NEW SKIN IN THE GAME
Earlier this summer, the announcement came that Utah-based Nu Skin, a manufacturer of beauty and wellness solutions, had selected XPO Logistics to be its lead global logistics provider in a multi-year deal.
On the surface, there seemed nothing remarkable about the deal; manufacturers hire third-party logistics providers every day. They do it so much that magazines like this one do whole special issues about which 3PLs are the best in each field.
But if one were to study the deal, and this one did, it quickly became apparent that it was both forward thinking and yet soon to be the norm; headed where global trade is today; and what is required to not only keep up but get ahead of the pack.
We could see that here at Global Trade when we first got a heads-up about the deal. It came in an email from XPO, an email that didn’t say Nu Skin had simply hired XPO to work on its supply line but instead made clear that Nu Skin was looking to XPO as a partner to “spearhead a transformation of [Nu Skin’s] global supply chain operations.”
And yet, when the announcement of Nu Skin partnering with XPO was made, Brad Morris, Nu Skin vice president of logistics and fulfillment, made clear this was not some minor alteration designed to essentially keep things going along their merry $2 billion way.
Again, this would have seemed fairly innocuous if Nu Skin was some small operation new to the global scene, but the company is anything but. Founded in 1984 in Provo, Utah, Nu Skin opened its first international market in 1990 in Canada and, the following year, began its operations in Asia when it went into Hong Kong. Now in more than 50 market in the Americas, Asia, Europe, Africa and the Pacific, its international operations have always been critical to its overall sales, which are well over $2 billion.
“Our growth strategy requires that we transform our supply-chain logistics through scale and innovation,” Morris said.
“Each of our countries has operated fairly autonomously since the beginning, including operational decisions such as whether to outsource logistics and who to outsource with. As we’ve grown internationally, this has resulted in a global environment of many different local 3PLs and carriers with insufficient integration into our ERP systems and lack of standardization in processes. A big part of this initiative is providing a global standardization and operational efficiencies that reduce our costs and also enable us to fulfill orders more quickly. Nu Skin has always had a culture of innovation, which has led to an environment where we take educated risks and learn from our experiences.”
Working in “collaboration” with Nu Skin—both companies were mindful to describe their relationship in such collaborative terms—XPO is developing an integrated, global supply chain logistics solution that utilizes proprietary technology for end-to-end management of product flows. Components include transportation management, warehousing and order fulfillment, as well as value-added services such as co-packing, kitting and real-time inventory tracking. The network will be managed through regional control towers around the world.
“We’re excited to work with Nu Skin as the architects of their supply chain logistics transformation,” said Ashfaque Chowdhury, XPO Logistics president, Supply Chain-Americas and Asia Pacific. “Our team is engineering a technology-rich infrastructure that will be highly efficient on a global scale. This partnership will benefit Nu Skin’s distributors, sales associates, retailers and end-customers.”
Partnership. See, there’s one of those terms again.
In many ways, the marriage of Nu Skin and XPO is one made of likeminded goals, attitude and aspirations. After all, Nu Skin has always been rather aggressive when it comes to growth. When Morris started with the company, not long after it started, Nu Skin worked from a single 10,000-square-foot warehouse. It then transitioned to a string of nine smaller facilities—filling orders and shipping out of two, assembling and manufacturing in the third and using the other six for storage. These were the days when Nu Skin was shipping a twee 150 orders a day and making about $50 million a year.
Eventually, a single 200,000-square-foot facility came in the 1990s. Morris was named to his logistics post in 1996, when the company’s fortunes exploded and it was hiring “anybody who had a pulse, just to keep up with the rapid growth.”
That growth has continued to this day, leading Nu Skin toward a determination that a new, aggressive step forward needs to be taken. Though progressive in its thought process, Nu Skin is part of a wave of manufacturers and 3PLs that believe likewise when it comes to competing in today’s global market.
Even a cursory survey of 3PLs over the past decade reveals that those companies see it as necessary to be all things to their customers. Gone, for the most part, are the days 3PLs could offer boutique services. Even if companies serve a particular industry or two—medical or hazmat, for example—they know their customers now demand a partner that fully understands what they do and that will be there all the time, transparent, with the latest technology and thinking to push ahead into a seemingly never-ending stream of new markets.
Ironically, or not, XPO helped create this atmosphere. Founded in 1989 as Express-1 Expedited Solutions, the company was purchased by Bradley Jacobs in 2011. He quickly not only changed its name to XPO but went on a spending spree of acquisitions unseen in the industry. Included were: 3PD, the largest heavy goods home delivery provider in North America; Pacer International, the third-largest intermodal provider in North America and the leading provider of intermodal services between the U.S. and Mexico; French logistics group Norbert Dentressangle, a leading contract logistics provider in Europe and the owner-operator of the largest truck fleet in Europe; and Con-Way Inc., the second largest less-than-truckload transport provider in North America, with additional operations for global contract logistics, managed transportation, truckload and freight brokerage.
Today, XPO Logistics serves more than 50,000 customers from more than 1,400 locations in 34 countries with more than 89,000 employees. XPO’s success and one-stop shop attitude has, in many ways, moved much of the 3PL industry to do likewise. Every possible service is increasingly offered under one roof and, if that service isn’t presently available, a 3PL will go out and buy a company that does offer it. UPS’s $1.8 billion purchase of logistical trendsetter Coyote instantly comes to mind.
Likely because of relationships that run the gamut of door-to-door, 24/7, 365 days a year, 3PLs look upon their customers less as companies they work for and more as ones they work with. That is certainly true in the case of Nu Skin and XPO, which have entered into a vested outsourcing relationship that relies on both parties feeling like they benefit long-term from the agreement and therefore each understanding they are equally invested in one another’s success.
“We have created a vested partnership with XPO, utilizing a vested outsourcing coaching firm to create the agreement in my view,” Morris said. “Vested is the best outsourcing methodology for highly complex and strategic partnerships. We needed a long-term partner that was focused on our desired outcomes and helping us to create value for our customer and the company, and that was motivated to invest in innovation and transformative change. We weren’t looking for a vendor just to provide warehousing and transportation services but rather one that would truly partner with us in working toward common goals and sharing in the rewards of our mutual success.”
Proponents of this hybrid business model argue that it is more important to focus on overall success and the achievement of long-term goals rather than specific methods. To that point, when XPO and Nu Skin came together, it was with the understanding that XPO would have the flexibility to increase its operating costs for Nu Skin if it believes it could significantly increase the company’s bottom line.
The vested model looks well beyond the contractual relationship and commits both parties to each other’s success, strengthening a sense of partnership and, ideally, engendering a long-term relationship. By connecting to each other’s strengths and expertise and aligning their goals, each company is able to come together on such critical contemporary issues as innovation and adaptability to changing markets and market forces.
As you might expect, such a close-knit relationship requires all those factors necessary to make any successful partnership click for a long time: trust, transparency, a willingness to work together, flexibility and a willingness to take out the trash before being asked—wait, scratch that last one, though, you know, it would be nice if you did it.
In searching for its partner, Nu Skin made clear during the selection process that it was not only looking for a company that boasted outstanding tech credentials and had the brain power for constant innovation but that it was also a cultural fit. The 3PL it was looking for had to get them.
As part of that, it emphasized it believed communication would be a key, right down to talking in very specific terms about how often meetings would not only take place, but how they would be conducted as well as who would be in attendance.
It made clear that it wasn’t interested in a company that would roll out its best personnel to make the pitch and sale only to foist bench warmers on the account once the contract had been signed.
“In XPO, we’ve found a partner with industry-leading capabilities and the commitment to invest with us,” Morris said. “Together, we’re building a next-generation supply chain logistics partnership that will support our expansion well into the future through continuous improvement.”
As with its first foray overseas, the initial implementation of the Nu Skin-XPO partnership will be in Asia—Southeast Asia, to be specific. XPO will establish a control tower and distribution center in Singapore; the region was selected because of executive support already available in the market.
The control tower has become increasingly popular in logistics circles. Able to provide supply chain visibility across divisions and modalities, as well as across borders, the tower—which isn’t a tower at all—is an information hub supported by decision-making rules and a trained team of operators. It’s not only able to gather and integrate data from various sources but able to disseminate and distribute it in a consistent format. That information, coming from both suppliers and logistics service providers, is used to provide the control tower team members with a transparent insight into order status, products in stock as well as shipments. That is in turn used to make informed decisions when planning and analyzing a supply chain.
XPO will be doing a lot of that since it is assuming responsibility for transportation and management and satellite warehouses for Nu Skin. XPO’s Jacobs has described warehouse operations as “high-tech hubs” that will one day be run with robots and drones. “We’re at the cutting edge of automation in all sectors of what we do,” he notes.
One of those sectors is e-commerce, which has exploded. It was only a few years ago that this was a segment of the industry that was seen as a specialty service offered by some with a particular expertise. Not anymore.
“E-commerce is definitely hot,” Jacobs has said. “And it’s definitely not a fad that’s going away. The penetration rate is getting higher and higher and people are shopping more online than going to brick and mortar stores, and I think that’s going to continue for quite a number of years.”
To keep up to date with all that, XPO spends annually somewhere in the neighborhood of $500 million on technology. Half-a-billion. That will suit Nu Skin just fine because a steady hold on what’s new and working in technology has helped it stay ahead of its ever growing customer base. Which for Nu Skin, and its newest partner will be a very good challenge to face.
As Morris puts it: “Keeping up with the company’s growth as it expands—both in the United States and in international markets—has been the biggest challenge over the years.”
Nu Skin and XPO will face that challenge, together as partners, for years to come.
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