What do warehousing and fulfillment suppliers fundamentally do for their customers?

If you explore the web searching for an answer to this question, you’ll find plenty of fancy descriptions, and plenty of confusing verbiage.  Terms like 3PL, EDI, Kitting and Packaging services, etc. abound.  But what does all that mean?  It simply means that warehousing and fulfillment providers are trying to distinguish themselves in a field where there are limited competitive dimensions.

When you get right down to it, a warehousing and fulfillment company’s primary function is to provide storage and labor at specific locations.

I’ve already blogged about the importance of location.  Most warehousing and fulfillment customers will want their materials stored in a single location (to minimize inventories).  When that is the case, they should select a location close to the center of their markets to minimize shipping costs and keep transit times as short as possible.  Along the dimension of location, not all warehousing and fulfillment companies are created equal, and the buyer of such services needs to understand the pluses and minuses of any location under consideration.

Labor and space, however, primarily differ on cost and price.

That is exactly why you should ask your warehousing or fulfillment supplier what they pay for their space.  Space is a commodity, and some of the lowest cost spaces are found in surprising locations.  Even if your potential warehousing or fulfillment provider owns their own building, they will have an imputed cost per square foot they should be able to quote.  Almost without exception, lower is better.

The same goes for labor cost.  When you ask for those, however, you need to know the average base wage, and then the overhead rate.  If you make a matrix of all your potential warehousing and fulfillment providers and compare them based on labor, overhead, and space costs, the ones that come out the best will almost certainly give you the most competitive proposal.

If you need some of the fancy stuff – environmentally controlled storage, EDI, return and repair services, value-added assembly or fabrication, whatever – start with your most cost competitive suppliers and see what they can do for you, rather than just excluding them from your selection set.  Most warehousing and fulfillment suppliers will do everything they can to adapt to your specific needs.

TEK Services is a contract manufacturing company located in Eastern Nebraska specializing in metal work, wiring work, and electro-mechanical assembly.  The company also provides warehousing and fulfillment services to our contract manufacturing customer base, as well as other businesses.  Our website is www.tekservices-mfg.com, and our phone number is 402-727-0262.

Does your fulfillment service provider break down incoming shipments and repackage according to your needs?

Breaking down bulk shipments and repackaging are critical services that are, surprisingly, provided by few fulfillment service providers.  For a fulfillment arrangement make sense to the typical small to mid-sized customer, these competencies are often a requirement.  Typical capabilities needed include:  boxing, bagging, shrink wrapping, crating, custom foam/bubble wrapping, clamshell packaging, blister packaging, and pre-packaging preparation of product.

Why do so many fulfillment providers fail to provide these basic services?  In a word -- investment.  Many of the pieces of equipment required to automate or semi-automate these packaging processes are expensive to purchase/set-up, and require relatively high volumes to justify.

At TEK Services we already have this machinery and equipment, which we utilize in our contract manufacturing business unit.  By leveraging existing equipment, we’ve been able to offer fulfillment services to small/midsized customers, giving them the flexibility and costs they need to make their business models work.  If you’re a fulfillment services purchaser trying to reach the U.S. from a single point in the middle of the country, or a regional Midwest business needing fulfillment services, you owe it to yourself to check out TEK.

TEK Services is a fulfillment, warehousing and contract manufacturing company located in Eastern Nebraska specializing in product fulfillment and warehousing for industrial customers both U.S. based and International.  We also perform value-added contract manufacturing for our customers where desired.  Our website is www.tekservices-mfg.com, and our phone number is 402-727-0262.

Four Fulfillment and Warehousing Advantages of the Midwest

Fulfillment services and warehousing make more sense in the heartland.  The Midwest offers some exceptional service advantages for companies with a national scope that are searching for fulfillment solutions or warehouse operations to serve their customers better.  Our firm, located in the Omaha, Nebraska metro area, has experienced dramatic growth in our fulfillment outsourcing work over the last two years, largely driven by some of these advantages:

• Central location along main national transportation corridors provides rapid delivery capability across the United States.  Omaha is located at the busy I-80 and I-29 interchanges with rapid access to markets going all directions.  Most of the continental United States is accessible via UPS regular freight shipments in 2-3 days.  In addition, for larger product needs, the city has access to both the Union Pacific (Headquartered in Omaha) and BNSF rail lines, and is along a major trucking corridor.  Locating your fulfillment operations in Eastern Nebraska means getting products to your customers fast.

• Nebraska is the nation’s hub for fiber communications, providing commercial and industrial users rapid and reliable access.  When your fulfillment operations are here, you can depend on the communications resources you need to be available, reliable and fast.

• The Midwest is a low cost region.  Low cost industrial space, low energy costs (for example, electrical costs of $4.83/kw-hr versus national average of $6.72), low business taxes and insurance costs, and economical labor, make the region a great place for order fulfillment and warehousing operations that need to be cost effective while still providing superior service.

• People make the biggest difference.  The Omaha metro area has 26 colleges and universities located within a fifty mile radius of downtown.  As a result, the percentage of residents with at least some college is nearly 10% higher than the national average (64.5% versus 55.4%).  Your fulfillment center’s success depends on the performance of people, and the Midwest has an excellent supply of well-educated and highly motivated people who can make your fulfillment business their business.  And with an average of $17.40 of output per dollar of wages (versus a national average of $15.13), inexpensive labor doesn’t mean unproductive labor.  The legendary work ethic of the Midwest continues to thrive in the Omaha metro area.

The heartland of the country is the right place to locate your warehouse, distribution and fulfillment operation.  Compare and you will see what we already know in Omaha.

TEK Services is a fulfillment and warehousing company located in Eastern Nebraska specializing in product fulfillment and warehousing for industrial customers both U.S. based and International.  We also perform value-added contract manufacturing for our customers where desired.  Our website is www.tekservices-mfg.com, and our phone number is 402-727-0262.

Fixed Costs versus Variable Costs

Defining factory costs as fixed or variable (meaning they vary in proportion with production volume) is a useful convention for modeling your cost structure or budgeting.  But when examining individual product lines, or, in the extreme, individual products, the model breaks down.  At that grainy level, it is important to think about exactly which costs are really fixed, and over what time frame.

Examples of costs that are typically considered to be Fixed

• Engineering, design and development
• Procurement and production planning
• Machinery and equipment depreciation
• Building expense (rent or depreciation, building maintenance)
• Quality and inspection
• Supervisory wages

Examples of costs that are typically considered Variable

• Raw materials
• Direct labor
• Direct labor benefits
• Supplies and consumables
• Freight

Costs that could be classified as either Fixed or Variable

• Indirect labor
• Indirect labor benefits
• Equipment maintenance
• Energy costs or other utilities

As one of my old accounting professors used to say:  Over a long time horizon, all costs are variable.  In other words, if you think about the long haul, then most of your “fixed” costs (buildings or equipment, for example) are sized to fit the volume of business you expect to capture.  They become variable.

How do Fixed and Variable costs apply to the decision to use Contract Manufacturing?

Your decision to use a contract manufacturer over the short term, medium term, or as part of your long term strategy will determine which costs are relevant to making a smart “make versus buy” decision.   Companies that seem to achieve the greatest benefits from partnering with a contract manufacturer, tend to make the
arrangements for the long haul.  This allows them to better manage their “fixed” costs, minimizing them, and at the same time maximizing profit by transferring tasks (or even entire product lines) to a contract manufacturer specializing in the needed type of work.

Some Typical Scenarios

Strategically utilizing a contract manufacturing firm as a partner usually reduces your costs.  Below are a few examples where we’ve seen clients successfully take advantage of the cost structure and expertise of our contract manufacturing business.

• A company identifies a type of work that they are not particularly good at performing (typically because of lack of expertise, equipment, or competitive volumes), and shifts that work to a contract manufacturer with the proper expertise.
• A company starts up a new product with a contract manufacturer until the market can generate enough volume to justify investment for in-house production.
• A client transfers production of products nearing the end of their useful lives to a contract manufacturer to make room new models.
• A client utilizes a contract manufacturer to supplement their internal production assets, allowing them to effectively increase their capacity during the peak of their seasonal/cyclical business with minimal
  additional investment.
• A manufacturer wants to take advantage of the low cost structure (labor costs, overheads, purchasing leverage, high volume production equipment) of a contract manufacturer, and places key products and/or
  subassemblies with that firm.
• A manufacturer has higher priority uses for its engineering or design resources, and outsources the development and production of an entire product line to a contract manufacturer.

TEK Services is a contract manufacturing company located in Eastern Nebraska specializing in metal working (laser machining, CNC, welding, laser cutting, metal cutting and other services), wiring work (wire end
terminals, small wire terminals, wiring harnesses, circuit board assembly and other services), and electro-mechanical assembly.  Our website is www.tekservices-mfg.com, and our phone number is 402-727-0262.

If you are connecting two points with more than a single wire, you’re constructing a wiring harness.  Development of a high quality wiring harness isn’t rocket science, so why do so many harnesses have problems?  TEK Services has made a business out of designing and manufacturing professional wire harnesses for our customers.  In our experience, customers that try to do this on their own fall down in a number of areas.  If you pay attention to the details, however, you can produce a wiring harness you will be proud to put in your finished product.

Select the proper materials:

Wire – Selection of the right wire for the job.  This subject is too broad to cover in any detail here, but suffice it to say some of the factors that must be considered are:  Flexibility requirements of the application, current carrying capacity, corrosion resistance of the conductors, expected voltage levels, and insulation characteristics.

Terminals – crimped, soldered, or specialty (military, marine, etc.)

Connections – soldered or non-soldered connections.  Lead or lead-free.  Crimping by hand, machine, or ultrasonically welded.  Sealed or unsealed.

Heat Shrink, Expandable Mesh Sheathing or other covering.

Template development:

Most wiring harnesses require a full scale template.  The template must take into account the routing of the wire harness in the finished product, as well as the stiffness of the materials involved.

Harness Production:

The most common errors during production include:  cuts and nicks to the wire insulation, breaks in the wire strands, improper crimping of the terminals (leading to terminal pull-off, or cut-off), improper labeling, failure to stress relieve wire after application of solder, wicking of solder beneath the insulation and/or outer sheathing, and damage to the connection due to improperly applied heat shrink or mesh sheathing.

Other considerations:

Harnesses should normally be tested for electrical continuity during or after assembly.  This is often accomplished in higher volume jobs with a dedicated test set, but can also be done with a continuity checker.  In some cases high voltage tests are also appropriate, depending on the end product for which the wire harness is intended.  UL certification is also a requirement in some applications.

Contract Manufacturing of Wire Harnesses

Many customers find it more convenient, more cost effective, and more professional looking, to have a contract manufacturer produce their wiring harnesses.  Contract manufacturers have the advantage of already possessing most of the specialized equipment necessary to automate production.  In addition, customers benefit from greater buying power and the consistent application of quality standards (ISO 9001:2008, IPC 620), and production standards specific to wiring harnesses.  In most cases we have found contract manufacturing of wiring harnesses to be a significant benefit to the customer, and a win for both companies.

TEK Services is a contract manufacturing company located in Eastern Nebraska specializing in metal working (laser machining, CNC, welding, laser cutting, metal cutting and other services), wiring work (wire end terminals, small wire terminals, wiring harnesses, circuit board assembly and other services), and electro-mechanical assembly.  Our website is www.tekservices-mfg.com, and our phone number is 402-727-0262.

Taking Advantage of Custom and Contract Manufacturing Resources – Part 1, the Big Picture

Add value where your firm has unique capabilities, and outsource where you don’t.

Most companies have heard this advice.  Some have, to a degree, adopted a portion of it.  Few, however, have gone far enough to reap the benefits available to them by putting part or all of their manufacturing operations in the hands of a partner with true expertise in that area.

When it comes to manufacturing, there are many options: manufacture and assemble in house, assemble only in house, outsource domestically, outsource off-shore, or simply purchase completed product from a third party.  In this article series, we will be examining each of these options in greater detail, with the objective of helping companies make the right choices when it comes to high-level manufacturing strategy.

Why outsource?

Outsourcing can positively impact a company’s financial performance in several areas.  Among them are:

• Conversion of in-house fixed costs to truly variable costs by paying for services only when they are needed.  This can be a significant help when volumes vary from period to period.
  • Indirect labor, manufacturing supervision, and shop floor support costs are all normally reduced.
  • Procurement and materials management expenditures can often be reduced.
  • Incoming, in-process, and finished goods costs of quality become the responsibility of the contract / custom manufacturer.
  • Engineering and product design support costs can often be shifted to the contract manufacturing partner organization, if the correct partner is selected.

• Greater leverage of the supply chain, particularly when the client organization by itself, does not purchase enough volume to qualify for large quantity discounts
  • Reduced purchasing transaction costs
  • Greater high volume discounts
  • Ability to leverage fixed costs across additional volumes
  • Access to global suppliers that would not be interested in clients volumes alone

• Lower working capital requirements
  • Custom manufacturing partner can (but doesn’t have to) own and manage raw and in-process inventories
  • Custom manufacturing partner can (but doesn’t have to) apply their own cash to support operating costs
  • Many custom manufacturers are experts in lean manufacturing systems, allowing them to employ kanban and other lean concepts to reduce overall inventory levels while still insuring needed service levels.

Depending on the circumstances, those using contract manufacturing solutions may also realize a number of operating benefits including:

• Reduced floor space requirements
  • Reduced stockroom/warehouse space
  • Reduced production floor space
  • Reduced office space needed for supporting production operations

• Simpler management of human resources
  • In some instances, contract manufacturers can be set up as a second source of supply, allowing the client to remove the peaks from their production schedule, thus avoiding many of the challenges of the hire – layoff cycle.
  • Fewer demands on the Human Resources Department, and hiring managers required for recruiting, interviewing and the other aspects of the hiring processes.

• Reduced manufacturing cycle times
  • Management of fewer part numbers and sku’s, resulting in less confusion and lower administrative workloads
  • Improved ramp capability by having additional, inexpensive standby capacity

• Improved trouble-shooting, return, and repair processes
  • Contract manufacturers can establish a return and repair center for products, freeing the client organization from this nuisance operation, and improving customer satisfaction by speeding up the receipt, disposition and repair cycle.
  • Contract manufacturing employees develop the expertise to support your organization with field diagnostics and phone support when problems arise.

Of course, these benefits must be balanced against the costs of working with contract manufacturers.  If the client organization insists on comparing only their variable costs to the purchase price from a contract manufacturer, in most cases they will not find attractive proposals.  When some of the benefits above are taken into account, however, the total cost of outsourcing usually becomes attractive for the client.  The client organization, however, has to be prepared to make the internal adjustments necessary to capitalize on the services the outsourcing company can provide.  When they do, Contract Manufacturing can be a win-win for both firms.

TEK Services is a contract manufacturing company located in Eastern Nebraska specializing in metal working (laser machining, CNC, welding, laser cutting, metal cutting and other services), wiring work (wire end terminals, small wire terminals, wiring harnesses, circuit board assembly and other services), and electro-mechanical assembly.  Our website is www.tekservices-mfg.com, and our phone number is 402-727-0262.