Dive Brief:
- The Singing Machine Company managed to shift from an entirely in-house logistics operation to an outsourced third-party logistics model during one of its busiest stretches of the year, CEO Gary Atkinson said in a Nov. 21 earnings call.
- The company, which designs and distributes consumer karaoke products to retailers like Walmart and Target, let its Ontario, California, logistics center lease expire Aug. 31 as it had secured a product distribution deal with 3PL Logistics Plus to save costs.
- "This process involved a complete overhaul in our entire customer fulfillment operations process, which impacted staffing, IT integration, accounting data flow, internal reporting and customer relationship management," Atkinson said. "While this was a massive undertaking for the entire team, I am very pleased with how the team has executed."
Dive Insight:
Singing Machine spent more than 10 years operating an in-house logistics model before the transition. It first entered into its lease for the 86,000-square-foot Ontario facility in 2013 before extending it by three years in 2020.
But rising commercial real estate, labor and supply chain costs led Singing Machine to not renew the Ontario lease and go with Logistics Plus instead. The 3PL has more than 1.37 million square feet of distribution space in southern California.
"The impacts moving forward should be significant to our business, Atkinson said. "We avoided absorbing significant rent cost increases related to our previous warehouses."
Singing Machine's shift will eliminate $1.6 million in fixed rent expense and $1.2 million in labor costs annually, per a June news release. It employed 12 people at the Ontario facility as of March 31.
Company products manufactured in China were either shipped to the Ontario warehouse or picked up by retailers via a direct import program under the old model, according to its most recent 10-K. Since most of Singing Machine's major customers now allow for direct import delivery from China, it made the transition away from an in-house logistics operation easier, Atkinson said in the release.
Although the transition happened during the start of Singing Machine's holiday shipping spree to retailers, the company is now well-positioned to have Logistics Plus handle shipments for the tail-end of this peak season and beyond.
"We've moved our entire logistics, returns and repairs model to a variable just-in-time solution that should mitigate hundreds of thousands of dollars in cost increases annually for the foreseeable future," Atkinson said.
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