Third-party-warehousing firms fight world hunger

By Todd Cohen

[Note: This was written for Stop Hunger Now.]

Third-party-logistics (3PL) providers are piloting an innovative warehousing and corporate-social-responsibility partnership with an international relief agency to help address the global hunger epidemic.

3PL providers in Indianapolis and Pittsburgh have taken on warehouse functions that Stop Hunger Now previously handled, giving the Raleigh, N.C.-based relief agency’s local staff in those cities more time to develop partnerships with local organizations and volunteers that will get more food to hungry people throughout the world.

“It is our way of giving back,” says Tim Siddiq, president and CEO of Indianapolis-based Merchandise Warehouse. “We see logistics being key to ending hunger worldwide. And being in the logistics business, it made sense to us to put together a network of public warehouses that would donate space.”

Global epidemic

Throughout the world, 795 million people do not have enough to eat. Every night, one in nine people on the planet goes to bed hungry.

To help address that crisis, Stop Hunger Now has distributed over 200 million meals to feed hungry people in 51 countries since it launched its meal-packaging program in December 2005.

The meals were packaged by 650,000 volunteers from corporations, churches, schools and civic groups at 8,387 meal-packaging events in 19 U.S. cities in which Stop Hunger Now operates meal-packaging locations, and at locations in South Africa, Malaysia, the Philippines, Italy and India.

And warehousing is central to that effort.

How meal-packaging works

A meal-packaging event is a volunteer-based, assembly-line production process that typically is hosted by a local organization that provides volunteers and partners with Stop Hunger Now through a mobile operation that delivers ingredients and supplies.

In just under two hours, a group of 50 volunteers can package 10,000 nutrient-rich meals for the undernourished globally. The assembly process combines rice, soy, dehydrated vegetables and a flavoring mix that includes 23 essential vitamins and minerals into small meal packages.

During the event, volunteers work in teams. They set up the packaging stations and equipment. At the first station in the assembly line, volunteers mix four meal ingredients through a funnel into a specially designed bag. The bag then is carried to the next station, where it is weighed and heat-sealed shut. The sealed bag is brought to the next station, where bags are counted and packaged into boxes that are labeled to indicate the package date and “best-used-by” date of the meals. Then the volunteers take down the packaging stations and equipment.

At the end of the event, Stop Hunger Now transports the packaged meals back to its warehouse to await shipment abroad. It distributes meals through feeding programs operated by partner organizations in developing countries that promote education, encourage children to attend school, improve students’ health and nutrition, address gender inequalities, stimulate economic growth, and fight child labor, and are part of the movement to address global issues.

Warehousing to end hunger

In each community in which it operates, Stop Hunger Now leases warehouse space totaling 5,000 square feet to 12,000 square feet, depending on the size of the market.

Through those leases, which typically run for two years to five years, Stop Hunger Now maintains complete control of the operations.

At each warehouse space it leases, Stop Hunger Now receives the raw materials it needs for meal-packaging events, including the ingredients for each meal, plastic bags in which the meals are packaged, boxes in which packaged meals are stored, and packaging equipment that includes rubber bins, funnels, scoops and cups.

Stop Hunger Now either rents or owns a truck in each market. At its leased warehouse space, its staff loads the truck with materials needed for a meal-packaging event, and drives the truck to the site of the event.

Volunteers unload the truck and then, after the event, load the truck with the packaged meals. Staff drive the truck back to the warehouse, and unload the meals at the warehouse, where they remain until they are shipped overseas.

At each warehouse, Stop Hunger Now needs to accumulate 285,120 packaged meals – enough for the 20 pallets to fill a shipping container – before it makes a shipment overseas.

And its costs are fixed: It must pay the cost of each of its monthly leases whether it packages 1,000 meals or one million meals at a particular location.

Third-party-logistics model

Partnering with Merchandise Warehouse and Catch-Up Logistics in Pittsburgh, Stop Hunger Now is testing a new model for its warehouse operations.

In Indianapolis, where Merchandise Warehouse is based and operates both a 400,000-square-foot warehouse and a 175,000-squarefoot warehouse, the company has taken on responsibility for all of Stop Hunger Now’s warehousing needs.

It receives the raw materials and packaging materials Stop Hunger Now needs, stores them in one of its warehouses, maintains the inventory of raw materials and packaging materials in its computer system, pulls ingredients and packaging materials when a Stop Hunger Now partner is hosting a meal-packaging event, loads the Stop Hunger Now truck for the event, unloads the truck after the event, maintains the inventory of packaged meals, and loads containers for meals to be shipped overseas.

While many third-party-warehouse providers include transportation in their services, Stop Hunger Now wants to control its own transportation to and from packaging events. Its business model depends on volunteers to load and unload its trucks at meal packaging events, and the window of opportunity for doing that is about 20 minutes.

In contrast, the estimated period of time during which many transportation providers say they will deliver a truck to a meal-packaging site is much longer, making it impractical for Stop Hunger Now to depend on transportation providers for transporting materials to the packaging sites. Merchandise Warehouse does not include transportation in its services.

Cost savings

The third-party model is expected to reduce the warehousing duties for Stop Hunger Now’s local staff, giving them more time to develop new partnerships that will package more meals for people in need throughout the world.

“This new model enables our staff to focus on what we do best – facilitating great meal-packaging events for volunteers and distributing meals effectively to end hunger, while letting experts handle the logistics, which are not our core competency,” says Rod Brooks, president and CEO of Stop Hunger Now.

Mickey Horner, director of expansion and program innovation for Stop Hunger Now, says that moving to the new 3PL model could save the organization as much as half its operating costs, allowing the organization to provide more aid, increase monitoring and evaluation, and invest in sustainable community-development projects in developing countries.

One key to those savings will be the shift from a fixed-cost warehouse model to a variable-cost model. So Stop Hunger Now will pay for warehouse space and labor only when it actually is storing inventory in the warehouse.

The third-party model also is expected to reduce by 25 percent to 35 percent the time that local Stop Hunger Now staff spend on warehousing functions.

“By partnering with warehousing and logistics experts, we can spend more time developing more partnerships to package more meals for people in need,” Horner says.

Benefits of third-party model

For Siddiq at Merchandise Warehouse, partnering with Stop Hunger Now was an easy decision.

“Everybody has the food we need,” says Siddiq, whose father was Afghan and who was born and lived in the country until he was seven years old. “It’s something we take for granted. I grew up in Afghanistan. I saw hunger first-hand as a kid.”

The partnership with Stop Hunger Now also represents a way for Merchandise Warehouse to be a responsible corporate citizen, says Siddiq, whose maternal grandfather founded the privately held company in 1951.

Because it is an accredited food-handling warehouse with third-party inspection and accreditation, Merchandise Warehouse also provides food-grade services that meet or exceed regulation and compliance requirements of governing bodies to operate a food warehouse, says Scott Whiting, vice president and general manager for Merchandise Warehouse.

“Those services are not always easily achievable under a lease,” he says. “That’s another level of service Stop Hunger Now does not have to worry about.”

Merchandise Warehouse also has agreed to contribute up to $50,000 in in-kind services to Stop Hunger Now, including office space in its warehouse for Stop Hunger Now’s local employee, and has allowed Stop Hunger Now to install a sanitation system in its warehouse. The system includes a three-bay sink and a dishwasher Stop Hunger Now can use to clean meal-packaging equipment after it is returned to the warehouse from meal-packaging events.

Future of third-party model

Based on a logistical network analysis of its third-party warehouse model that Stop Hunger Now is developing with consultants, it will decide whether to shift to that model in other U.S. communities in which it operates when its warehouse leases in those communities expire.

It also will consider the third-party model when it expands to new communities. The Stop Hunger Now board of directors, for example, has approved expansion to the New York metro area.

“Our long-term goal is to have greater efficiency in logistics, and we’ll need additional 3PL partners to make that happen,” Horner says.

Whiting says Merchandise Warehouse aims to work with its peers in other cities to build a network of third-party operators “to be able to ship food to all over the world where it’s needed.”

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