Logistics networks went out of fashion 20 years ago as companies found that the higher service levels offered by dedicated solutions outweighed the higher costs. But, slowly, the market has been swinging back towards more collaborative ways of working that aim to maintain the service levels achieved on dedicated services while reducing the cost.
Assorted hybrid schemes have been tried such as co-loading vehicles with goods from a small group of non-competitive customers. But now, with transport costs rising dramatically and supply chains getting longer, network solutions look more attractive than ever.
As a result there are more and more ways that a company can chose to organise its logistics operations whether it be dedicated, semi-dedicated networks, pallet networks or even parcel services.
In the food industry the potential savings have been highlighted by Efficient Consumer Response (ECR UK), the IGD-managed initiative of retailers and manufacturers aimed at improving collaboration in the food industry.
Last year, it published its Collaborative Green Distribution Blue Book and Gavin Chappell, the ECR UK’s collaborative green distribution co-chair, said: “Our research shows that companies are already making giant strides in collaborative distribution, and suggests that there are some very exciting ways of reducing mileage across the industry by millions of miles per year.
It highlighted two projects which suggest potentially huge mileage savings for the industry. In one project, ECR UK brought together 20 retailers and suppliers in a series of collaborative distribution sessions, to establish where they could best collaborate on transport and logistics. Examination of the companies’ data and routes suggested partnerships which could reduce mileage by two million vehicle miles per year.
“These sessions, known as ‘speed-dating’, reveal potential savings equivalent to taking 10,000-15,000 loads a year off the road,” said Chappell. “Some companies have already begun delivering results, but there are real challenges in terms of providing a standard commercial framework, and there is a need for the provision of adequate insurance.”
A second project – Shared Deliveries to Far Flung Places – suggested five companies could save 40 per cent of vehicle miles by closer collaboration on transport and distribution networks in northern Scotland.
Chappell pointed out that there are significant hurdles to collaborative distribution. “There are unique obstacles, such as how to manage delivering another company’s products on a company vehicle, and how to ensure that deliveries on shared vehicles can still be made at the most efficient times.”
Nevertheless, in current market conditions there are a number of issues creating pressure for more collaborative operations. Iain Speak, chief executive of Bibby Distribution, says: “The current economic climate is putting pressure on business generally. There’s always been a need to improve efficiency, while at the same time be able to meet customer and consumer demand. Increasingly now this requirement is also backed up by the desire to be green. The environmental improvements that we are all striving to deliver are becoming at least equally important to the financial performance of the supply chain. It has become the norm to be as efficient as possible for reasons other than financial performance, that is, the more efficient you are, the “greener” you are.”
“Another factor influencing developments is the ever-increasing legislative requirements. Own account operators, especially the small to medium size ones, are currently finding these new legal requirements more difficult to implement and embrace than those organisations such as ourselves who have scale, capability and a proven track record. These changes are quite diverse, from sensible laws designed to improve standards to others that are simply daft,” says Speak.
Glenn Lindfield, managing director contract logistics for Kuehne + Nagel North West Europe, points out that certain markets are seeing tougher trading conditions and this is creating the need for companies to challenge existing ways of working. “It’s a very dynamic environment,” he says.
He argues that customers need a step change and third party logistics providers can be catalysts in that change.
The willingness of customers to collaborate can be an issue. Lindfield points to some examples of sectors where competitors are willing to work together where they can see benefits for themselves.
Kuehne + Nagel can point to the success of the KN Drinks Logistics network operation. In 2006, K+N bought out the Scottish & Newcastle logistics operation to add to its existing drinks distribution operations creating a business with some 22 depots, 850 vehicles and 2,900 staff. Since the business has grown by winning significant contracts with other major drinks suppliers such as Anheuser-Busch Europe, which makes Budweiser.
Significantly, the managing director of S&N UK, John Dunsmore, said the move would “help to ensure that S&N maintains a high quality distribution service for our customers”.
Lindfield emphasises the importance of providing an independent platform for the whole industry. Brewers have seen reducing volumes in the on-trade (to pubs and so on) so an independent service covering a number of competing suppliers has become increasingly attractive.
Ceva’s network logistics operation, Newsfast, has has built a reputation for getting the job done that goes back to its formation in the mid-1980s when newspaper publisher Rupert Murdoch moved “The Times” and “The Sun” out of Fleet Street and into new premises at Wapping. At that time all newspaper distribution was handled by the railways and, as the rail unions supported the printers’ industrial action, another solution had to be found.
Up stepped TNT with a fleet of lorries to deliver the newspapers. Not only did it keep the Murdoch titles on the newstands, it was soon realised that TNT offered a more efficient service than the railways. As a result, all the other newspaper publishers moved their distribution to road-based systems. Newsfast picked up more contracts along with Newsflow, a rival service set up by Exel forerunner NFC. Newspaper distribution is now an exclusively road-based activity.
Newsfast has gone on to become the undisputed market leader with its focus on meeting the needs of this particular sector. Since 2002 it has been responsible for distribution of all the major national newspapers in the UK. Managing director David Bermingham points out that a newspaper is the ultimate time-sensitive product becoming worthless within a few hours of being printed.
It’s a market where any delay in deliveries can be catastrophic so getting the delivery right first time is absolutely critical.
Newsfast has also moved into the FMCG market through the purchase of Taylor Barnard which has brought different skills to complement the facility for time-sensitive deliveries.
It now operates a national network of 19 sites, a fleet of 850 vehicles, and employs 2,300 people as well as operating primary consolidation centres for Asda and Tesco.
Bermingham points out that the market is seeing a greater willingness to look at collaboration as a means to improve supply chain efficiency. “There is a strong interest in network solutions,” he says, although he points out that dedicated services will continue to play an important part in the market.
And he emphasises the importance of industry-facing networks pointing out that a service devised for one industry sector can’t always be easily fitted into the needs of a different sector.
He points out that, at every site, Newsfast has the same management structure and is able to use the same processes and IT systems. “We wouldn’t want to take on a conflicting industry,” he says.
Bermingham also makes the point that some of the most significant developments in logistics practice are taking place in network operations pointing to a “pick to zero” operation Newsfast recently started for Asda.
The Corby distribution centre stores the products, about 4,800 pallets, and picks by the outer case for individual stores. Newsfast delivers about 14,000 cases a day to Asda’s NDC at Lutterworth where the products are then unpicked into cages along with other products from the Asda NDC and added to the load for a select number of stores and sent out again the same day as their receipt to the NDC.
The operation is known as “pick to zero” because there should be none of these products left in the Asda NDC at the end of the day once the store pick sequence has been completed. It is a system that has been used for chilled foods but this is the first time it has been applied to ambient products.
NFT’s shared user network is celebrating its 25th anniversary this year and now processes over one million pallets annually. In the past year, the operation has grown by 15 per cent and delivers over 11,000 more pallets a week compared to 2007.
Managing director David Frankish says rising fuel and energy costs have become a critical issue, “which calls for all partners in the supply chain to work closely together and continually innovate to make cost efficiency gains.
“Shared logistics networks, which maximise vehicle utilisation, can provide those efficiency gains, which are so important to the food retailers and manufacturers in ensuring they remain competitive. Our shared user network has reduced empty mileage running by 65 per cent in the last five years.”
Frankish points out that shared user networks are well placed to support sustainable logistics practices. “We are working alongside the Carbon Neutral Company to ensure our Shared User Network has a positive impact on customers’ carbon footprint. The reduction in empty running we have achieved has been through synergies with other NFT divisions and optimising daily plans to reduce empty running. In addition, NFT has invested in the continuous replacement of its fleet with Euro 5 vehicles. More than 60 per cent of our fleet at our largest operation in Alfreton is now Euro 5 SCR compliant, which is well ahead of current legislative requirements,” says Frankish.
The rise of the pallet network has been one of the most significant developments in the market over the past few years. Michael Conroy, chief executive of Palletforce, says: “It’s clear that present economic conditions, increasing costs, slowing growth and the unprecedented rise in the cost of fuel, will continue to drive changes in the distribution services market. This should not be viewed as negative by the industry, more an opportunity to develop ‘think smarter’ innovations and distribution solutions, which have real benefits for both customers and operators. The challenges our clients face are likely to lead to an increase in smaller palletised consignments, as a result of a continued drive towards reducing stock holdings and smaller, yet more frequent, orders of goods.”
Iain Speak says: “Market changes are creating opportunity for those organisations that can offer efficiency, flexibility and consistency, but those are not exclusively achieved through the use of the recognised network operators. They can be achieved just as well, if not better, through the dedicated operator, where an entrepreneurial and commercial mindset is adopted.
“I really don’t believe our sector is segmented in such a straightforward manner. We have a significant number of dedicated operations where we share resource and network. The client benefits in every way. Excellent service, optimised assets, lower costs and maximum value.
“Furthermore those businesses that can take a longer term view and position will be at an advantage to those that either can’t afford or aren’t allowed simply because of investor requirements for maximum short-term profits.”
Frankish says: “Customers’ desire for differentiation, which demands a commitment to continuous improvement and added value logistics solutions. For example, we have invested in an Internal Daily Review system to monitor Key Performance Indicators (KPIs) across the shared user operation.
“Representatives from all areas of the company spend time every day looking at various KPIs such as vehicle fill and on-time service, constantly measuring performance against targets. Through this review system, NFT has adopted a culture of continuous improvement, with suggestions for fine-tuning daily operations being constantly investigated for the benefit of its customers.”
Frankish reckons that changes in the market are opening up new opportunities and “by proactively responding to the changes, such as the rising petrol costs and environmental considerations, as highlighted above, we are looking to further differentiate our proposition”.
Iain Speak believes the aim must be to deliver high levels of dedication in a more flexible manner.
“It’s actually about value, not price. Those customers who make judgements in this way are more likely to win and survive.
“The more responsive and proactive we are at making suggestions to improve, the greater the effect upon the performance of our customer’s business. Put another way, the more value we can add the greater the value we potentially create for ourselves.”
And he warns that the organisations that resist and only rely upon their legal contracts or service level agreements will ultimately pay the price.
“Competition is just as fierce in a market that is consolidating. The various mergers and acquisitions being made are in the short term creating insecurity among the management of those companies and integration may become a distraction.
“The names of the competitors may change but it remains a competitive environment. Fewer players but just as challenging,” says Speak.