In 2006, the senior management at Diebold established an aggressive set of cost savings goals as part of its Smart Business 200 program. And the Canton, Ohio, company's supply chain organization was expected to contribute a significant portion to the $200 million savings goal through consolidation, optimization and process improvements.
"We knew the opportunity was there but we didn't have the scale of resources or the access to industry best practices" to meet those goals, says Paul Dougherty, strategic procurement manager in Diebold's global procurement organization. In short, he knew Diebold needed outside help and brought in a fourth-party logistics provider (4PL), Menlo Logistics, to do a full supply chain assessment.
What were some of the signs that led Diebold to a 4PL model? Among the concerns Diebold had was its ability to obtain realtime, detailed visibility of its storage, distribution and inventory footprint. "This was a critical indicator that we needed assistance in re-tooling our network," says Dougherty. "We actually used to have a map on the wall in one of our procurement conference rooms that depicted each known storage location marked with a pin. There were literally hundreds of excessive, disparate stocking locations with limited or no real-time visibility of inventory positioning, turnover cycles or valuation."
Diebold also lacked the Lean resources that a company its size required to quickly drive improvements in its supply chain. The main factor in selling an outsourced 4PL model internally, says Dougherty, was evaluating how the supply chain aligns to Diebold's core mission. The question was if it would be better to acquire an experienced in-house staff or outsource those functions?
"We had to ask how long would it take to develop and deploy global in-house capabilities and at what cost," says Dougherty.
Based on evaluation of this core mission alignment and a mandate to achieve aggressive savings goals, Diebold chose to have the infrastructure services provided by a 3PL and the more strategic initiatives developed and implemented by a 4PL. To guide its 4PL implementation, Diebold established a Logistics Directorate team with extensive experience across the supply chain.
"Today, the map we used to have on the wall is gone and we have consolidated most of that inventory into two distribution centers using a warehouse management system with detailed visibility at the transaction level," says Dougherty.
The primary objective of Menlo's 4PL work is to drive bottom line, year-over-year net cost reductions to Diebold while improving its service levels, which is no small task. "There was a lot of low hanging fruit at the outset and the initial emphasis was consolidating inventory and establishing a flexible, cost-effective, distribution network," says Dougherty.
Gradually, Diebold placed increased reliance on its internal expertise to manage its regional warehousing while looking to Menlo 4PL for continuous engineering improvements to the supply chain network design. The allocation of specific duties is a collaborative effort based on constantly evolving requirements.
As with any service provider, tracking the return on investment of Diebold's 4PL engagement is a key factor. According to Dougherty, ROI on the project is tracked via achievement of annual savings targets.
"At the outset of our 4PL relationship with Menlo, annual savings targets were incorporated into the service contract," Dougherty says. As savings initiatives are developed, they are vetted through the Diebold logistics and finance teams for approval. Once a project has been approved, it is loaded into the Smart Business 200 database for tracking and administration.
Menlo holds a weekly meeting with Diebold's logistics, finance, and procurement teams to track the progress of multiple savings projects. Realized and forecasted annual savings are monitored and validated against Menlo's annual goal. To date, Menlo has successfully achieved its annual savings goals.
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