Aug 29, 2019
Gary Sostack and Joe Lynch discuss Gary's experience with managing logistics for the world's largest company.
[00:38] Please introduce yourself and your company.
- I’m Gary Sostack, President and Founder of ElementaLogistics LLC.
- We assist 3PLs with their bid packages to corporations, and we work with corporations who don’t see supply chain as their core activity.
[01:20] Tell us a little about your background.
- I grew up in New York and graduated from the New York Institute of Technology.
- While putting myself through school, I got a part-time job at JFK airport which opened my eyes to logistics.
- Right out of college, I worked at a logistics company in Atlanta. Then, after a short spell in New Orleans, I moved to Houston to work with supply chain in oil and gas.
- At one point while working for a 3PL, I did a lot of work in retail.
[04:37] Tell us about the world’s largest company.
- If you live in Houston, you know who it is. It’s Saudi Aramco.
- Add Apple, Google, General Motors, and Amazon together. Combined, they’re still not as big as Saudi Aramco.
[06:32] What were some of the projects you worked on with Saudi Aramco?
- We found equipment and materials that can’t be sourced locally. Then, we buy and ship it to get oil out of the ground.
- The company searched for smart people who understand what the next new technology will be.
- We also searched for people with the best ideas and moved them to Saudi Arabia.
- I was involved with the procurement of equipment and materials.
- We once had to move a prototype oil rig from Texas to Saudi Arabia. It had 2,500 pieces.
- Instead of working with a 3PL, we hired everyone that we needed ourselves.
[11:47] Up until July of this year, Saudi Aramco was their own 3PL. What happened?
- The business model changed. For example, all the hospitals that got supported with tens of thousands of purchase orders that Aramco was handling. Aramco went into a joint venture with Johns Hopkins, so all the hospital support disappeared.
- As globalization has taken place, more things can be sourced locally. The volume of purchase orders declined to where Aramco was no longer the market maker.
[13:34] You had to choose a 3PL for the world’s largest company. How do you go about doing that?
- It took fifteen months and was a step-by-step process.
- I put together a team and we came up with forty-five items that needed to be outsourced.
- Next, we selected 3PLs that we wanted to consider. We wanted to find a company that could go global if needed.
- We invited all the 3PLs to come to a meeting, and the bid process was explained to everyone at the same time.
- Once we decided that we were going to go out to bid, the logistics team no longer contacted the 3PLs. It was done by the contracting department instead to avoid favoritism.
- Out of the eleven invited companies, eight responded to the bid. Their questions were graded and weighted, and team members then scored these individually. The team members all decided on the same four companies to move on.
- At this time, we conducted site visits. These were interesting, because anybody can just put something down on paper. One of the bidders had a very unorganized warehouse. We eliminated that one, and another company based on their hazardous material handling.
- With two left, only then were commercial proposals and pricing looked at. Then, it was clear: the lower bidder wins.
[22:07] How close were the bids of the two companies?
- They were not close, so the winner was obvious.
- Someone from our finance department came in to run the numbers to make sure they made sense.
- The five-year contract was going to deliver millions of dollars of cost saving and initiatives, such as no longer needing to pay for one of our warehouses and some employees.
[24:44] What happened next?
- Board approval was sought and obtained.
- We put together the original bid very carefully so that there weren’t any surprises when the time came.
- It’s painful, but a lot of contracts with mom-and-pop companies had to be terminated.
[29:06] How did you manage your 3PL week-to-week, month-to-month, etc.?
- The expected metrics were part of the contract. We also had financial incentives for if they were exceeded.
- As you have mentioned, sometimes a 3PL in encouraged to skew numbers to get incentives. In our case, our system of tracking cannot be tampered with.
- After the first month, we had regular reports and meetings to look at performance.
[36:17] Was this process your closing act with Saudi Aramco?
- It was. I retired from the company on July 31. Originally, I had planned to leave a year ago, but this project came up and I wanted to do it.
[37:59] Tell us what you’re up to these days.
- For the last four years, I’ve been teaching at the University of Houston.
- The company I founded, ElementaLogistics, provides consulting to 3PLs and corporations.
[41:11] Any closing remarks?
Learn More About Managing Logistics for The World's Largest Company
- Gary's email address is gsostack@elementalogistics.com
- CSCMP Houston
- Gary Sostack