A Third-party Logistics Provider: to be or not to be a ...

A Third-party Logistics Provider: to be or not to be a Highly Reliable Organization Roy Zúñiga (corresponding author) INCAE Business School [email protected] 506-24372048 P.O. Box 960-4050, Alajuela, Costa Rica Carlos Martínez INCAE Business School [email protected]

January, 2016

Abstract This case presents information on the emergence of third-party logistics (3PL) operators in El Salvador. Salvadoran Logistics Provider (SLP) is one of such 3PL. The case uses qualitative and quantitative information to discuss gaps as compared with world-class operators. In addition, it describes in detail all in-warehouse operations: receiving, put-away, storage, order picking and shipping; distribution (layout) according to product family zones; different storage systems and pallet transfer and put-away systems used by SLP. Students will have to choose one of several warehouse options presented in this case to carry out the logistics operations of the largest retailer in El Salvador during the Christmas season. However, decision must go beyond a mere numerical estimation to include analysis of more quantitative and strategic factors. It is not a coincidence that since its inception, SLP has deployed the framework of Highly Reliable Organizations, to manage the risk and complexity of its customers’ supply chains.

Keywords: Third-party logistics, case method, warehouse management, high reliable organization, performance metrics, El Salvador.

2 A Third-party Logistics Provider: to be or not to be a Highly Reliable Organization In the morning of Monday, May 14, José Carlos Zablah, general manager at Salvadoran Logistics Provider (SLP), had just gotten off the phone with a high-ranking executive at Calleja Group, El Salvador’s largest supermarket chain. This retailer was asking for a service bid to outsource the logistics of its Christmas-season imports. This operation would require receiving 80 containers over a three-month period, storing 4,000 SKUs, and supplying 87 stores on a fixed time and date schedule. While excited about this business opportunity for SLP, Mr. Zablah knew that, before submitting a bid, he had to look into SLP’s storage operations to find improvement opportunities and to rise to this challenge. To this end, he asked Ronald Escobar, an engineer who managed the process and quality area, to do some research on several performance metrics and world-class storing practices in order to compare them with SLP’s current operations. He also asked Engineer César Aguiñada, operations manager, to look for available warehouses with the capacity required for this new business. Anticipating that the actual demand could differ from Calleja Group’s estimate, Zablah told Aguiñada that warehouse options should feature some flexibility, both in terms of storage area as well as lease period. When Mr. Zablah realized that actual demand might differ from the estimates provided by the executive of Grupo Calleja he pointed out to Engineer Aguiñada the need for flexibility in the options to be considered, both in terms of storage area and in terms of contract period. They had two weeks to answer whether or not they would accept the request. However, to do so Mr. Zablah had to ensure not only the availability of space required to meet the strict conditions set by the potential new customer once the options were assessed, but also that the gap between SLP storage practices and those of the world-class benchmark was minimal. In case the proposal was accepted, they had to rely on their experience to handle the various stages of the complex logistical process, do an impeccable job in terms of attention to detail, anticipate and react to the slightest hint of failure and always strive for excellence in handling operational details, not only to position themselves as a reliable logistics provider in the domestic market but also in view of the opportunity this would offer them to venture into the regional market.

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Major Retailers and Their Distribution Centers Calleja Group was El Salvador’s largest retail chain, with 87 stores divided into two formats -62 Súper Selectos and 15 Selectos Markets. Format choice depended on the size of the cities served by stores: while Súper Selectos were located in large cities, Selectos Markets catered to smaller towns in El Salvador’s hinterlands. Calleja’s leading competitor was Wal Mart, a multinational company that owned 79 stores in El Salvador: 25 supermarkets called La Despensa de Don Juan, two Wal Mart hypermarkets, 51 smaller supermarkets called Despensas Familiares (with a format resembling Calleja’s Selectos Markets), and a Maxi Despensa (a discount hypermarket). Owned by a large Peruvian business group, Ransa was a third-party logistics service supplier that Calleja Group had hired to outsource its operations. Ransa operated distribution centers in a number of Latin American countries, including Peru, Ecuador and Bolivia. In 2006, Ransa established an 183,000-square-foot distribution center (DC) in Apopa. With its 36-foothigh walls and its capacity for 22,000 pallet positions, this warehouse had called for a hefty investment ranging from US$ 8.5 million to US$ 10 million, as reported by the press. When this distribution center started operating, Calleja secured savings in administrative and logistic expenses as well as transportation costs, while enhancing product handling and reducing merchandise damage. Before Ransa established this distribution center, Calleja’s suppliers delivered orders to stores. Ricardo Velásquez, the Group’s Deputy Executive Director, commented on Ransa’s DC opening, “It not only brings savings for us but for our vendors as well. It makes more business sense to make one large delivery than making 70.” In September 2011, Ransa invested US$ 3 million to expand the DC’s refrigerated storage room another 21,313 square feet for a total of 1,300 positions in the perishable product category. Building a centralized DC would enable Calleja Group to become more competitive to face Wal Mart’s arrival in Central America. In 2005, Wal Mart acquired 33% of CARHCO’s stock. This holding owned La Despensa de Don Juan supermarkets and other chains in Guatemala and Costa Rica. The next year, Wal Mart increased its share to 51%. By 2009, it owned 519 stores in

4 Central America, and, in 2010, it consolidated its regional operations into Wal Mart Mexico and Central America. Wal Mart was the largest retailer in the region, operating in Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica. Following its low-price strategy supported by operating efficiency, Wal Mart brought to Central America some of the practices it used in the United States, including its Retail-Link1 data management system and the use of DCs to make centralized deliveries. Wal Mart relied on 11 distribution centers in Central America. In 2008, it had built a 326,146-square-foot DC in El Salvador’s Apopa district, very near Ransa’s DC. This area had become very attractive for logistics companies when a highway was built to provide easy access to several locations, bypassing San Salvador’s jammed suburbs. Salvadoran Logistics Provider SLP was an outsourcing logistic service provider (3PL) founded in 2004, when Distribuidora Centroamericana (DIA), a Zablah Group company, decided to outsource its storage and distribution operations. In 2005, SLP started providing logistics services to Distribuidora Nacional (Disna), another company owned by Zablah Group. That same year, SLP incorporated a new client, Agroquímica Internacional (Agrinter), another Zablah Group affiliate, and was forced to open a new 25,295-square-foot DC to accommodate this company’s products. In early 2006, as part of its growth plan, SLP moved from DIA’s warehouses to a 80,729square-foot distribution center located in Santa Lucía, a town in Delgado City’s district. Later that year, in October, it added another Zablah Group company, Unión Distribuidora Salvadoreña (Udisa), to its customer portfolio. This growth and the results achieved led SLP to consider providing services to third parties to compete in the open market. If SLP is really competitive then it will be able to grow in the face of its new local competitors and eventually offer services in the region. The key to the business of outsourcing logistics services is precisely framed by the concept of Highly Reliable Organizations, which are characterized by preoccupation with failure, reluctance to simplify 1

System used by Wal Mart to share inventory turnover data and to issue purchase orders online.

5 interpretations, sensitivity to operations, commitment to resilience, and deference to expertise. SLP deployed this framework from the start to manage the risk and complexity of customers’ supply chains. This meticulous attention to detail allowed SLP to capture from the time it launched its value proposition clients like Shell (lubricants), SC Johnson (household cleaning products, room sprays, and insecticides) and JohnsonDiversey (industrial cleaning products). SLP ended its first year with 103 employees. In 2008, SLP inaugurated its third storage center at Distribuidora Zablah S.A.’s (Diszasa’s) premises in Santa Tecla. This facility featured two 3,767-square-foot warehouses –one for refrigerated products and another one for frozen products. By 2012, SLP boasted 16,000 rack and floor positions in three DCs, totaling an area of 212,587 square feet, with 179,757 square feet for dry storage in its Santa Lucía distribution center, which included a 116,250-square-foot warehouse and another, 63,507-square-foot facility that would soon be fit to serve as a bonded warehouse.2 With 34,000 SKU3 in its portfolio, SLP oversaw 150 container deliveries, 17,882 order fulfillment requests, 232,920 lines,4 and 1,400 shipments every month. The domestic market widely recognized SLP management of the complexity underlying the various supply chains it served in parallel and almost flawlessly. SLP’s service offerings included imports, storage, inventory management, complementary services, and distribution. The company featured six functional areas –operations, engineering and quality, purchasing, marketing, back office, and fleet. Overall, its headcount included 154 full-time employees and 270 outsourced associates (see Figure 1). Out of the 154 employees in its payroll, 97 served at the DC, performing operating tasks on a single, eight-hour shift from Monday through Friday, and a four-hour shift on Saturdays. Their compensation package included salary and overtime. While in place, operating productivity standards were not used for employees’ performance evaluations. 2

Bonded warehouse: a building or other secured area in which dutiable goods may be stored. Custom duties are paid when goods leave the premises. 3 SKU (Stock Keeping Unit) is a code used to identify each distinct product or item for retail sales. Using SKUs, companies can keep systematic track of their inventories. 4 The term “line” refers to the number of SKUs contained in an order.

6 The company’s mission statement read, guaranteeing supply chain quality for our clients by means of excellent service, human resources, technological innovation, respect, integrity and information management reliability. The results obtained led SLP to rethink its vision, which now reads as follows: "Being the largest, most profitable logistics operator in Central America, providing cost-effective, efficient solutions that comprehensively meet the needs of our customers, employees, and directors." Santa Lucía DC Santa Lucía DC’s largest warehouse was divided into five sections –one for each product family (see Figure 2). SLP handled several product families that could not be stored next to each other. For instance, food products like wheat flour should be kept as far as possible from detergents and other cleaning products to avoid cross-contamination. Another reason to separate storage sections was to maximize storing density. For example, section five housed toilet paper; on account of its light weight and large volume, this product could be stored without shelves. This distribution center’s key operations included: receiving goods (goods-in), put-away, storage, order picking, and shipping. Receiving Goods Santa Lucía DC featured seven docks to receive 40-foot containers, and, on average, it received 150 containers a month. Unloading a container typically took 45 minutes when the load came stacked on pallets and up to two and a half hours when it did not (see photo 1 in Figure 3). Generally, containers carried products that belonged to a single family; as a result, the head of the section that housed most of the product in a container was in charge of receiving it. A pre-receiving process was in place: the client notified SLP when a container was released from customs and was on its way to the DC. The client enclosed a copy of the invoice, with a list of the SKUs shipped and their amounts. With this information, the corresponding section head prepared the positions that would be assigned to the incoming inventory. Once a container arrived on the dock, a quality auditor selected a number of boxes for inspection. The number of boxes was calculated in such a way to guarantee a 99.99% reliability

7 rate. If the sample was found to include non-compliant products, the auditor reported to the client that a 100% inspection would be required to isolate non-compliant products. After this report was crafted, products were stored in a temporary area for inspection. Within a day, the client was expected to bring in the necessary personnel for the inspection or to authorize SLP staff to outsource this service. After a 100% inspection, compliant products were put away in their respective storage areas, and non-compliant products were made available to the client for pickup and supplier replacement or refund. If, based on the sample, the quality auditor determined that products were compliant, they were unloaded. If products were not stacked on pallets, this process was carried out on the docking area. A label indicating SKU number, product description, number of boxes and arrival date was placed on every pallet (see Figure 4) in order to have a better control of the FIFO5 inventory system used by SLP. If a product required some value-added service, like labeling or special assembly, it was assigned to a specific area for that purpose. Put-Away SLP’s top management had appointed section heads to oversee SKU storage location assignment. For the put-away process, section heads relied on their knowledge of their storage area to determine where incoming load should be stored. They also assigned locations based on their experience in product turnover and volume. When loads came in on pallets that belonged in the same storage area, pallets were taken straight from the container to their destination section by counterbalance lift trucks (see photo 1 in Figure 5). If a container carried products that would be stored in several sections, the section head receiving the goods would organize pallets in the docking area, before sending them to their respective sections. Once pallets were delivered to their assigned section, they were placed in their storage positions. A number of equipments were used, depending on the type of rack where pallets were to be located. For instance, a double-reach forklift (see photo 2 in Figure 5) was used to set 5

First in, first out: inventory management policy used to ship off first the goods that have been in the warehouse the longest (controlled, among other factors, by expiration date, if necessary).

8 pallets on the second place of double-depth shelving6 (see photo 1 in Figure 6). For drive-in7 shelving (see photo 2 in Figure 6), a small counterbalance forklift was used –though a doublereach forklift could also do the job without using its extensible arm. Counterbalance forklifts proved additionally useful because they could be used to unload the truck and to put pallets away in one movement. Santa Lucía DC owned five counterbalance forklifts and five double-reach forklifts. Put-away personnel paid special attention to SLP’s FIFO inventory management policy, placing incoming pallets, for example, in higher positions and rearranging older pallets in lower shelves. Similarly, on double-depth shelving areas, they would place incoming products in the back. Typically, it took six and a half hours to receive and rack the products carried by a 40-foot container. Storage Santa Lucia DC’s storage was divided into five sections that housed different product families. Its main warehouse, with its 116,250-square-foot area, had a capacity for 8,132 pallet positions.8 Its layout had been designed to optimize the flow of materials inside the warehouse, with high-turnover product sections standing closer to reception and shipping areas (see Figure 2). Zone 1 housed high-turnover consumer products on 1,209 rack positions –with 1,065 of them on double-depth shelves and the rest in drive-in racks. In addition, there was room for up to 150 additional positions using storage racks9 (see photo 3 in Figure 6). Double-depth shelves were used for high-turnover products, like canned foods, preserve jars, sauces, dressings,

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Double-depth shelving: shelves with capacity for two pallets at a time, saving aisle space as compared to singledepth shelves. On the downside, only the side of the shelf looking onto the aisle is readily accessible. 7 Drive-in shelving: high-density storage shelves designed to maximize area and height utilization, minimizing aisle space. This shelving is used to store large amounts of a single SKU, non-perishable goods, with little or moderate turnover. These shelves make it harder to pursue a FIFO inventory management policy. 8 Unit used to measure warehouse storage capacity, based on the number of pallets that can be stored on shelves and floor space. 9 Storage racks: simple metal structures that can be assembled and disassembled easily for storage in small areas. This is a flexible, cost-effective storage option that requires low investment.

9 preserves, milk and UHT juice drinks.10 Drive-in shelves were used to store products with a long shelf life, like instant coffee and candy. Zone 2 was assigned to consumer products with lower turnover than those located in zone 1, including groceries, wines, liquors, canned milk, candles, bottled water, snacks, and pasta. This section featured 1,236 positions on double-depth shelves. Additionally, zone 2 included a subwarehouse for skin and hair care products, where a number of value-added operations were carried out, such as labeling, pricing, special assembly, and order picking for beauty parlors. This sub-warehouse was equipped with narrow-aisle shelving (see photo 4 in Figure 6) to allow for unit-based order picking. Wheat by-products, like flours, cookies and some cereals, as well as oatmeal and snacks were stored in zone 3, which consisted of 1,156 double-depth shelf positions. The products stored in this zone were prone to contamination, either as a result of smell absorption or by rodents. Thus, this zone featured a strict plague control program, as well as a wall that separated zones 3 and 4 to prevent cross-contamination with other products, like detergents and lubricants. Zone 4 housed chemical products, such as detergents and lubricants, as well as heavy-duty disinfectants for floors, dishes and other surfaces. Paper personal care products, like female pads and diapers, were also stored in zone 4, with its 1,624 positions including both double-depth shelves, racks and pallet stacks11 (see photo 5 in Figure 6). This zone also offered storage room for rent for private customers, who paid a monthly fee for the square meters they used. Finally, zone 5 housed high-volume products, such as toilet paper, which took up a large share of its area, and other large goods like home appliances, such as washing machines, refrigerators and stoves. Zone 5 was also used to store dog food, as this product could not be kept in close proximity to human foodstuffs or to chemical products. This zone had a nominal capacity for 2,907 shelf positions, including both double-depth shelving, pallet racks and pallet stacks. An additional area provided room for up to 400 positions using pallet racks, which UHT (Ultra High Temperature): process used to extend a perishable product’s shelf life and to allow for nonrefrigerated storage. 11 Pallet stacks: pallets stacked one on top the other on the floor. Stack height depended on forklift capacity, load weight, and building height. 10

10 proved very useful to accommodate short-term inventory peaks, maximizing storage density in a cost-effective, flexible fashion. This storage area also featured its own goods-in and shipping section, used largely by customers renting storage space and for large-volume goods, like appliances. Order Picking SLP’s order picking process was based on a consolidated order for every distribution route – that is, an order was prepared with all the products required by all retailers in a specific route. For example, a route-based consolidated order may contain products from DIA, Udisa, Diszasa and Disna for seven different clients located in the same area. First, distributors’ orders were classified according to the distribution route assigned to retailers. Then, the total number of units per SKU was calculated for every distribution route, and a consolidated was printed and handed out to all five storage section heads. Order pickers identified the products in the list that belonged to each section. Using a hand-pallet cart, they toured their order picking section, placing the required products on pallets (see photo 2 in Figure 3). A bill was attached to every pallet, listing the consolidated order number, the picker’s name, picking date, the products required that were out of stock, and the corresponding section (see Figure 7). Once the order was fulfilled, pallets were taken to the section’s inspection area. It should be noted that the truck driver received a consolidated order and had to pick the order for every retailer, based on their respective invoices, at the delivery site. Typically, order picking took eight hours, counting from the moment a section head received a consolidated order to its delivery to the shipping area. Order pickers also completed a section of the bill with the SKUs that were not supplied for stock-outs. The imports department handled replenishment operations, elaborating forecasts with turnover data, product seasonality characteristics, and replenishment times. With this information, it issued orders for every SLP clients’ supplier. Shipping

11 At every section’s inspection area, the products assembled by pickers were checked to make sure that they matched the list in the consolidated order. In addition to checking amounts, this process included making sure that all products were in good condition and contamination-free (no plagues, dust and other pollutants). If amounts matched the consolidated order and products were compliant, inspectors signed the bill off so that the pallet could be moved to the shipping area. If anything was amiss, the pallet was returned for corrections. Once they had been signed off, pallets were ready to move to the shipping area. Every consolidated order was assigned to a worker, who was in charge of the move from storage sections to shipping cages, using one of the Santa Lucía DC’s five walkie-pallet forklifts (see photo 3 in Figure 3). The shipping area featured ten docks –each one surrounded by a cage to prevent drivers from accessing the storage area (see photo 3 in Figure 3). Once the pallets in a consolidated order were placed inside the cage, the shipper handed the products off to the truck driver, including the invoices issued by every distributor. After reviewing the documents, the driver signed them, confirming that the order was complete and in good condition. Finally, the cage was closed, and the driver and his assistants loaded the truck. A 99.95% of consolidated orders’ lines were shipped with no errors. This indicator was constantly monitored by Zablah and his management team, who stressed its importance to order pickers and inspectors. Calleja’s Group Christmas Operation Calleja’s Christmas operation involved receiving 80 containers over a three-month period. It would require a 4,000-pallet storage positions, in addition to delivering orders to the chain’s 87 stores on a pre-set schedule. While this operation was usually handled by Ransa, Zablah believed Calleja might be looking for other options as a result of its growing number of stores in recent years, which may have exceeded Ransa’s storage capacity. Also, the type of products involved (toys, Christmas decorations and others) implied that store orders would be placed by items, not boxes, which, in turn, would add make order picking more complicated. Engineer Ronald Escobar thought that

12 Ransa would find it hard to handle this process, as its inventory management software was standardized to deal with full boxes only. Calleja’s Christmas operation accounted for a great opportunity for SLP. Zablah Group’s distributors had served as Calleja suppliers for decades, and this would be the first time that SLP provided outsourced logistics services to Calleja. While the Christmas operation was a seasonal project, Calleja might allocate a share of its toy category business logistics to SLP if its performance proved satisfactory. Engineer César Aguiñada noted, “We couldn’t just say no to any requirements made by Calleja; rather, we needed to make the necessary internal changes.” This could pave the way for Calleja to assign other categories of imported, non-perishable, and unit-managed products to SLP. The holiday job was a great opportunity for SLP, which could not afford to fail and this would be a good time to deploy fully all the features of an HRO. Calleja had required that an exclusive warehouse were assigned to its operation –that is, the warehouse used for Calleja could not house products from other SLP clients. Neither were delivery trucks to carry other products with Calleja’s orders. This meant that SLP had to rearrange its premises or find an additional warehouse in order to isolate Calleja’s products. In addition, it would have to hire transportation vehicles and take into account the number of docks required for shipping. Most of the merchandise received for Calleja would be toys, Christmas decorations and trees coming from Asia. Based on his experience with this type of products, Escobar estimated that at least 80% of the boxes would not be palletized and would come scattered around containers. When a container arrived, SLP would need to classify and palletize boxes according to their SKUs. Additionally, Calleja had required that all products were inspected to identify non-compliant ones. Every container would have to be inspected within five days after its arrival; therefore, the warehouse would need to feature a merchandise inspection area.

13 After inspection, compliant products would have to be returned to their respective boxes and pallets for storage. As there was no historical data on product turnover to optimize the flow of materials at the warehouse, stocking operations would be based on optimizing storage density. 12 Escobar knew that he would not be able to use average figures to estimate containers’ arrival, as, coming from the same geographical area, several orders from Calleja’s suppliers were likely to come on the same ship. “We had to be prepared to unload five to seven containers in 24 hours, as we were dealing with shipping companies. Otherwise, we would be fined.” Calleja had requested a storage capacity of 3,000 double-depth shelving positions and 1,000 floor positions. A 40-foot container could house around 22 standard pallets,13 but, considering products would come in bulk, SKUs would have to be organized in individual pallets. As a result, container contents were estimated to result in up to 45 product pallets. In any case, supermarkets were expected to start receiving their supplies before the warehouse ran out of storage capacity. To calculate the storage area required for shelving positions, Escobar estimated that he could use a standard pallet size, a four-level setup, and a 3.94-foot shelf height for calculations. For floor positions, he would calculate the area using the number of pallets required and the standard pallet area. Finally, he would add a provision for aisles, matching the storage area and assuming that the maximum load to move would be a standard pallet (see Table 1). As the type of products to handle would be toys and Christmas decorations, packaging, in general, would involve cardboard, which would require special handling. As Escobar put it, “You need double-depth shelving because these products are delicate. If you see a crumpled box in the supermarket, you just don’t take it.” Order picking would require handling individual items. Typically, SLP regular operations involved picking orders in boxes or, even, entire pallets. SLP was already experienced in 12

Storage density: volumetric space available for storage (apart from access aisles and other ancillary room) versus overall volumetric space. Storage density must be high to efficiently utilize a system, considering that higher density may mean lower accessibility to stored goods. 13 Standard pallet: a pallet measuring 100 x 120 cm2.

14 handling unit items in the personal care sub-warehouse in zone 2. Aguiñada thought they could divide this operation in two, consolidating daily orders and box picking. Boxes would be taken to an order picking area, where items would be picked to supply stores. Calleja required two weekly deliveries at every store. The first would have to take place on Mondays and Tuesdays, while the second would unfold on Wednesdays and Thursdays. Every delivery route would be assigned three orders a day. Escobar estimated that the average shipping time would take 2 and a half hours per truck. He planned to use an entire eight-hour shift for shipping. In the morning, metropolitan area routes would be loaded, while department routes would be loaded in the afternoon. Decision Making Time On Friday, May 18, Escobar presented a performance indicator sample (see Table 2) and world-class storage practices (see Table 3) to Zablah. With this information, Zablah could identify a number of improvement opportunity areas in his organization. In turn, Aguiñada brought three options to house Calleja’s Christmas operation. He had limited his search to warehouses that were more than 23 feet tall so as to accommodate four-level shelving and that were located near Santa Lucía DC’s premises. A nearby location was key for SLP’s management to closely control the new operation and to be able to deploy corrective measure immediately, if necessary. The first option was SLP’s warehouse that was being prepared to serve as a bonded warehouse. While this warehouse had been leased since the beginning of the year, Economy Ministry’s permits were still pending, and the warehouse was expected to start operating by September. This facility featured two independent areas (see Figure 8). The first one, with a 23,132-square-foot area, boasted three receiving and shipping docks (see photo 1 in Figure 9), and it was empty –no shelves or products. The second area had 40,375 square feet and four receiving and shipping docks, as well as room to build four more (see photo 2 in Figure 9). This area was equipped with double-depth shelving in a four-level setup, with capacity for 2,900 positions, and it was storing 1,843 toilet paper pallets for an SLP client. These pallets were assigned to the regular warehouse’s zone 5, but it was full. This warehouse was rented at US$

15 1.65 per square meter a month. Zablah estimated that bonded warehouse operations could be started using only one of these areas, which meant that it was possible to use the other area for Calleja’s Christmas operation. However, if SLP chose to use one of the areas in this warehouse, the 1,843 toilet paper pallets would have to be moved to zone 4 or 5 in the regular warehouse. Zablah thought that non-contaminating products in zone 4 could be temporarily relocated to free positions in other zones (see Table 4). The second option was a vacant industrial building located roughly 160 feet away from SLP’s premises. It used to house a textile factory, and, while it had not been designed to serve as a warehouse, it was suitable for a temporary operation. With an area of approximately 32,292 square feet, it featured three docks and room to build and additional one (see photo 3 in Figure 9). Its monthly rental fee was US$ 1.69 per square meter. It was possible to rent it for just the months needed for Calleja’s Christmas operation, as the property owners did not demand a minimum lease time. The third option was a 150,695-square-foot industrial building that could only be rented in its entirety. Located nearly two miles away from Santa Lucía DC, it featured eight loading and unloading docks (see photo 4 in Figure 9). It was suitable for storage, in terms of ventilation, area, and dock design. However, warehouse access was hard for container trucks, as it was located on Boulevard del Ejército, a very busy road. Its monthly rent price was US$ 1.13 per square meter, and the lease had a minimum one-year term. A detailed evaluation of options available would be a key prerequisite of SLP response to Grupo Calleja next week.

16 Figures Figure 1 Salvadoran Logistics Provider’s Organization Chart

Board President

General Manager (154 on payroll, 270 outsourced)

Logistics Manager (94)

Process and Quality Engineering Manager (24)

Purchasing (5)

Marketing Manager (7)

Back Office (23)

Sales (3)

Customer Service (3)

Source: SLP service presentation for marketing purposes, updated as of May current year.

Fleet Manager (271) Truck Drivers and Assistants (270)

17 Figure 2. Santa Lucia DC Layout

Double-depth