losses.
  
• Information systems may not mesh.

SELECTING OUTSIDE DELUXING SERVICE

Deluxing cannot overcome manufacturing deficiencies in specifications, quality assurance, materials, production process and packaging. Serious manufacturing problems must be addressed at their source.

An efficient deluxing process boosts profits and customer satisfaction by reducing after sale servicing. Most retailers will want to improve the caliber of in house technicians to reduce the need for purchasing expensive outside repair services.

An assessment of your deluxing operation should begin by measuring the ratio of service-required calls to your total deliveries. Then ask these additional questions to identify places where operational improvements/ upgrades can be made to reduce unnecessary damage:

• What is the caliber of your in-house and outside repair technicians?
  
• What is your deluxing process?
  
• Do you un-carton and inspect prior to home delivery?
  
• Is your lighting adequate to ensure that a thorough inspection is conducted prior to delivery?
  
• Do you fully assemble the items before loading the truck?
  
• Do you know the reason for every service call?

Possible Advantages of Outsourcing Deluxing Operations:

• Expertise to effectively operate and manage craftsmen.
  
• Reduced even exchanges and service calls.
  
• Information reports regarding product issues.

Possible Disadvantages of Outsourcing Deluxing Operations:

• Not enough volume to support a full time prepping service.
  
• No monitoring systems in place to measure returns and effectiveness from deluxing operations.
  
• Lack of on site supervision.

SELECTING HOME DELIVERY SERVICE

Before considering a change in your delivery operation, ask yourself why a change is desirable or necessary. Valid reasons for considering making this operational change are performance deficits and/ or high costs.

Negative Performance Issues:

• Refusals.
  
• Missed time windows.
  
• Not-at-Homes.
  
• Poor delivery teams.

Associated Delivery Costs:

• Labor (Wages, FICA, unemployment, health & welfare, vacations, turnover, workmen’s comp insurance).
  
• Costs of capital.
  
• Equipment (Dollies, pads, straps, etc.).
  
• Fuel.
  
• Maintenance.
  
• Insurance (Cargo, liability, collision, comprehension).
  
• Licenses.
  
• Radios/Cell phones.
  
• Uniforms.
  
• Claims (In-home, merchandise).
  
• Drug/Physical testing.

Possible Advantages of Outsourcing Home Delivery Operations:

• Many fixed costs become variable. You only pay for services rendered.
  
• Professionally trained staff, who know how to handle merchandise and are familiar with delivery areas.
  
• Routine monitoring reports depicting performance and customer satisfaction.

Possible Disadvantages of Outsourcing Home Delivery Operations:

• Perceived or "real" loss of control.
  
• Potential for loyalty or renegade driver issues.
  •
• Turnover issues.

CONCLUSION: Ideally, outsourcing allows retailers to focus on merchandising and sales and offers the potential to reduce "headaches." Good outsourcing companies specialize in their field. They train and motivate associates to make the process successful for retailers.

Any relationship with an outsource company must be a "win-win" situation for all involved. Both parties must be aware up-front of the importance of honest communication regarding all aspects of the outsourcing process and the need to work together to develop programs and solve problems. Establishing standards of performance, communication and teamwork at the beginning will prevent service failures, animosity and most importantly, dissatisfied customers. If there is any one thing to learn from all of this is that any good or great service-company cannot improve an operationally inefficient retail organization. By the same token, a poor or mediocre service company can have an adverse effect on a well-run retail company.

Bottom line, successful outsourced operations have these key components: strong management and associates, tenure in the business, efficient internal structure, an understanding of their clients’ needs, knowledge of the market, a profitable business. Sound any different from a well-managed internal operation? No, regardless whether these functions are done with in-house personnel or outsourced personnel, they are crucial to your success.

Photos of deluxing services personnel are were supplied by Riche's The Final Touch.

There are many outsourcing companies providing furniture inbound transport, warehousing, deluxing and delivery. This list is not, by any means, a complete list or an endorsement of individual companies and is intended as a representative listing of what is available in the marketplace. In some cases a retailer may use different outsource contractors to do warehousing, deluxing and delivery. Based on client requirements, one contractor may have overall responsibility and sub contract to others for their specialties. More complete information can be obtained directly from each company.

Purnell Furniture Services, Inc. provides dedicated or shared distribution services exclusively for new furniture throughout the East Coast and Southern states. Clients use one or more of the following services: inbound freight and intra-company transportation, warehousing, receiving, inventory control, storage, prep/deluxing services, shop repair services, home delivery services, in-home service. Web site: www.furniture-services.com 800-787-6355 or 703-449-9400.

Riche’s The Final Touch, Inc. provides deluxing services, in-shop repairs and in-home service in approximately twelve states. The client usually opens the furniture in a staging area before the deluxing zone. Repair technicians assess and repair all furniture and bring it up to the process standards agreed upon by Riche’s and the client. In-home service is also provided. Delivery services are by the retailer or contractor. Web site: www.richesfinaltouch.com or 800-375-4585 or 504-394-4700.

QWR Services, Inc. is a full service furniture repair company operating in 5 states in the Mid-West. Services include In-shop repair (casegoods, upholstery, leather), deluxing, RTA services and In-home repairs. In the Chicago-land area they provide complete re-upholstering and refinishing services. Email: rblaha@qwrinc.com or 877-783-4657 or 630 279-6002.

Milwaukee Delivery Service, Inc. is a specialized furniture carrier domiciled in Jefferson, WI and servicing over 1,000 retail stores in Wisconsin, Illinois, Michigan’s upper peninsula, Iowa and Minnesota. They have various drop yards throughout North Carolina, servicing all manufacturers in North Carolina and Virginia by its own employees and trucks (no interline). Their pickup service area also includes Mississippi, Tennessee, California, Indiana, South Carolina and Alabama. Their WI DC provides stripping and distribution of overseas containers, warehousing and distribution for manufacturers utilizing software designed for the furniture industry. 800-383-8386 or www.milwaukeedeliveryservice.com.

Guiney Delivery Service, Inc. is a regional delivery and cross-dock service company operating in 5 states of the Mid-West. They provide dedicated deliveries of furniture and appliances for retailers directly to the consumer. They also provide exclusive cross-docking services. (email: pguiney@guineyds.com) or 800-529-0490 or 847-758-1111. Web site www.guineyds.com under construction.

Ridol, Inc. is a full service regional residential and distribution company servicing 7 states in the Mid-West. Their warehouse has over 100K sq.ft.of space. They are equipped to unload any sized truck or van and have access to rail service. Core business focuses on Retail, Interior Design, and Manufacturers merchandise that needs to be distributed into their warehouse and/or delivered direct to retail store or residential customers. Email: sueridol@yahoo.net or 800-496-9192 or 708-496-9192

Hays Home Delivery currently has operations in 25 states and has authority to operate in any of the 50 states, making it easy to work with any customer, anywhere. Hay's service is dedicated to local delivery for one retail account; there is no co-loading of account merchandise. The company delivers appliances, furniture, electronics and other big ticket items requiring a 2- man delivery. 800-789-4297 or 703-530-0677 or Web: www.hayshomedelivery.com.

Joseph Cory Companies, Inc. provides dedicated or shared distribution services throughout Northeast and Southeastern states. Clients use one or more of the following services: inbound and intra-company transportation, warehouses, receiving, inventory control including bar coding, storage, prep/deluxing services, shop repair services, home delivery services, in-home service. 201-795-1000 or www.corycompanies.com.

U.S. Quality Furniture Services, Inc. provides a range of services nationwide in most major markets from complete distribution center operations to a simplified open and inspection program. Their interactive web site allows on line order submission, live scheduling, service call results and reports. Client services may include receiving, warehouse management, prep/deluxing, shop repair and in-home services. Delivery services are by the retailer or contractor. Web site: www.usqfs.com or 800-774-8700 or 713-943-7016.

Sawyer Transportation Systems provides dedicated or shared distribution services throughout New England. Clients use one or more of the following services: inbound freight and intra-company transportation, warehousing, receiving, inventory control, storage, prep/deluxing services, fabric protection, shop repair services, commercial and home delivery services, in-home service. Email: sawyerts@aol.com or 603-883-8536

Advanced Delivery Systems is a dedicated delivery system. When a retailer contracts out its deliveries to A.D.S, they get a truck with their name and logo on it, and a driver/helper team in their uniform. Items from other retailers are not mixed in. This system gives customers a white glove home delivery and the lettering of the trucks provides an extension of the retailer's selling efforts. Inter-store transfers and in-store floor work are also provided. Web site: www.adsfurnituredelivery.com 800-237-9782 or 203-291-6840.