Article
Optimizing your supply chain:
The strategic advantages of a warehouse takeover-in-place
June 28, 2023
Bill Fraine, Chief Commercial Officer, and Baris Oran, Chief Financial Officer
If rising costs, a looming recession and a challenging labor market are keeping you up at night, one place to look for answers is your supply chain.
Specifically, your existing warehouses and distribution centers. Chances are good that warehouses are a significant expense for you. For apparel companies, for example, warehouse operations cost between 2% and 10% of revenues, and a tight labor market is adding upward pressure on those costs.
All the leases, racking, conveyors, material handling equipment (MHE), IT platforms and automation you’ve invested in are long-term obligations that made sense under high-growth, low-interest-rate market conditions. But they may not make sense today.
Not to mention inventory costs. Holding safety stock is expensive, but so are losing sales and frustrating customers with stockouts. It can be difficult to strike the right balance.
The current economic climate is driving a desire to curb costs and improve agility.
Amid constantly changing forecasts, you need a plan to jettison debt and de-risk your balance sheet and you need a nimble operating model that’s ready for whatever comes next.
As we partnered with customers over the past several months, we heard a clear call for solutions that free up resources, curtail costs and maximize flexibility. We’re also hearing a need for speed, delivering on these objectives quickly while still maintaining capacity for growth in the longer term.
Outsourcing your logistics to a world-class provider can deliver on these needs. GXO can take over your existing facilities and use our scale, technology and expertise to raise your service levels; increase employee safety, productivity and engagement; and improve your business results.
Outsourcing an existing warehouse can deliver immediate gains with minimal risk
For many businesses, GXO is able to deliver value rapidly with very little risk through a model we call a takeover-in-place (TOIP). In a TOIP scenario, GXO assumes responsibility for operating an existing warehouse, rebadges the workforce, assumes the lease and may take ownership of assets such as racking and MHE, giving the customer more flexibility on resources.
And a quick boost in results. In the case of one customer, we executed a TOIP within 72 hours of signing the contract and within 30 days we were meeting or exceeding all KPIs on what had been an underperforming site.
Another quick win for our customers comes from the scale of our labor deployment, recruitment and retention capabilities. GXO has significant presence in most logistics hubs and leverages regional labor-sharing and cross-training coupled with an employee engagement culture to sustain a highly flexible, skilled workforce.
GXO also applies our core expertise in distribution center management gained through decades of experience. Our lean management methodology streamlines warehouse processes and increases productivity and throughput. We consider the takeover the starting point of the continuous improvement (CI) journey. Our CI approach is collaborative, and our customers can participate to the extent they choose.
Opportunities for bigger gains on the horizon
After successfully operating the distribution center and implementing improvements, we can start to explore broader supply chain optimization opportunities. For example, many of our customers are operating too many warehouses due to acquisitions or legacy operating procedures that no longer serve their business needs. We work with these customers to optimize their networks and consolidate warehouses, helping them realize large-scale savings in inventory, capital, overhead and operating costs.
In consolidated distribution centers, technology and automation deliver ROI
In the process of consolidation, volumes are concentrated into fewer distribution centers where cutting-edge technology and automation can be applied to drive more savings. GXO deploys a multitude of technologies — we’re currently working with over 200 technology suppliers and conducting trials on nearly 270 new technologies — and we leverage our central software investments to ensure our customers around the world enjoy highly efficient and resilient service. The technologies we use range from highly mechanized shuttle and high-bay retrieval systems to automated mobile robots and collaborative robots, or “cobots,” to advanced vision-scanning devices.
The efficiency gains realized through our technologies are game-changing, improving productivity, onboarding new employees faster, raising employee retention rates and reducing training time by as much as 80% — all of which can contribute to lower costs.
Outsourcing on a crawl-walk-run basis delivers rapid benefits and positions your company to continue reaping rewards
With our proven track record, GXO brings peace of mind that whatever your future holds — including M&A, new products or markets — we have the expertise, scale and tech solutions to support your business and help you meet your goals. Across a sample of our customer contracts, we found that GXO represents less than 1% of customer spend, but drives more than 10x benefit through lower costs, higher revenues and faster inventory turnover.
The challenges most companies are facing today aren’t likely to abate soon. And in a high-interest-rate environment, there’s increasing scrutiny on where you put your capital, which makes this an opportune time to outsource your logistics.
The good news is we can start today. Give us your worst performing site and watch us instantly improve service quality, reduce your resource needs and effectively manage your workforce.
