DISTRIBUTION: Learning to love logistics

It takes four days for a runner bean grown under the Kenyan sun to reach its final destination – steamed, salted and served up on the great British dinner plate. Shoppers’ blase acceptance of such exotica is incontrovertible proof of the massive advances in logistics.

Logistics is reckoned to be worth around #17bn a year, with third-party distribution as the real boom area. Though it still only pulls in #5bn, under a third of total sector revenue, it has grown by a massive 25% since the beginning of this decade.

The past 20 years have seen a distribution revolution from the bad old days of supply chain inefficiency when trucks would arrive at a store only to be made to queue for unloading with other manufacturers’ deliveries.

Sophisticated logistics solutions, many created and led by retailers, range from dedicated to shared distribution. They use state-of-the-art information technology, pioneering vehicle designs and hi-tech distribution centres to provide UK industry with a major competitive advantage.

All the major food retailers today outsource part or all of their operations.

And manufacturers too are turning more and more to third-party specialists to meet their retail customers’ constant demand for a reduction of inventory in the warehouse. Calls for efficient consumer response have lead them to develop hi-tech automated distribution.

These relatively new phenomena are becoming a major force for driving greater efficiency and accuracy in supply chains worldwide. Automation offers major benefits – improved product quality through faster response times and better controls; reliability boosted by using modern systems capable of working 24 hours a day, seven days a week; increased responsiveness from a more streamlined operation designed to deliver just in time; and, of course, lower operating costs through reduced manpower.

Shared distribution

One major new development is the creation of specialist shared distribution networks. Wincanton Logistics has recently pioneered a shared network with Heinz called Net Logistics which aims to fill vehicles for every leg of every journey by using the latest planning software and a network of depots. When outward deliveries of the Heinz products are complete, loads are collected for other retailers and manufacturers for the return journey.

Extending this concept to a pan-European scale and beyond, for global manufacturers, will require the development of multi-modal solutions to make the best use of rail transport and avoid the mounting congestion on our roads. The UK infrastructure is already groaning under the pressure of the current rate of increased road usage, particularly by cars. The cost of congestion alone is estimated by the Freight Transport Association to run at u20bn a year.

Blue-chip companies can draw on third-party specialists for the many areas of expertise which can trim the fat out of the supply chain: for modern warehouse management techniques, automated warehousing, vehicle fleet management, IT systems and new vehicle design. All these help to create efficiencies by reducing stockholding, improving use, routing and scheduling of vehicles, making better use of warehouse space and keeping maintenance costs low.

Third-party logistics has an invisible impact on profit margins by helping to improve the offer to the end-consumer. Faster movements of stock through the supply chain enable shorter lead times and better product quality and availability on the shelf.

Business benefits

In the new age of distribution, logistics companies are also widening their services to provide added-value business benefits. Now the trend is increasingly for them to manage the construction of new distribution centres. Each solution is tailor-made, from building design, handling equipment and IT, and designed to allow both longevity and the greatest possible flexibility. Third-party contractors are even starting to invest in distribution centres themselves which frees up customers’ capital for investment in core activities.

The challenge for the future is to ensure shoppers’ expectations are met while constantly working to reduce costs. Information will have to be shared between all parties in the supply chain – suppliers, retailers and, of course, service providers.

Closer collaboration in the future could include open book accounting as well as shared databases. It could also comprise partnership development teams to solve joint problems or a sharing and coalescing of company strategy between the logistics contractor and his customer. Whatever it takes to grab that edge and hold onto it.

Chris Lawrence is chief executive of Wincanton Logistics which provides automated warehousing for Lever Brothers, Britvic and Mars Pedigree

CASE STUDY: BRITVIC

Since opening two years ago, Britvic’s state-of-the-art national distribution centre at Magna Park in Leicestershire has dispatched around two billion cans of soft drinks.

The depot is one of the most technologically advanced in Europe, combining sophisticated IT systems with a custom-designed, automated materials handling system and is already producing results for the soft drinks giant in cost savings and improved customer service.

Britvic’s customer logistics controller, Martin Rose, says four factors can explain the success: automation, better vehicle use, inventory reduction and use of sophisticated IT.

The company’s investment in automation extends to vehicle unloading, powered pallet conveyors, 20 sorting transfer vehicles, 17 fixed-aisle stacker cranes and 12 powered despatch conveyors. According to Rose: ‘Automation has produced a 40% reduction in the unloading time of vehicles and minimised damages through manual error.’

Auto unloading also offers better asset utilisation of vehicles. ‘Having over 50% of our stock based at the distribution centre allows better vehicle fill, minimising unproductive vehicle running time,’ he says. ‘Other cost-saving benefits have resulted from a reduction in inventory. With the majority of stock available in one location and the ability to single source orders, a reduction of 10% throughout the network has been achieved.’

Information technology, developed by Wincanton for the centre, has also reaped rewards for Britvic. There is continuing activity to reduce supply chain costs by pioneering new developments in IT.

Cost is not the only benefit. Britvic regards the sophisticated centralised distribution service as being key to providing a better service to its customers and the end consumer. Rose says: ‘The automated warehouse has enabled us to provide a rapid response service to customers. It has also made it possible for us to meet the needs of seven-day trading and to reduce order lead times.’

CASE STUDY: SOMERFIELD

Somerfield appointed Wincanton Logistics and Exel Logistics in 1994.

Since then, the three-way partnership has reaped big savings and increased the food retailer’s profits.

The distribution of five million cases of product weekly to more than 600 Somerfield stores nationwide demands a highly sophisticated and cost-efficient logistics network. Somerfield distribution director Ted McCabe says: ‘Distribution costs for our fresh food and ambient products would be 10% higher today if we had kept to our original logistic operations which comprised 15 contractors.’

Cost efficiencies have come from:

– Better use of transport, allowing the same fleet to distribute fresh food products to stores in the morning and ambient products in the afternoon.

– The introduction of leading-edge IT systems to get the fullest return journey loads. At Somerfield, the number of stores, the product range and delivery criteria make daily transport planning a complex task. Wincanton has introduced a route-scheduling package linked into its in-house data processing system. This accepts downloaded data, converts to a route schedule and feeds back the solution to produce warehouse assembly documentation to meet the plan.

– Better use of warehouse space. The four fresh food depots now rank among the most efficient in the UK in terms use of space.

– The provision of state-of-the-art vehicles which enable increased payload capacity and lower maintenance costs.

McCabe says: ‘As well as the financial gains achieved through reducing supply chain costs, our use of third-party distribution has helped to increase overall company profit margins by enhancing product availability and quality, and improving our customer service levels.

‘This has all helped to attract one million new customers to our stores across the country over the past couple of years. As a recently floated company with access to capital markets it is important in the future that we have a flexible logistics operation that can move with our business.’