Wanted: More for less (Logistics Feature)
At a conference late last year, the logistics director of one of the world’s largest consumer electronics manufacturers complained that, despite having an annual Logistics budget of millions, his company still couldn’t get the kind of service it wanted out of third-party logistics suppliers. John Doran, logistics director Europe for Sony, says that reaction to his presentation has been enormous. "A lot of people have been coming up to me and saying ‘you’ve said what we’ve been thinking all along’," he says. So strong is this feeling, reveals Doran, that a meeting of key minds is taking place early this year ‘to look at how we can better manage third-party providers to give us what we want'.
DISILLUSIONED
Hardly the kind of reference most third-party logistics(3PL) providers will relish. But if Doran is disillusioned with 3PL players, then hauliers don’t fare much better. There are massive exceptions, of course, but there are still a hard core of hauliers that don’t look the part and don’t behave the part," he says. Doran admits that poor rates don’t encourage hauliers to raise their game. In the past, we’ve been as guilty as anyone else in pushing down the money we pay. But I’m now changing the focus of how we look at it from purely a cost-down point of view to value for money," he says. "It’s value for money if the haulier is reliable, turns up ontime, if we get proof-of-delivery [pod] and key performance indicators [kpis], if thedrivers are clean, rather than looking like they haven’t washed in three weeks, and if we get full track-and-trace on vehicles," The last requirement is all about security a particular issue for Sony. "Our products have effectively become the new cash. People used to rob wages vans, but now every-one’s paid through the bank. One of our trailers could easily be worth £500,000 and our products are very easily converted into cash. So security is a massive issue," says Doran.
TRUSTWORTHY
As a result, he not only wants clean-looking drivers, but thoroughly vetted ones, too. "The haulier has got to have a programme for vetting drivers, but a lot of hauliers use owner-drivers on a sub-contract basis and i'm not toally convinced all the drivers have been vetted and actually proven trustworthy," he says.
Haulage may be a commodity and cost, admits Doran, but service is a much bigger issue. "This industry relies on people doing small things over and over again very well. If someone’s cheap, but they let you down 50% of the time, that’s really the end of the relationship," he says. "It will always be service and only very rarely cost that forces you to look around. "Many hauliers shoot them-selves in the foot in pitchingfor business, he adds. “It’sabout making life easier for people like me. So come to us with a fully worked out package that includes service levels, costs, kpis, pods and security. Instead, a lot of hauliers just come and say we’ve got trucks, and we’re cheap’ but that’s not what I call an offer and that’s not what we want," he says. It’s a point of view that Edward Fitzmaurice, managing director of Mastercare service and distribution for highstreet retailer Dixons, agrees with wholeheartedly. "Of course, price is important, but it’s also a question of service ability and security. You could get transport cheaper, but it if was at the expense of late stock or security issues, then the cost would pale into insignificance."
SECURITY
Like Sony, Dixons is interested in product security and uses this as a criterion in choosing suppliers. "We would vet a supplier’s security procedures and have certain requirements with regards to vehicle protection," says Fitzmaurice. "We also expect a certain level of insurance on vehicles so if anything happened, we would not be uncovered. "But Fitzmaurice also wants better service. "Ideally, we’d want better service levels in terms of delivery times, availability of vehicles and response to spikes in volume, at half the current cost but I know that may not be wholly achievable. It’s about an ability to deal with the peaks and troughs but still provide good service levels at no financial penalty to us. "Fitzmaurice also wants ideas from his providers. "Service providers have to be responsive to new ways of doing things," he says. "We want to strive to do things better, faster and cheaper, but we don’t want to have to come up with all the ideas. We don’t just want trucks and drivers, we want suppliers to work with us to help put their profits up and our costs down. "The biggest turnoff, he says, is when suppliers can’t or won’t do this. "I think I’d feel we’d reached the end of the road if we had a service level issue and I couldn’t see things getting better in the future, even it was a rolling plan for six months’ time. If people say ‘there’s nothing further we can do’, they’re probably getting stale in the contract."
This desire to draw on the expertise of third-party suppliers is becoming increasingly common. Jim Spittle, group supply chain director at hoteland leisure group Whitbread, says third-party providers need a much broader understanding of the client’s end-to-end business needs.
BUSINESS NEEDS
"It’s not just a question of specialising in wheels and sheds," he says. Spittle, who previously worked for Tesco, admits that this desire for intellectual input is relatively new. "In the past, we used to tell our providers what to do, when to do it and how to do it. Now we’ve moved to saying ‘you’re the specialist, it’s not our core business’. We are now much more humble. Our suppliers are the specialists in their field. "Cost of service, he agrees, is very important, but only aspart of the whole-life cost objective. "Therefore high service level, an ability to respond to change and the intellect a third-party supplier brings to the party are all equally important. Where cost savings would have driven the change to third-party providers a few years ago, it’s now more about sticking to core requirements. "The three cardinal sins a provider can commit for Spittle are poor service, poor communication and not being customer-facing. "Those are the things I expect as standard," he says, "though not all providers are capable of sustaining it. "Even the major supermarket chains seem to be looking to logistics providers more for intellectual input than in the past. "One thing that drives us to decide who to give work to is about them giving us good ideas, not just us telling them what to do," says Lawrence Christensen, supply chain director of Safeway. "Five years ago it was different but now I want a true partner, a meeting of minds where they feel free to tell us if they think there are better ways of doing things. And this has really changed the pecking order in terms of who we use for new projects. "We also need someone who understands the speed we have to operate at in terms of the level of service required. It may sound obvious, but it hasn’t always been the case in the past. A lot of suppliers fall down particularly in commissioning new operations, in terms of not putting enough resources behind it."
SMALL PROVIDER
Size of supplier may be linked to resources, he agrees, but that doesn’t mean only big players can service a contract. "Many years ago I used to talk at conferences about my frustration that the market was seemingly controlled by one or two large players. I used to say that biggest isn’t always best. There was a small provider I believed in at the time that supplier is now called Wincanton. So small companies can be very efficient and can grow into large companies," he says. Previous experience in your customer’s sector is also desirable, agrees Christensen, but like size, it isn’t always crucial. "Experience in other sectors can also be a benefit. There are a lot of things that are transferable. "So will Safeway be making more use of third-party providers in future? It seems so, even if they’re not necessarily the traditional kind. "I see another dimension, says Christensen. "It’s about using the transport fleet of UK plc more efficiently?’ It’s this attitude that is behind Safeway’s partnerships with other retailers and manufacturers to share transport facilities.
RUNNING EMPTY
In the latest agreement with Panasonic UK, Panasonic vehicles formerly – running empty from its distribution centre in Northampton to collect TVs from a manufacturing site in Cardiff now carry Safeway goods from Tamworth to Swindon on the way. "Getting it all to mesh together is the future," says Christensen. It’s a solution that will certainly please Neil Ashworth, head of distribution and development at Woolworths, whose one wish for improvement in the third-party logistics sector is that those handling his goods should better understand the retail trade. "I come across so many people in 3PLs who understand the supply chain business, but not necessarily the end game for retailers, which is all about providing customers with product before they even believe they need it. If everyone in the supply chain understood that, you’d have the makings of a retailsuccess," he says. A key issue, therefore, is for customers to work closely with 3PL providers. "I believe you get the third-party service provider you deserve. If you’re not prepared to work with them, then you often get a less than satisfactory service. You often see an abdication type of relationship where companies faced with something they can’t handle throw it over a brick wall and expect miracles. "You need to work with your provider to optimize what you achieve. Even if it’s non-core to your business, it still affects your bottom line. You can’t run away from it and expect it to deliver what youwant," he stresses. His idea of the perfect third-party provider is one that has a good cultural fit with the customer. "It has to have the same passion for your businesses as you have yourself," he says.
There are three phases in getting to this goal, he suggests. The first is simply shared servicegoals; the second a co-operative arrangement where the third-party provider starts to offer to improve your business in certain ways; and the third – true partnership – "is about nothing more than trust and being completely transparent to one another, where they can speak about us and our customers as the reason they exist on a daily basis. "That’s the Nirvana we all seek," he concludes.
