Sacred cows are being slaughtered, shibboleths abandoned, and traditional practices challenged as companies search for ways to reduce the costs of distribution. Malory Davies finds that minds are opening to innovative shared user and network concepts.
The rapidly changing market conditions of the past few months have put logisticians under unprecedented pressure to cut costs in distribution operations. So it is no surprise that network and other shared user distribution options are attracting more and more attention.
But finding the most appropriate structure for a particular operation is not always straightforward. And there are plenty of challenges in making the transition from the highly tailored service of a dedicated operation to the more rigid requirements of a network service.
Glenn Lindfield, head of contract logistics for NW Europe at Kuehne + Nagel, points out that dedicated works very well where there are large volumes of goods to be moved but in a downturn it is difficult to reduce the cost base.
And Phil Corwin, head of contract logistics marketing at UPS, says: “Factors such as product value, speed of obsolescence, time in transit requirements and need for special services, to name just a few, play an important role in finding a solution that best meets the customer’s need.”
The events of the past few months have had a definite impact on the market, says Lindfield. Companies have been looking for quick cost savings, and so are keen to consider shared user and other more collaborative approaches.
“The pressure to reduce stock in the supply chain and release cash is such that companies are more prepared to consider large scale decisions.”
Lindfield points out that in the current climate companies also want to be confident that suppliers are not going to fail. “Who will be around in the long term?”
That is also a concern for third party logistics providers. After all, he says: “We want to work with long-term successful businesses.”
Pall-Ex chief Hilary Devey says the increased interest in greater collaboration and shared user services means that this has been a relatively good period for the pallet network operator.
“We have had a lot of interest in our services from the major third party logistics providers which have seen volumes decline and are looking for more efficient ways of moving goods.”
She points out that operators are having to take a more lateral view of how to service customer needs. “Retailers are not ordering such large amounts of stock – they are only ordering what they think they can sell. The pallet concept is here to stay.”
One of the key trends identified by Palletways, says Craig Hibbert, is a move to de-fleeting as companies look to drive out the costs associated with vehicle leasing. Consequently, we are experiencing significant interest from companies reviewing their existing logistics provision. We are also seeing significant opportunities in providing a pan-European palletised freight service, particularly with the weak pound giving a boost to British exports.
The use and optimisation of different distribution solutions is easier to achieve with a 3PL, argues Tony Hourigan, development director at Wincanton. “If a company operates its own in-house logistics, it can only optimise its assets within its own remit, being able to only work within the constraints of its own vehicle network or its own stock volumes. Wincanton can make use of its 6,000-strong vehicle network, combining its customer’s assets. In the South West of the UK and in Scotland, Wincanton is identifying its high street customers’ needs, using a white fleet to make multiple deliveries for multiple customers. This initiative saves on road miles, fuel, carbon dioxide and cost, something that an in-house logistics network would not be able to achieve on its own.”
There must be a temptation for some customers to trade off service levels against price, but says Ian Jones, divisional general manager at DSV Solutions: “Although prices need to be competitive, we believe that trying to compete purely on price is a poor strategy as ultimately customers are interested in quality, reliability, efficiency and value for money. They are all looking for variable cost solutions.
“The new economic situation is forcing lots of people to look at making changes, but this is not necessarily a bad thing. In the past, we have been more focused on handling growth and now we can use the same experience and expertise to handle a reduction in volumes. And it is likely to reduce the number of dedicated contracts, I think,” says Jones.
Phil Corwin says: “Recently some customers have made changes in product mix and, in addition, we have seen weight per package and overall freight volume decline due to changing market conditions.”
Some customers are, for the first time, asking the question: “are we over-serving our business,” says Glenn Lindfield. It’s a particular issue where there is a high fixed cost base, and although there have been no dramatic shifts, he says that some companies are looking at the possibility of reducing delivery frequencies. Companies are also in the market for clever ideas to move from a fully dedicated system to one that includes at least an element of shared user. One of the possibilities that he highlights involves moving from a dedicated warehouse to having dedicated space in a shared warehouse and sharing distribution from the warehouse.
Hourigan agrees that the economic situation has focused the mind on ways to reduce cost. “But no one customer will be willing to accept lower service levels and certainly Wincanton will not be willing to lower its standards. The question is not about trading off service levels but testing ingenuity to discover ways to optimise assets.”
Flexibility is key, according to Stuart Lloyd, sales and marketing director for Norbert Dentressangle Transport Services. Greater flexibility can be provided by a small dedicated fleet for the core volumes combined with a shared user service for the remainder.
“Customers don’t want a reduction in service quality – they want a dedicated level of service,” he says. “But they are saying ‘help us manage our spend’. They are prepared to look at 48 or 72-hour delivery services rather than just next-days.”
“Some customers can be very prescriptive,” says Lloyd. “But others want us to add value – that is becoming more the norm these days.”
Peter Louden, managing director of Nightfreight, says: “It is difficult to say if it is permanent or not but this environment has encouraged customers and service providers to challenge the existing paradigms and in some cases even thinking the previously unthinkable. From a service provider perspective this year will be about sweating assets rather than focusing on historical competitive boundaries and, as a result, we will see businesses making new alliances and partnerships.”
In an era where people are looking for value for money, adding value becomes ever more critical and constant innovation is key, says Craig Hibbert.
Palletways has recently launched two services, both of which offer flexible time options for the customer. Depot Drop-off is designed to enable customers to drop off their consignments for onward delivery to their business clients while Collect-Direct has been developed to allow customers to collect their goods directly from their local Palletways depot instead of having their goods delivered to their home or business premises.
Chris Doughty, managing director of Acumen Distribution, says: “As a company, we have needed to think creatively and launch new products, such as AcuFreight – a real-time web platform that has created a competitive marketplace for backloads. With all companies now focused on cost savings but unable to sacrifice service levels, I believe customers are now prepared to look beyond the major players and consider alternative supply chain solutions from dynamic and flexible lead logistics partners.”
Hilary Devey also highlights the importance of innovation in the current market. She points to the Eco-Pall initiative which involves collecting waste packaging material from customers and recycling it. The idea is that collecting waste materials at the same time as delivering goods, means that the network is more environmentally friendly and the customer does not need to pay a separate fee to have the waste removed by somebody else. Pall-Ex has also been expanding on the continent. “We opened in Italy in January – with some trepidation – but Italy is performing well above budget. Now we are in the process of establishing operations in Spain and Poland.”
The latest innovation from Palletline is the City 24 concept which aims to reduce the number of vehicles entering city centres by providing frequent consolidated deliveries from designated consolidation centres on the outskirts of Britain’s major cities. It follows a pilot in Norwich and Palletline is planning to role out the concept across the country.
In Norwich, the City Council has made an experimental traffic order allowing Palletline consolidation centre vehicles to use the bus lane on one of the main approach roads to the city centre. The aim is to offer consolidation centre customers the added benefit of greater reliability of deliveries into the city, enhancing the value of the service.
Nightfreight has also been looking at ways to achieve a more flexible supply chain cost base, by providing both shared and dedicated services for all types of freight traffic.
Peter Louden says: “Research at Nightfreight shows that up to 50 per cent savings can be made through reducing fixed costs and replacing them with a variable charging structure. In response to this we launched our ‘Pay as You Go’ service… if you want us on Thursday, you pay on Thursday, if you don’t want us on Friday, you don’t pay on Friday.”
Gary Whittle of LinQ Alliance argues that the formation of companies, such as LinQ Alliance, has altered the approach of the medium-sized logistics company to winning and retaining business. “Collaboration between medium-sized companies not only guarantees the security of the supply chain but also ensures the customer reaps the rewards of optimised fleet efficiency. Ensuring that vehicles are used to their full potential through efficient planning and real-time visibility can all make a significant difference to the bottom line.”
And Patrick Wall, chief executive of MetaPack, urges companies to look at direct supplier deliveries: “During the current economic climate businesses are demanding that every stone is turned over, all the important questions are asked. An extended supply chain that includes direct supplier delivery has to be high up on the list for change.
“Retailers invest billions of pounds in stock that they do not need to hold because they are working to customer service standards that they do not recognise can be met and even surpassed if they let their suppliers ship direct to the consumer on their behalf.”