Global supply chain

Risk management

Debate

Partnership

Technology

Chain reaction

No place like home?

Collaboration culture

Fashion forward

Environmental, financial and political

Who will reign as supply chain champion in

Reap the rewards of a better bond between

How the clothing industry is tailoring its

risks facing your business | Page 5

the battle of global versus local? | Page 8

customer and supplier | Page 11

supply chain needs | Page 13

October 2011

Distributed within The Daily Telegraph, produced and published by Lyonsdown which takes sole responsibility for the contents

h t e p whee e e K ls t urn

g in A special report on global supply chains

Business Reporter · October 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Global supply chains – in this issue

Stand and deliver Manufacturers are utterly dependent on supply chains whether it is sourcing parts or getting goods to market. But even the best prepared can fall foul of the unexpected

By John Pullin

Publisher Bradley Scheffer brad@lyonsdown.co.uk Managing Editor Lucie Carrington lucie@lyonsdown.co.uk Editor John Pullin Creative Director Martin Nolan studio@lyonsdown.co.uk Sub Editor Amy Dickson amy@lyonsdown.co.uk Journal Assistant Natalie Luketic natalie@lyonsdown.co.uk Project Managers Paolo Zanini paolo@lyonsdown.co.uk Louise Ayling louise@lyonsdown.co.uk For more information on any of our supplements please contact us: Telephone 020 8349 4363 Email info@lyonsdown.co.uk Online www.lyonsdown.co.uk

Cover: Lucy Ward

The death toll in the earthquake and tsunami that devastated north-eastern Japan in March was huge and terrible. But there was another, less obvious casualty worldwide.

Faith in the robustness of the global supply chain was shaken, and among the groups most affected were those previously held up as models of supply chain management.

Half a world away from the quake zone, in the UK, western Europe and North America, major car manufacturers such as Toyota and Honda had to slow production and even halt some models or restrict options.

“The big original equipment manufacturers (OEMs) were caught out,” says Simon Griffiths, chief executive of the UK’s Manufacturing Advisory Service in the West Midlands.

The problem, Griffiths says, was that OEMs in all industries by and large know their main suppliers – the socalled tier-one companies that provide complex subsystems for cars, planes and consumer goods, delivering directly to final assembly lines – but that’s often as far as it goes.

“When you dive deeper into the supply chain to the tier-threes or fours, then they didn’t know that some of the electronics and the materials came from further afield and that some of them may be single sourced,” Griffiths says.

Geography has always been an important factor in supply chain management, but the industrialisation of lower-cost producer countries such as China and India, coupled with the ease of identifying suppliers and doing business with them over the internet, has led to many

industries developing global supply chains.

Not all items, though, are suitable for suppliers located at long distance from the final manufacturer. For example, using a supplier close to the final assembly plant could be sensible for body trim for cars, where each car is different and the production demands just-in-time delivery. But bulk components with long lead times are candidates for global supply; it matters less if there is a time gap between supplier and customer when the parts are for a ship or aircraft.

Some observers, though, believe the trend towards global supply chains has developed for the wrong reasons.

“Companies that use low labour costs as their primary reason for moving usually fail to secure the expected benefits,” says Dr John Garside, principal fellow at the Warwick Manufacturing Group.

There are several reasons for this, he says: higher quality costs, training commitments, increased levels of working capital, extended lead times, escalating transport costs, and unplanned events – such as earthquakes and tsunamis.

But recent news suggests lessons have been learned by some groups. Jaguar Land Rover (JLR), now part of the Indian-owned Tata Group, apparently shunned a location in India for its new engines plant for a site near Wolverhampton, pretty much in the middle of the group’s three vehicle-building plants.

Griffiths says: “A trip down the road to alter schedules or make a design change is a lot less costly.

“JLR is indicating it will have 750 or so employees of its own. Normally with the supply chain you’d see a 3:1 multiplier, so you could expect something like 2,000 jobs to be created or maybe safeguarded. It’s a big question.”

3

45%

of shipping containers don’t arrive on schedule, according to supply chain standards body GS1. Page 5

£355m

invested into the new Jaguar Land Rover plant near Wolverhampton, which will produce more than 200,000 engines a year. Page 9

10,000 BC was the first recorded use of a supplier development programme as Solomon built the temple in Jerusalem. Page 11

Sponsors

Contributors John Pullin is a writer and editor who specialises in industrial and business issues, including the application of technology in manufacturing. He was editor of Professional Engineering, Construction News and The Engineer, and now edits Environmental Engineering and runs his own company. John edits our manufacturing and supply chain reports.

Chris Partridge writes about technology and business for the national and specialist press, including The Times and Sunday Times, the Daily Telegraph, Observer and Independent.

Marc Beishon is a technology, science and business journalist and editor covering healthcare, IT and sales and marketing for corporate audiences and consumers.

Marc has worked on IT and healthcare magazines and on New Scientist.

Paul Bray has written about almost every topic from business and technology to travel, education and food and drink, for many publications including The Daily Telegraph, The Sunday Telegraph, The Guardian, The Sunday Times, Britain’s Top Employers, Computing, Director and Nasdaq International.

Dr John Garside in principal fellow at the Warwick Manufacturing Group at the University of Warwick, which he joined after wide experience in aerospace, automotive and other industrial businesses, having held senior executive posts at Dunlop, GKN, and Lucas. He is a past chairman of the Manufacturing Industries Division at the Institution of Mechanical Engineers.

Business Reporter · October 2011

4

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Innovation and inspiration Whether it’s a need for speed, sharing resources or making an emotional connection with suppliers and customers, today’s logistics businesses are rising to the challenges of an ever-changing world

Richard Wilding

Brad Brennan

Tim Cummins

What is the principal challenge facing supply chains today?

Emergency logistics is relatively new. What is it?

Why should global supply chains be on the board agenda?

Severe pressure on resources. Many raw materials are in short supply. Oil is starting to run short, so prices will keep rising. Money is tight, so organisations can’t afford new machinery or large inventories. Lack of space and skilled manpower can be a major constraint. Even water is a scarce and under-appreciated resource.

We’re on call 24/7 for anyone who suddenly needs goods delivered in a hurry and on time. It may be some silicon chips in a briefcase or the whole front-end module of a car. We can put someone on a plane within hours, or charter our own transport, anywhere on the planet.

What can we do about it?

Sounds rather drastic – why is it necessary?

According to research by IBM, CEOs say the most serious challenge they face is managing global interconnections and complexity.

Companies are being forced to look further afield for customers and suppliers, which can give rise to reputational and regulatory risks, threats to intellectual property, an increased chance of broken or missing links, and the challenge of meeting customer expectations.

One solution is to rethink the way we use resources. Instead of the “consumption” model – buy something, use it, throw it away – we need a more sustainable model where resources are shared or rented. Does every household need its own lawnmower? Does every company need its own warehouse, factory and vehicle fleet? Or could asset sharing and collaborative working increase efficiency and reduce wastage and transport utilisation?

Holding just a few days’ or hours’ inventory makes good business sense for manufacturers. But if parts are delayed or arrive faulty, or there’s a last-minute change, the manufacturer is very vulnerable: stopping production at a car factory can cost €1m an hour. The cost of our services is insignificant by comparison.

What other new approaches could supply chains take?

The more that companies know they can rely on premium delivery, the more calculated risks they can take with their supply chain

Embrace new technologies and economies of scale – for example, 3D printing could enable spare parts to be manufactured locally instead of being shipped around the globe. And products could be shipped in cheap, “vanilla” forms and then tailored for local markets.

Do we have the skills to meet these challenges?

Supply chain skills are another scarce resource. Traditional supply chain skills were technical: inventory management, requirements planning, transport and so on. But the order-winner today is “emotional” intelligence: the ability to build relationships and collaborate with suppliers, customers and even competitors to create more sustainable supply chains.

Instead of buy something, use it, throw it away, we need a more sustainable model where resources are shared or rented

So basically you’re digging people out of a hole?

Not necessarily. The more that companies know they can rely on premium delivery, the more calculated risks they can take with their supply chain and the leaner they can run. Some manufacturers deliberately design their process to incorporate premium freight.

They say: “If we’re not using your services, we’re not running lean enough.”

Who uses premium freight?

The main sector is automotive, which pioneered just-in-time manufacturing. But we also work in aerospace, marine, telecoms, pharmaceuticals, oil and gas – any industry in which fast, on-time delivery is critical. We were particularly busy when the Icelandic ash cloud played havoc with air freight, and during last winter’s heavy snow we saved our customers €30m (£26m) in lost production.

How can we develop these “emotional” skills?

What’s the secret?

At Cranfield, we teach both technical and emotional skill sets in our MSc in logistics and supply chain management, and we find that it is possible to develop emotional intelligence in people with a technical supply chain background. Another useful approach is to bring in people from diverse backgrounds, such as marketing and finance, because they understand other aspects of the business such as cost-to-serve.

Obviously you need good IT and communication systems, but really it’s all about our people. We have a vast number of partners and contacts on call worldwide, and we promise to respond within 15 minutes with a solution to customer enquiries. You also have to be able to think laterally under pressure – and be content to have no fingernails and no hair!

Richard Wilding is professor of supply chain strategy at the Centre for Logistics and Supply Chain Management, Cranfield University School of Management www.som.cranfield.ac.uk

Brad Brennan is managing director of premium freight supplier Evolution Time Critical www.evolution-timecritical.com

Why do businesses have such trouble managing these issues?

Very few have the right management and measurement systems.

There’s a lot of talk about supply chain risk but this isn’t reflected in actual priorities. You can hardly expect procurement managers to worry about supply chain risk when their reward structure is focused mainly on buying things cheaper. And current methods are not good at dealing with volatile markets and demand levels.

Is there also a communication problem?

Yes, because most organisations are better at communicating internally than externally. This is also true of IT systems such as enterprise resource planning (ERP), which are principally designed to manage internal resources and often don’t ‘talk’ to trading partners’ systems. Leading-edge businesses realise the need to share knowledge and information to create greater transparency with the organisations in their supply chain.

The old model of managing your supply chain through intimidation and harsh contracts is outmoded How can organisations build more successful and sustainable relationships?

The old model of managing your supply chain through intimidation and harsh contracts is outmoded. The longer the supply chain, the more important it is to show respect, understand cultural differences, and operate on a human level. In China, for example, a failure to develop personal relationships threatens trust and respect – and therefore represents a source of risk. Agility and flexibility require greater collaboration.

What are the contractual implications of this?

Contracts should support relationships, not undermine them, and focus on reducing the probability of things going wrong rather than merely dealing with the consequences. Our research shows that the most common problems arise from acceptance and delivery – usually because the requirements weren’t made sufficiently clear – and disagreement over change-management procedures.

Tim Cummins is CEO of The International Association for Contract and Commercial Management (IACCM) www.iaccm.com

Business Reporter · October 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Global supply chains

Risk and reward

Krafty moves Speed and flexibility are the name of the game for Kraft Foods’ complex yet efficient supply chain

As bringing goods to market becomes both increasingly risky and costly, are supply chain managers the real business innovators?

By Marc Beishon

A generation ago, issues such as risk in the supply chain didn’t keep managers awake at night. That was simply because there was no such term as “supply chain”.

There were operations and logistics managers, but the concept of end-to-end supervision of all the processes that make up the modern-day supply chain was not yet a strategic priority.

The change over the past 15 years has been dramatic.

The contribution to boosting margins by integrating the supply chain “lifecycle” has been recognised, not least with board-level appointments for a new wave of professionals. And now, as KPMG supply chain expert Andrew Underwood says, there is more risk in bringing products to market than at any time since the Second World War. “Recent events in Japan, ongoing economic turbulence and international political volatility are conspiring to open up holes in organisations’ global supply networks, creating unprecedented supply risk,” he says.

KPMG’s recent survey, Supply Chain Complexity: Managing Constant Change, found the combination of an increasingly global marketplace and the rapid adoption of digital technologies has spawned new business models and distribution channels, not to mention intensified competition – and some companies simply do not have supply chains that can keep up with the pace of change.

The key now is flexibility rather than a preoccupation with cost. Alan Braithwaite, chairman of LCP Consulting and a visiting professor at Cranfield University, says: “A long period of just focusing on low-cost producer strategies, often with extended lead times, to be more competitive with low prices is now too inflexible because it can drive excess inventory and waste further up the supply chain.

“The drivers for successful trading are to allocate inventory when a customer wants it – and not to stock too much of it – so as to respond to changes in demand,” he says. Concepts such as agility, reliability, adaptability and resilience are becoming much more than just business speak, he adds.

Flexibility can win over cheaper labour, although there are other low-cost markets closer to home in Europe than Asia. Charles Davis, partner at management consultancy AT Kearney, says: “Some companies are starting to move manufacturing from Asia to low-cost European locations as this cuts lead times.”

Braithwaite’s recipe for supply chain success is based in what he calls the “new normal” of continuing uncertainty.

“First, you need to increase the ‘clock speed’ of the business

Centres of excellence Global screen-printing equipment manufacturer DEK has organised its operations around regional centres for client industries such as notebook computers.

Mike Danby, strategic supply chain development manager, says design and manufacture of equipment is only part of the objective. “Close proximity of service and support locations, with technicians and spare parts

5

by better planning and shorter lead times – there’s a huge amount of waste by not being lean and agile in internal processes. In turn, that means being more responsive and rehearsing contingency – and that militates against single source supply.

“And a particular bee in our bonnet is the companies that maintain unprofitable complexity, for example, through their channels. In retailing, a prime example is the cost to serve smaller outlets, which could be five times higher than the multiples. If you sustain that situation without understanding the impact you will lose margin.”

Collaboration is very much the theme, and not just in the single supply chain. Braithwaite says: “One way to take out cost and increase resilience is to collaborate and make the supply chain more transparent. Nestlé and Kimberly-Clark are collaborating on transport, for example – people have been precious about this but attitudes are changing.”

There are issues, however, about information flow. A report by supply chain standards body GS1 found an 80 per cent inconsistency in master data between retailers and manufacturers. And 45 per cent of shipping containers don’t arrive on schedule.

GS1 chairman Jim Spittle says the information attributes of products have grown massively, and it is becoming crucial to try to gain an end-to-end, single view of the supply chain. This is for many more reasons than just a smooth flow including brand reputation, safety regulations, green and sustainability issues, and combating counterfeiting and theft, he says. “It isn’t just for retailing and manufacturing – we’re helping organisations such as the NHS track blood products and even patients.”

And it’s certainly about the bottom line, too. “In the ‘data crunch’, we identified potential savings of up to £1 billion for the retail industry by ironing out data inconsistencies in its supply chain, typically arising from multiple versions of product data held by different stores, distributors and suppliers,” says Spittle.

The principles of supply chain optimisation are applicable across most industries, adds Braithwaite, who considers that rigorous application of his ‘recipe’ can yield 2 to 4 per cent on margin. “Most CEOs would kill for that,” he says – and also for the competitive advantage.

Boeing is now said to be testing its supply chain to see if it can handle a ramp up in building 787s – and in two or so years’ time, people may just be taking to the air on time thanks to a multiple source of a rivet that the entire plane depends on.

Fast-moving consumer goods companies such as the food giant Kraft have to manage many different products moving at “high velocity”, according to UK logistics director Marcus Dunsmore.

“The critical thing about our industry is variability, owing to consumer demand. There’s a lot of promotional activity and much competitiveness – it’s complex and volatile,” he says.

“And you wouldn’t believe the myriad of suppliers that go into making Cadbury’s Dairy Milk – from the cardboard outer, to the packaging and the raw materials, plus managing lead times in different geographies and getting materials to the right places, scheduling factories for demand, and delivery to many different customer locations.”

In one of Dunsmore’s key sectors, chocolate – he’s responsible for integrating Cadbury’s with Kraft (right) – there are 85 chocolate factories in Europe and 18 in the UK, which gives an indication of the scale of the supply chain.

The critical change that Dunsmore has seen – and he has also worked in a long spell at Unilever – is the integration of functions that were in separate silos, such as sales, procurement and manufacturing, as well as logistics.

“For Kraft, the supply chain challenges drop into three buckets. The first is ongoing management of assets and capital, which we have to do efficiently,” he says. “Second is service – in our industry it means availability on the shelf, in a way customers can use such as in shelf-ready packaging for example. And third is sustainability – it’s heavily influencing how we deploy resources.”

E-commerce technology is key for Dunsmore, who last year joined the UK standards body GS1. He highlights data synchronisation: “It’s where we publish data into a virtual pool that customers can pull down – instead of sending paper that introduces errors and costs time – and it applies to master data at any point in the supply chain,” he says.

“When I ship a product from A to B I know how many units are on the pallet, what its weight is, the height of the pallet so it can be stored in the right slot, and so on – the whole agenda is massively underpinned by data accuracy.”

Kraft, adds Dunsmore, uses SAP software, and runs its European operations on a “single instance” basis in which there is a single implementation of the main program. “All elements of orders-to-cash are on the system, plus all planning activities including forecasting and manufacturing planning, all elements of physical locations, and integration of the salesforce with mobile terminals, as well as customers, who shape demand.”

On the procurement side, after developing scale and consolidating suppliers, Dunsmore says that collaboration is now the most important current trend, adding: “They have ideas and innovation for our products.”

Dedicating resources to real orders is a crucial move for screen-printing equipment maker DEK is one of the greatest challenges when working with global customers.”

The company, he says, is striving to ensure that resources are dedicated to servicing real orders – a “pull system” in which activities in the supply chain are triggered by customer orders rather than a guess or forecast.

“We can now assemble and ship a piece of equipment four

times quicker than 15 years ago,” he adds. “Such a fast response requires intimate relationships and communication with suppliers – high-speed logistics networks mean Asia-based suppliers can now support justin-time (JIT) manufacturing in Europe and vice versa.”

But JIT manufacturing is impossible to achieve across the entire global supply chain, Danby

Screen-printing: regional centres

says, as it would require a perfect flow of materials to the right place at needed times.

“This means the application and impact of lean principles such as cellular working and JIT manufacturing is limited to parts of the supply chain. For example, it may take five days to assemble a DEK print platform but certain materials and components have lead times of three or six months.”

Even dual sourcing is not always an answer because both suppliers may be dependent on the same raw materials, he says.

“We do use dual sourcing, but primarily to cut lead times and logistics costs, not to reduce risk.”

Single-source dependencies do arise with specialised equipment, he says, and dual sourcing also requires more work to develop and support.

Business Reporter · October 2011

6

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

How to make logistics outsourcing work for you There’s a fine balance between success and failure when choosing to outsource your logistics. How can you get the most from a third party supplier?

Outsourcing your logistics operations can have far-reaching consequences. Done right, it can help reduce operating costs, streamline inventory, and differentiate the brand through improved customer service. But do it wrong and there’s a risk of losing control over key supply chain processes, driving up operating costs and negatively impacting the customer experience.

“Businesses can benefit from the specialist expertise that third party logistics suppliers (3PLs) bring to the table, along with greater economies of scale and the ability to focus on their core activities,” says Lindsay Haselhurst, business development director at supply chain solutions provider Wincanton. “In tough economic times, outsourcing can be a quick way to take assets off the balance sheet and make significant savings on staffing and property, and it enables the business leaders to focus on areas that will drive growth. In a rapidly changing market, it is also an opportunity to bring fresh thinking to your supply chain by accessing a pool of experts.”

Outsourcing is also a credible option if you are planning to extend your geographical reach, diversify into new markets or introduce a new channel to market, such as e-commerce and home deliveries, adds Haselhurst. The established networks, resources and skills of 3PLs mean you can minimise time to market and capital expenditure, as well as achieving greater flexibility and scalability in the supply chain.

Outsourcing logistics: can support growth and achieve performance benefits

Neal’s Yard Remedies, the UK’s leading organic health and beauty retailer, outsourced its logistics operations to Wincanton for three reasons: freeing up factory space by reducing stock-holding; reducing costs; and cutting its carbon footprint through more geographically efficient distribution.

Initially, Neal’s Yard Remedies had some reservations about outsourcing logistics, admits Jon Hiatt, the company’s operations director.

“We were at a point where the business was growing so quickly, that the only way to support and develop that growth further was to look at

outsourcing our logistics operation,” he says.

“We’re a small, independent company with long and established relationships with our suppliers who understand the Neal’s Yard Remedies brand.

While there were some initial concerns about a new and outsourced process, these were quickly allayed and, today, we couldn’t be more pleased with Wincanton and the logistics service they provide to support our growth and development into an international brand.”

By making the right outsourcing decisions, businesses such as Neal’s Yard Remedies can mitigate key risks and achieve significant cost

and performance benefits.

“First, you need to ensure the 3PL understands your business and knows the expectations you have of the customer experience,” says Haselhurst.

“You need to map out your logistics processes and requirements and communicate them clearly to your chosen 3PL.” It is also important to stay in control of critical supply chain processes, says Haselhurst. “There has to be a good governance structure to help you stay in control. A partnership approach to communication with your 3PL will be key to success here.”

Keeping a handle on costs is also vital. “Make sure your outsourcing contract gives you the visibility you need, and ask your 3PL to report on costs per unit, costs per drop, fuel consumption and any other factors that could impact your bottom line,” says Haselhurst.

Finally, nothing beats talking to people who have done it already. “When we went to Wincanton I spoke to two sets of referees, and they were the two most important conversations I had,” says Hiatt. “They said, ‘Nobody’s perfect, but the guys at Wincanton will work their socks off to make logistics work for your business.’ And they were exactly right – which is why we’ve just renewed our contract with Wincanton for a further three years.” www.wincanton.co.uk

Cut costs to drive growth Bringing in experienced, extra procurement capacity is a fast and efficient way to make crucial savings in your business The procurement function, in many organisations, is often under-resourced and under-valued and, as a result, struggles to deliver.

This doesn’t make good business sense in any economic climate, but the current crisis is focusing attention on these deficiencies more than ever before.

“Traditionally, CEOs have focused on the front end of the business such as new markets, new products and sales growth,” says Nigel Scorey, managing director of supply chain specialist Procure4.

“Taking cost out of the back end of the business wasn’t seen as sexy and businesses generally concentrate on front-end disciplines such as marketing and sales. As such, the procurement teams struggle to secure the mandate needed

Results: risk and reward basis ensures net saving

to drive cost reduction.

“Now the whole business landscape has changed and the City has realised that like-forlike growth in the current marketplace is almost impossible. So it’s suddenly become legitimate to increase profits through cutting costs.”

The problem is, how? In many organisations the procurement department has been underresourced, under-funded and kept away from some of the more robust areas of spend for several years, says Scorey.

Organisations could choose to tackle this issue by increasing their in-house procurement function, but that takes time – and resources are scarce.

“Everyone is waking up to this issue at the same time, so they’re all fishing in the same

small pool of talent,” says Scorey. “And allowing for the recruitment process and notice periods, if you find someone good it could be six months before they start working for you and longer before they start saving you money.”

Often the in-house procurement department identifies potential savings, but does not have the authority in the organisation to push them through.

“Buying is the easy bit,” says Scorey. “What’s difficult is persuading the leaders of various areas of the business to align behind a common approach to sourcing. Once the deals are done you need to put discipline in place to make sure teams comply and lock in the benefits.”

If resources inside the organisation are limited, smart CEOs and CFOs facing increasing pressure to achieve rapid cost reduction, look outside the organisation for assistance, says Scorey.

“By outsourcing procurement you speed up the savings and you bring in credible capacity, broader market insight and expert process and governance. These could take years to build up in-house, but with outsourcing you can achieve a return on investment within six months.”

A small number of procurement specialists, including Procure4, work on a risk/reward basis.

“We’re paid entirely by results, so the client can’t fail to achieve a net saving,” says Scorey.

Procure4 does not generally take on longterm outsourcing contracts. Instead it drops teams of supply chain specialists into the client organisation to identify potential cost savings,

deliver these and establish the in-house processes and personnel necessary to ensure these savings are locked down and maintained.

The quickest wins are often achieved by relatively straightforward means, says Scorey.

Consolidating to fewer suppliers means more leverage and bigger discounts, as can consolidating specifications, for example, one size of stationery or a generic type of paint instead of various specialist products.

The next step might be to streamline the supply chain, cutting out the middle man and going straight to the manufacturer. Streamlining the procurement process can be done by using electronic procurement tools to aggregate orders or enable suppliers to bid for contracts.

“The difficult bit is persuading other stakeholders in the business,” says Scorey. “Giving them strong reasons why these changes must happen can be a challenge. In-house procurement departments often don’t have the time or capacity to be internally focused, but as outsiders we bring not only extra resource, but credibility and experience.”

Bringing in external procurement capacity can help business units to be bolder and get involved in those ‘meaty areas’, says Scorey. “They can say, ‘we recognised there was a procurement issue and now the board has agreed to bring in some extra capacity, insight and tools, to help cut costs and deliver growth’.” www.procure4.com/gb

Business Reporter · October 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

7

A truly global business Whether it’s low-cost sourcing or local supply, there are answers to the challenges facing businesses in today’s competitive and ever-changing world When manufacturers look to realign their production requirements, global network integrator GEFCO is on hand to react quickly and proactively. From sourcing to low-cost markets or to fulfil the obligations of a local supply route, GEFCO provides a seamless logistics flow.

There are several options for manufacturers.

Low-cost sourcing can often lead to increased costs, time and risk – all three have to be considered when a business has to decide whether to relocate or to develop a first-tier supply in a so-called low-cost region.

Ultimately, the constant search for “cost down” requires a response from production suppliers and logistics companies to provide an alternative approach to lean logistics.

The strategy for reducing the final part price

often doesn’t consider increased inventory levels, capacity levels of vehicle utilisation or return flows of empty packaging. And while the environmental effect on the supply chain is often measured, it is not always considered as the ultimate objective.

In an ever-changing market where production capacity and volume is increasing, a change to “near sourcing” is becoming more important.

For example, the earthquake and tsunami in Japan earlier this year affected multiple market sectors and led to many companies reviewing their crisis management policies.

It’s not just about unexpected events hitting the supply process, though. There is also a clearer understanding of the effects of carbon efficiency and increased capacity utilisation, leading to a shift in producing near to the end manufacturer.

Stormy weather need not mean trouble ahead Uncertain conditions are forcing many companies to cut costs.

But there are ways to soften the blow – if you know where to look The economic waters have been extremely choppy for some time now, and most organisations are facing intense cost pressures. For some this means taking decisive action to freeze discretionary spend, for example, or to cut marketing budgets or even reduce head count.

However, this can impact badly on your organisation’s goals – making it more difficult to deliver sales targets, provide quality of service or fully commit to client projects. This is especially the case in the public sector where the pressures to reduce costs have never been greater.

Fortunately, there are ways to lessen the need for cost-cutting measures. Ian McNally, of procurement specialists Efficio, suggests taking a cool look at your organisation’s third-party spend.

This, he says, can produce huge opportunities to reduce costs and avoid potentially damaging action such as staff cuts or budget freezes – because cutting procurement costs translates into immediate bottom-line savings.

McNally points out that external spend typically represents anywhere between 30 per cent and 80 per cent of a company’s cost base.

The approach to tackling these costs has become a lot more sophisticated.

“Things have changed in recent years,” he says.

“Historically the main lever was the power of the customer to pressure suppliers into reducing costs.

“But nowadays sav v y procurement professionals use more advanced approaches.

These can include refining specifications to cut out unnecessary purchasing and analysing the extended supply chain to look for efficiencies.

A focused dive into your suppliers’ costs can highlight many areas of opportunity to address further expenditure.

“Properly assessing the organisation’s own demand for services and products – asking whether suppliers can be used more

Opportunity: cut costs in third-party spend

cost-effectively to drive value – can make a big difference.

“We use a variety of tools to streamline the cost base and can effectively address most areas of an organisation’s purchasing.”

It is clear that the impact of a structured programme to drive up procurement performance can be enormous: there are many examples of huge savings in everything from raw materials to services.

The added benefit of such a programme is that when economic conditions improve, those who have used the bad times to sort out their procurement operations will emerge leaner and fitter.

They will then be well prepared to take advantage of the improved outlook when sunnier times return. www.efficioconsulting.com

Assessing change: companies reviewing sourcing

However, in a supply chain encompassing multitier suppliers, the reaction to assessing a change in sourcing is often linked to sustainable growth.

GEFCO has witnessed a shift in the outsourcing of critical and time-sensitive parts and stricter quality control on components to manufacturing facilities. Recently it has seen UK manufacturers move to invest in new facilities or contract component suppliers with UK production, which can often be sourced quicker and cheaper than

distant suppliers that require extensive quality checks and rigorous control.

Expertise in the global sourcing of parts is crucial for cutting risks and the effects of risk, as well as working closely with suppliers and manufacturers to ensure regulatory and legislative restrictions do not inhibit a lean logistics strategy. www.gefco.net

Keeping stock of your profits Consumer goods companies must focus on creating 100 per cent on-shelf availability of products to enhance revenue and customer satisfaction With the downturn in the economy, consumer goods manufacturers supplying retailers such as Tesco, Asda and Sainsbury’s are being asked to provide deeper promotional programmes, for example more “buy one get one free” and “50 per cent off” offers. These offers are generally funded by the consumer goods’ manufacturers and typically account for 17 per cent of total revenue of the manufacturer. This level of spend on promotions has increased over the past year. Seventy per cent of these promotions are loss-making for the manufacturer and cause food wastage and losses in supply chain efficiency.

Consumer goods teams must focus on ensuring 100 per cent on-shelf availability. Currently, grocery retailer levels are running at 92 per cent on-shelf availability, which is reduced further during promotional periods, creating lost sales revenues for both the manufacturer and retailer.

This causes consumer dissatisfaction with the retailer and manufacturer.

Exceedra, recently listed in the Telegraph Tech Start-Up 100, has developed software solutions to help manufacturers and retailers optimise the

planning and execution of promotions as well as overall joint business planning with the retailer.

By using electronic point of sales (EPOS) data provided by the retailers, suppliers can optimise promotional plans and improve sales forecasting accuracy during promotion periods, monitoring sales and stocks throughout the supply chain down to store level. The predictive analytics can sense demand, highlighting both availability and overstock issues before they happen.

A number of leading consumer goods companies – such as Heineken, Bernard Matthews, Ginsters, Vimto, Aspalls Cyder and Gu Puds – which have implemented Exceedra solutions are benefiting from improved visibility throughout the supply chain, as well as improvement in performance of promotions.

Richard Nicholas, co-founder of Exceedra, says: “Having worked in the consumer goods sector for a number of years we saw that companies were struggling to really optimise and forecast demand around promotions. With the availability of retailer EPOS data we have created a solution that helps sales teams better plan promotions and supply chain teams improve visibility and forecast accuracy.

“We have helped our customers improve forecast accuracy by up to 25 per cent and seen improvements in the return on investment on promotions increase by more than 10 per cent.” www.exceedra.com

EPOS data: helps manage promotions and retail availability

Business Reporter · October 20112011 Business Reporter · October

an independent report from lyonsdown, distributed with with the sunday telegraph an independent repOrt frOm lyOnsdOwn, distributed the sunday telegraph

8 8 xxxxxx Global supply chains

Global or local?

Home thoughts

Tom Bonson

When it comes to supply chains, using overseas suppliers can Whether it’s speed, convenience or cost, choosing local firms offer opportunities outweigh the disadvantages canunique eliminate some of thethat risks in a business’s supply chainof time and travel

thelook morebad, extended lines of supply, thebecomes more and ifthe carbon-footprinting vulnerable areon those on theproducts, receivinglocal end.sourcing The mandatory consumer risks may extend from the exotic – piracy in the will receive a further boost. sayto – to the mundane.

If you could find a manufacturer onreach the isIndianItOcean, HAvING SuPPlIErS WITHIN easy is a myth suppose that manufacturing proverbial Clapham omnibus whyyou “We hear and more about companies an enticing proposition, andand not ask just him because in the uKmore is necessarily less cost-effective, his can supply chains span the globe,ifyou would receivingto products when they expected go and thump the counter they fail tohear deliver.notaccording Simon Griffiths, chief executive one clear answer. says Simon Griffiths, chiefService executive “local supply chains offer lower risk, lowerthem,” of the Manufacturing Advisory in the “We’d love to have every supplier on Manufacturing Advisory Service in the shipping costs, and the opportunity forour primeof the West Midlands. long-distance shipping costs doorstep,” says StevetoCooper, managing director manufacturers work closely with suppliersWest areMidlands. rising with the oil price, and investment in of Majorfax, one of thetheir UK’sneeds leading suppliers the risks arereduced hidden.the “After thefor Japanese automation has need intensive and communicate more quicklyofand Often castings.

“But the total cost of sourcing overseas and tsunami, purchasing directors effectively,” says Martin Wright, chief executiveearthquake and expensive labour. Griffiths recently visited a canof bethe 25-30 per cent Aerospace lower.” they were caught out the effect which on Northwest Alliance, whosesaid component manufacturer in by Worcestershire Although sourcing tends to suit companies hadn’t even realised were part members overseas supply components and expertise has wonthey orders for automotive parts previously chain,” says products labour-intensive, to thethat likesare ofhomogenous, Airbus, rolls-royce, Boeing andof their madesupply in India because theGriffiths. total cost of acquisition high-volume and easy to ship, this in no way This is compounded by the temptations of BAE Systems. was lower. indicates that workers only produce singleJust-in-time sourcing, where a vital component comes “We seeoverseas supply chains ascan high-performance, manufacturing necessarily tat.highly integrated pieces of equipment ratherfrom just oneproximity supplier, says Brunel Businessand requires between supplier “Many offshore suppliers canthe meet or School’s Doran.

“The fact that many than separate companies, where members supplied.

“The supplier needs toequipment be within 50 exceed the quality standards of That indigenous single sourcing suggests co-operate in order to compete.” works bestmanufacturers minutes ofprefer the assembly plant.

Some that are so manufacturers,” says Des Doran, senior lecturer arethey significant to be made,into although if the members are also geographically close,there close have asavings direct conveyor the site,” in operations and supply chain management at they never say how much. But it’s becoming a big argues Wright. says Griffiths.

BrunelSkilled Business School.

“If suppliers haven’t got so-issue: Some lots ofofUK and suppliers Europeanwill manufacturers these be indigenous, pools of labour collect around affected by the that Japanese because quality, they’re not even considered.” called “clusters”, whether that means aerospacewere local businesses have disaster grown up with the were single sourced.”

The one proviso, says Cooper,or is being on the they engineering in lancashire biotechnology manufacturing giant on their doorstep and spot.

As a result, more organisations are noware i n“The c aquality m b r i from d g e .countries like China is whose fortunes very good now as long as you work very closely thinking about dual or multi-sourcing, at “Employers can also inextricablyorlinked buyers to from a supplierwith with them.

We soon realisedToday’s the importance of want least sourcing withit.more thanwill send ‘demand signals’ others being on theuniversities ground with the supplier, because one location. It also produces of a to local besomething multinationals customise their own product if something wrong China is a long way reaction against the concepts of just-in-time with a local and depot and collegesgoes to achieve away!

So we have a permanent in Beijing lean manufacturing, onlythe built istomade satisfy continuity of skills,” so office many components must bewhere product andsays our senior managers orafinished n u f a c goods t u re r ’s Wright.

“If you make monthly visits.” to order and stockpiles of partsm made assembled at theaslast Ironically, David chiefor executive are regarded a wasteful usejust-in-time of resources.needs run out of says skills, you Noble, of the Chartered Institute of Purchasing and However careful the customer may be, there fail.”

– so-called “glocal” minute, and therefore locally Supply, can actually give are always unforeseen hold-ups:companies.

Majorfax recently “ T“sourcing h e g e n overseas eral youtrend a quality two is foradvantage more local because you put more had cargo that was stuck on a sandbank Glocal for suppliers effort into managing it. Long-distance supplier days. But the solution can sometimes up sourcing,” says david tend to beopen assembling relationships often better local Institute ones.” ofnew business possibilities.

Noble, chiefare executive of the than chartered locally rather than manufacturing from scratch, says Cost may beand theSupply. main “That’s driver, driven but offshore have–to be prepared to hold two and months’ Purchasing especially “You Griffiths adding customised covers lumbar sourcing hasof additional benefits, says Noble. in thetowarehouse case there’s a supply by the risk more extended supply chains, whichsupply supports a basic (andin possibly imported) car seat So-called “offsets”, wherecEo’s governments say “We’ll problem,” Cooper. “But that, if is at the top of every agenda.” frame, says for example.

So because even an of apparently only buy your product if some of it made here”, ofthelocal customer suddenly wants extra consumer pressure adds toisthe attraction supply chain can be at the quantity mercy ofyou global areshort important in sectors ascars aerospace.

And canevents. supply it straightaway, so you can actually supply chains.such from to computers, UK today’s manufacturers find easier to break into quicker if youreason manufactured locally.” buyersmay want toitcustomise their ownrespond This is notthan the only why local sourcing local markets in the countries where their goods product. is not risk-free. If not properly managed, the are made where they parts.

Thisormeans that source many components mustwww.majorfax.co.uk inward-looking nature of clusters and supplier The imageorofassembled Asian companies as low-wage be made at the last minute, andwww.brunel.ac.uk/bbs parks can become a weakness as well as a strength. sweatshops is no longer accurate, since many have www.cips.org therefore locally, says Paul christodoulou, “local supply chains need to understand that become highly skilled infellow engineering even forwww.mas-wm.org principal industrial at the and Institute they’re in competition with other, global markets,” design, enabling them to act as true partners to Manufacturing at cambridge university. says Wright. “Just being better than the firm UK firms than meresectors robots. that consumers down the road isn’t enough.”

It israther only in certain And UK banks still seem reluctanttotodes And throwing in one’s lot too closely with a care while a lot about provenance, according lend to burgeoning manufacturing businesses, doran, senior lecturer in operations and supply single supplier just the other side of the wall can their Far Eastern counterparts have Business fewer qualms. chain management at Brunel School. be as perilous as single-sourcing from china.

“Investment and product development capability An electric guitar made in the uS sells for more “It’s a key balancing act,” says christodoulou. arethan often higher among anmuch identical one made inlong-distance Mexico. But there “Automotive suppliers have become very suppliers because of their greater are other issues they do care moreaccess about. to closely linked to their suppliers through justcapital,” says Noble.

“Green issues are a major talking point and in-time. But they also use the principle of The main drawback long-distance carbon footprint is aofmassive issue,”sourcing doran says. dual sourcing to encourage competition and is just that: distance.

As any general you,can mitigate risk.”

Shipping goods halfway roundwill thetell world

By Paul Bray

By Paul Bray

Back in in business Barkley Plastics hashas won back business it lost to China - and gained more - by–taking a new approach alongside its commitment to quality, delivery andand costcost Back business Barkley Plastics won back business it lost to China – and gained more by taking a new approach alongside its commitment to quality, delivery being a household name, doing lots of work as atoolmaking supplier for forofa company,” says business birmingham-based and short to China. Itmanager came toJustin regret thisinjection one company,” business development mouldingsays company barkley went on tooling development manager Justin An-the it - quality anstey.issues “they decided theyfor a plastics can’t talk in detail about cost the firm stey.business “We were toolmaking wanted to product try a cheaper option.” it hasdoing won back from China safety-critical money that more than offandbecause moulding, but confidentialities. then they de- a sum of the customer – a multinational of client prices it had cided they wanted to try cheaperof set the firmlower – went to China. it gained. came to and because there areaelements There other instances, says option.” regretare it. Quality issues on tooling embarrassment about it. where cheap product but distant Specifically, customer, a Anstey, for a safety-critical cost “about tenthe years ago we were vastmore quantities not far suppliers “About 10 yearsplastic ago wemoulding were multinational the firmmeant a sum that than doing lots offirm workthat’s as a supplier Firm favourite:

Birmingham-based toolmaking and injection moulding company Barkley Plastics can’t talk in detail about the business it has won back from China because of client confidentialities. And because there are elements of embarrassment about it.

business “We’re thebenefit lowerhas cost of stock be bought guar- flation other factors haveback. played a part andin cost innations, some cases in winning offsethad theto lower prices ittogained. to be an active part at movements by veryinkeen antee availability of parts.

What winning business back. “we’re been eroded by inflationand in lowerthere are other instances, says by currency design stage work with competitiveness among the keen looked a good business decision to be a partand of the design cost nations, and by currency anstey, where cheap but distant increased customer on developing a new Business went away the stage proved, in both instances, less than UK firms. and work with the customer movements andthat competitiveness suppliers meant vast quantities product,” he says. he says. is coming ideal. on development,” amongback. uK firms. business that of stock had to be bought to “It doesn’t dodototosay But though delivery Quality issues, delivery prob“it doesn’t say ‘yes’ ‘yes’ toto went awayquality, is coming back. and guarantee availability of parts. thesometimes customer they wants. the threequality, eternaldelivery veritiesand everything lems… and the cost benefit that cost are everything. need but though what looked a good business need toaknow thator Ansteyverities says Sometimes outsourcing seemed tothan offerideal. has of the to know they that there’s problem costsupply are thechain, three eternal decision proved less problem or they could do too have a part in some cases been eroded by in- other theyacould do things differently.” offactors the supply chain,played anstey says there’s Quality issues, delivery problems

BusinessReporter Reporter··October October2011 2011 Business

anindependent independent report from lyonsdown, distributed the sunday telegraph an repOrt frOm lyOnsdOwn, distributed withwith the sunday telegraph

Global supplyxxxxxx chains

99

Home thoughts Global or local?

Whether it’s speed, convenience or cost, choosing local firms Overseas suppliers offer unique opportunities can eliminate somecan of the risks in a business’s supply chain that outweigh the disadvantages of time and travel

It is a myth to suppose that manufacturing in the UK is necessarily less cost-effective, lend to burgeoning manufacturing businesses,

By Paul Bray according to Simon Griffiths, chief executive their far eastern counterparts have fewer qualms.

Having suppliers within easy reach is an “Investment of the Manufacturing Service in the and productAdvisory development capability enticing proposition, not just because on youthe can are West Midlands.

Long-distance shipping costs If you could findand a manufacturer often much higher among long-distance go and thump the counter if they deliver. are rising because with the oil price, greater and investment in proverbial clapham omnibus andfail askto him why suppliers of their access to “Localchains supplyspan chains risk, lower automation reduced the need for intensive his supply theoffer globe,lower you would hear capital,” sayshas Noble. shipping costs, and the opportunity for prime and expensive labour. Griffiths recentlysourcing visited a one clear answer.

The main drawback of long-distance manufacturers workevery closely with suppliers manufacturer in Worcestershire “We’d love totohave supplier on our iscomponent just that: distance.

As any general will tellwhich you, and communicate their needs more quickly and the hasmore won orders for the automotive parts previously doorstep,” says Steve cooper, managing director extended lines of supply, the more effectively,” saysof Martin Wright, chief executive made in India thethe total cost of acquisition of Majorfax, one the uK’s leading suppliers of vulnerable arebecause those on receiving end. The of the Northwest Aerospace Alliance, whose risks was lower. may extend from the exotic – piracy in the castings.

“But the total cost of sourcing overseas members Just-in-time necessarily ocean, saymanufacturing – to the mundane. can be 25 tosupply 30 per components cent lower.” and expertise Indian to Although the likes ofoverseas Airbus, Rolls-Royce, Boeing and requires proximity supplier supplied. sourcing tends to suit “We hear morebetween and more aboutand companies BAE Systems.

“The supplier needs to bewhen within 50 minutes of products that are homogenous, labour-intensive, not receiving products they expected “We see supply chains high-performance, the assembly plant. Some are so closeexecutive they have high-volume and easy toas ship, this in no way them,” says Simon Griffiths, chief highly integrated pieces of equipment a direct conveyor into the site,” says Griffiths. indicates that overseas workers canrather only of the Manufacturing Advisory Service in the Some of these suppliers will be indigenous, than separate produce tat. companies, where the members West Midlands. co-operate in order to compete.”

That works best businesses that have grown upJapanese with the “Many offshore suppliers can meet or exceed the local often the risks are hidden.

“After the if the members also geographically close, earthquake manufacturing giant onpurchasing their doorstep and quality standardsare of indigenous manufacturers,” and tsunami, directors argues whose fortunes inextricably linked withon it. says desWright. doran, senior lecturer in operations and said they were are caught out by the effect Skilled pools of labour at collect around so- companies Others willthey be multinationals with a local supply chain management Brunel Business hadn’t even realised weredepot part called “clusters”, whether that aerospace built tosupply satisfychain,” the manufacturer’s their says Griffiths.just-in-time School.

“If suppliers haven’t gotmeans quality, they’re of “glocal”by companies. engineering in Lancashire or biotechnology in needs not even considered.”

This– so-called is compounded the temptations Cambridge.

“Employers can alsoissend ‘demand Glocalsourcing, suppliers tend to be locally The one proviso, says cooper, being on the of single where a assembling vital component signals’ to local universities and colleges to achieve rather than manufacturingcomes from scratch, says spot.

“The quality from just covers and lumbar fcontinuity r o m c o uofnskills,” t r i e s says Wright. “If you run out Griffiths – adding customised one supplier, says give of skills, youisfail.” supports to ayou basic (and possibly car like china very ‘Sourcing overseas can doran.imported) “The fact that even anequipment apparently “The general trend is for more local sourcing,” seat frame, for example. Somany good now as long a quality advantage because you the says David Noble, chief executive of the Chartered local supply chain can be atm a nmercy u f a cof t uglobal rers as you work closely of Purchasing “That’s driven prefer single wInstitute it h t he m . We and putSupply. more effort intoevents. managing it’ – especially by the risk of more extended supply This is not the only reasonsourcing why local sourcing suggestsis soon realised the David Chartered Institute chains, which is at the top of everyNoble, CEO’s agenda.” not risk-free.

If not properly managed, t h at t hthe e r inwarde are importance of being Consumer adds to the attraction of looking nature of clusters and supplier parks can on the groundpressure with of significant savings Purchasing and Supply short supply chains. From cars to computers, become a weakness as well as the supplier, because t oa strength. b e m “Local ade, buyers want to customise their own supply chains need to understand iftoday’s something goes althoughthat theythey’re never product.

This means markets,” wrong china is a that many components in competition with other, global say how much. says But mustway be made the last minute, Wright.

“Justabeing better down long away!or Soassembled we have a at permanent office it’s becoming big issue: lotsthan of uKthe andfirm European and therefore locally, Paul Christodoulou, the road isn’t enough.” in Beijing and our seniorsays managers make monthly manufacturers were affected by the Japanese And throwing in one’s too closely with a principal industrial fellow at the Institute for disaster visits.” because they werelot single sourced.”

Manufacturing atdavid Cambridge theorganisations other side of theare wallnow can Ironically, says Noble,University. chief executive single As asupplier result,just more It ischartered only in certain sectors that consumers be as perilous asdual single from China. of the Institute of Purchasing and thinking about orsourcing multi-sourcing, or at care a lot about provenance, according Des least “It’s a key balancing act,” sayswith Christodoulou.

Supply, “sourcing overseas can actuallytogive sourcing from a supplier more than Doran, senioradvantage lecturer inbecause operations “Automotive have become very closely you a quality youand putsupply more one location.suppliers It also produces something of a chaininto management Businesssupplier School. reaction linked toagainst their suppliers through just-in-time. effort managingat it.Brunel long-distance the concepts of just-in-time and An electric guitar made in thethan US sells more lean But they also use thewhere principle of dual sourcing relationships are often better localfor ones.” manufacturing, product is made only toorder encourage competition andormitigate than anmay identical onemain madedriver, in Mexico.

But there to cost be the but offshore and stockpiles of parts finishedrisk.” goods are otherhas issues they dobenefits, care more about. sourcing additional says Noble. So- are regarded as a wasteful use of resources.

“Green issues are agovernments major talkingsay: point and www.aerospace.co.uk called “offsets”, where “We’ll However careful the customer may be, there carbon is a massive issue,” Doran says. are www.ifm.eng.cam.ac.uk only buyfootprint your product if some of it is made here”, always unforeseen hold-ups: Majorfax recently Shipping goods halfway round the worldAnd can had cargo that was stuck on a sandbank for two are important in sectors such as aerospace. look bad, and if carbon-footprinting becomes uK manufacturers may find it easier to break into days. But the solution can sometimes open up mandatory oninconsumer products, local sourcing local markets the countries where their goods new business possibilities. willmade receive a further boost. are or where they source parts. “you have to be prepared to hold two months’ The image of Asian companies as low-wage supply in the warehouse in case there’s a supply sweatshops is no longer accurate, since many have problem,” says cooper. become highly skilled in engineering and even “But because of that, if the customer suddenly design, enabling them to act as true partners to wants extra quantity you can supply it straight uK firms rather than mere robots. away, so you can actually respond quicker than And while uK banks still seem reluctant to if you manufactured locally.”

By Paul Bray

Inthe theright rightdirection direction There‘s There‘saaresurgence resurgencein ininterest interestin insourcing sourcingproducts productslocally, locally,says saysthe theManufacturing ManufacturingAdvisory AdvisoryService Servicein inthe theWest WestMidlands Midlands In Originalgriffiths, equipment manufacturers all the price hasthat’s risen so other auto manufacturers Manufacturing in the Thenew newJaguar Jaguarland Landrover Roverengine engines plant is defect rates of zeroinper thethat wayshipping business is. but says the exchange rate against theof fuelthen west midlands and they areindustry too. says simon griffiths, chiefAdvisory executiveService the he says, look forper a combination is more werehand, indicating at a recent West Midlands.

“One is that JLR “but, workon the other announced in September will be built in of the manufacturing parts, 100 cent on-time there are other,expensive, less quantifiablesectors,million euro meeting is helping,that the price goods of fuel long distances they and advisory plant, announced in september, cost and events such as thetoo.

Japanese there’s now a lot morehas appetite to that source a globally competitive market in the thebe Black nearCountry Wolverhampton,service ininthe delivery, anddelivery costs. - and the factors, Original equipmentof quality, risen so shippingand goods other auto industry manufacturers west midlands. will builtCountry in the black they want onno those three of earthquake andmanufacturers tsunami havein caused big he standardsthere the UK – the UKdistances as a whole, autoJlr industry they have towere be fairly a £355m investment toa produce will be shortage all sectors, long is more expensive, indicating atproducts a recent in meeting “One is that work inand a globally near wolverhampton, £355m between apply globally. companies to re-evaluate the risks in their of factorssuppliers just the – thansuch there coldmarket hearted about this, so I don’t think 200,000 and 300,000between engines a year from lining up to offer their says, look for a combination and events as the Japanese there’s now morenot appetite toWest sourceMidlands competitive in the auto investment to produce In the automotive sector, the hasthan been for has a long time.” there willhave be favouritism 2013. Butand will 300,000 the plant be good news forindustry UK services and products to quality Jlr’s earthquake and tsunamisupply have chains. quality, cost and delivery - and productswe in the uK there and they to be fairly just because 200,000 engines a standard is a document called TS16949: If that all sounds hard-nosed, The reasons for thatcaused are nothing to to re-evaluate happen to be inso the West Midlands and suppliers? engine plant. some suppliers may the standards theythen want on those companies been for a long time.” cold-hearted about this, i don’t year from 2013. but will the plant be “If you haven’t got that, almost that’s the way business is. But there dothat withare sentiment. says the supply chains. they There answers to that, saysthink there three factors apply globally. the risks in their the reasons for nothing Griffiths willare betoo. favouritism just good newsare for two uK suppliers? even relocate fromit’s around the world get into theisauto market.” are other, less quantifiable too. says impossible exchange rate against theifeuro on to thebeother Simon Griffiths, chief executive “the threefactors, key things,” that is allhelping, sounds hard-nosed, to and do with sentiment. griffiths happen in thehand, they there are two answers to that, of thebecause we“But, to beto closer. there a lot to play for.

Business Reporter · October 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Global supply chains

11

Working together Successful businesses have realised that to get the most from suppliers they have to turn them into partners. Collaboration is the name of the game

By Chris Partridge

When Solomon built the temple in Jerusalem, about the 10th century BC, he placed a major order for cedar wood with Hiram, king of Tyre. To help Hiram with quality and delivery, he sent a task force of hewers under a procurement executive called Adoniram. And, according to the Bible: “There was peace between Hiram and Solomon; and they two made a league together.” This was the first recorded supplier development programme.

Unfortunately, this early example of a collaborative supply chain was soon forgotten. By the late 20th century, big corporations usually sought to dominate their supply chain by financial muscle, imposing efficiency schemes such as just-in-time delivery and the Six Sigma strategy with the threat of moving orders elsewhere.

Procurement executives are now reaching the limits that supply chain efficiencies can achieve and are looking to closer relationships with suppliers to gain flexibility and faster times to market. They are coming to realise that many suppliers need to be brought up to speed – and that this can only be done by collaboration.

Andrew Coulcher, director of business solutions at the Chartered Institute of Purchasing and Supply, says the new interest in supplier development is also being driven by deep cuts in head counts at major manufacturers, which now need the skills and innovation of their suppliers. He saw the process at work in his previous company, Motorola.

“Motorola, like a lot of large global manufacturing companies, moved away from the type of relationship that was all about cost to ones that were much more about development of supply capability,” he says.

“As in-house resources tend to get cut back, especially in businesses like engineering, the only place you have got left to tap into new innovation is the supply base.”

Major corporations do not tend to change their supply chain model simply because it is seen as a good way to go, however. Something is needed to spur them into action.

At another of Coulcher’s previous employers, the spur was increasing uncompetitiveness. “The products of an organisation I used to work with had become so expensive compared with their competitors’, relying on negotiating annually just to get costs down was a route to going out of business,” he adds. “They realised they needed to get their supply base involved.” Once the decision had been made to develop their suppliers into partners, the next step was

Procurement executives are coming to realise that many suppliers need to be brought up to speed – and that this can only be done by collaboration

to communicate the new strategy.

“It was as simple as getting the large suppliers to the company into a room and speaking openly about our challenge and the vital role we expected them to play in the process,” Coulcher says. “At the same time, we had to make sure they didn’t see it simply as a matter of cutting costs - it would give them a bigger share of the business that would follow.”

Identifying which suppliers to invite onto a development programme is vital, partly because reducing the number of suppliers is essential. “You start with the top 5 to 10 per cent of strategic suppliers,” he says, a strategic supplier being one who provides items that would be difficult to source elsewhere at the same cost.

It is also essential to analyse supplier performance to identify which ones are performing well and will not benefit from a development programme, those who consistently do badly and should be eliminated, and those who clearly could be good performers if they were fostered.

Convincing suppliers that participating in a development programme is in their interest is not as easy as it might appear. Some will be affronted at the suggestion that they need educating, least of all by their customer. Many will be sceptical about the benefits of “getting into bed with a 600lb gorilla”, but they should take the longer view, says Rachel Eade, automotive cluster manager at the Manufacturing Advisory Service in the West Midlands.

“In the days when business was good, relationships were not that important,” she says. “With the threat of global manufacturing in low-cost countries, if we want to maintain our position in the UK as manufacturers, designers and engineers we have to recognise the competition. One of the keys to that is establishing relationships in the supply chain.”

Suppliers who participate in development programmes will join an elite group who are trusted and occupy a privileged position, getting advance notice of new product launches so they can participate in the design process.

This enables them to flag up potential manufacturability problems right at the start, so overall quality and reliability levels can be baked into the design.

Suppliers can also learn from their customer’s larger pool of expertise, if they are not too proud. “Many suppliers are failing to meet quality, cost and delivery requirements – they can draw on their customers to up-skill team leaders,” Eade says.

Ultimately, everybody wins in a successful supplier development programme, Eade says. “Any evaluation of supply chain activity brings productivity gains, extra capacity, higher quality and speed of new product introduction, but always the biggest gain has been the improvement in the relationship between the customer and supplier.”

Developing strategies The UK’s small firms must find ways to get the best products, services and price from global supply chains, says Dr John Garside With product portfolios that reach global customers, worldwide supply chains have become an important feature for manufacturing companies. Today, it is companies together with their supply chains that compete, not individual businesses.

Original equipment manufacturers (OEMs) are system integrators who take responsibility for identifying market requirements, compiling product specifications, establishing budgets and preparing the business plan that details the returns expected from business opportunities.

Selling prices have to be competitive to ensure products are affordable, which necessitates low manufacturing costs. This has driven manufacturers to source capacity in low labour cost economies, such as China and India. But if cost alone is the driver, these moves usually fail to secure the expected benefits. This trend has been intensified by managers failing to recognise the cost of direct labour.

UK industry has paid a high price for not evaluating these factors before sourcing products abroad. Many traditional industries have been closed or sold to overseas competitors.

However, companies that invested in overseas manufacturing as part of a longer-term business strategy, have retained their intellectual property and, in many instances, grown their businesses.

Products are becoming more complex and companies have recognised they cannot develop all the technologies to maintain competitiveness. So, they focus on core technologies or processes that define the business while protecting their intellectual property. Global supply chains then provide access to innovative technologies in specific products - witness PCs with an Intel processor.

OEMs across the world structure their businesses around global supply chains. The sell-off of UK-owned OEMs and tier-one suppliers means UK industry has to rely on decisions taken by directors living abroad to support the investments needed to sustain the UK technology base, develop intellectual property and acquire tacit knowledge essential for competing in these global supply chains.

With most UK manufacturers now small businesses, it is difficult for them to find ways of winning business with overseas OEMs and tier-one suppliers. New industrial paradigms must be found that enable SMEs to exploit emerging collaborative commerce marketplace websites that integrate SMEs with skills to form virtual companies to be able to compete more strongly.

Dr John Garside is principal fellow at the Warwick Manufacturing Group, University of Warwick

Business Reporter · October 2011

12

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Get more power from your voice Eliminate the need for pens and scanners in a warehouse environment with wireless voice-assisted technology We used to navigate the roads using paper maps, which are awkward and dangerous when trying to drive, but the reassuring voice of the satnav is increasingly enabling drivers to find their way without taking their eyes off the road.

In most warehouses, technology has yet to catch up. Forklift truck drivers have to “learn” the warehouse and then find the items they need while consulting a paper list.

Now computer voices are coming to their aid, just like the satnav. A forklift truck driver,

In use: increase in accuracy and productivity

for example, simply puts on a wireless headset and listens to instructions, such as “pick three widgets, catalogue number 12345, and take them to the loading bay”. The order can be fulfilled quickly and safely without all those paper forms.

Until recently, voice commands were limited to picking. Now logistics systems specialists BCP are extending voice assistance to the whole warehouse, eliminating clipboards, pens, paper and scanners completely – which is particularly important in places such as cold stores where workers have to wear gloves.

“Voice technology can now be used wall-towall from goods inwards to picking and dispatch,” says Tim Williams, distribution divisional director at BCP. “We have already extended the benefits of voice to every single task through the warehouse as opposed to just picking.”

Cutting-edge voice recognition software means that incoming pallets can be identified and logged into the warehouse management system by the forklift driver simply reading out the label, with no need to fiddle with a pen or scanner.

“Voice is particularly useful in goods inwards for capturing batch and serial numbers for traceability,” says Williams. “Some goods have vital information such as temperature controls, and voice enables you to capture information like that, which is normally quite hard to get hold of.”

The system is easy and intuitive to use. “The operative is prompted to record the temperature

and he or she will say ‘seven degrees’ – it is as simple as that,” Williams says.

Voice assistance can now be added to other common warehouse operations such as putting pallets into bulk storage areas, replenishing picking areas and even stocktaking.

BCP’s system can also cope with all the varieties of picking operations, as Williams explains: “Picking ranges from picking a customer-specific order or picking a particular product line that is being moved from warehouse to warehouse, to picking for vehicle loads, or picking some products for storage as you assemble an export order.”

The software excels in the processing of exceptions, so workers are not delayed if the physical reality in the warehouse does not match up with the system’s records. “If stock is not there, it tells the operator to go on to the next, and will also tell the next 150 or so pickers to avoid that, too, while the situation is corrected,” Williams says.

Voice assistance can sound a little off-putting for the people who have to use it, like having a computer foreman telling them what to do all the time, but workers soon appreciate the speed and efficiency it brings.

“Ninety-nine per cent of people like to do the best they can and voice helps them to do their best,” Williams says. “You are not fiddling with a barcode scanner or pen and paper all the time, simply following a voice that says ‘go here, pick

Clients: “It’s the best things we’ve ever done”

three of these’. There have been quite a few conversions during training – quite often some of the biggest naysayers end up showing off the software to potential customers.”

The technology consists of a belt-mounted wireless receiver and a headset with a boom microphone. All the user has to do is press one or two buttons at the beginning of each shift.

Noise-cancelling headphones ensure the system can cope with loud warehouse environments.

New operators start by talking through their working vocabulary including numbers and technical terms, so the system recognises every word, even if the voice is heavily accented.

For companies, voice assistance is an investment that works. “It gives a very good return on investment – we have people who have got the system paying back in six to nine months,” Williams says. www.bcpsoftware.com

Getting the full package Consumers are wielding more influence over supply chains and how goods are packaged as environmental concerns become more prevalent Supply chain experts tend to focus on technical issues such as just-in-time, supplier development, lean manufacturing and so on, but there is another class of individuals who wield a considerable influence on supply chains but are sometimes forgotten – consumers.

Environmental concerns and criticisms over waste are driving changes in the way goods are packed, and those changes are working their way back up the supply chain.

The influence of consumers is particularly strong in the food sector, where packaging has been a bone of contention with environmentalists for many years. Recently, however, the focus has shifted from the packaging itself to the food inside, says Joanne Stephenson, vice president of marketing and innovation at Linpac Packaging.

“In the last year, in particular, we have seen a focus on food waste as opposed to the packaging itself,” she says. “If you look at the 89m tonnes of food waste in Europe, 44 per cent comes from household wastage and 38 per cent from the food supply chain, from the farm to the shelf.”

Packaging can have a major impact on waste at all stages of the supply chain, by protecting food from damage in transit and keeping it fresh for longer. The new concern over waste is combining with demographic changes to change packaging designs.

“Social and economic changes such as the increasing number of people living alone, an ageing

population, sensitisation over diet concentrating on portion control, are all changing the way we look at package design,” says Stephenson. “As a result, people are demanding packs where you can split it in two or take out portions of a product without losing the modified atmosphere.”

And, of course, people still want packaging that is easy to get into. “I heard a wonderful term the other day – ‘wrap rage’ – this horrible situation where you are trying to get some cooked ham out of a pack and you have to get the scissors out because you can’t peel the top back.”

As inflation continues to rise, the main pressure will be on cost, Stephenson believes, and a major weapon in the war on cost is, somewhat surprisingly, sustainability. “Sustainability is a big priority with consumers now – can we use more recycled materials, can we reduce the amount of materials, can we get away from oil-based plastics and use bio-polymers and so on?” she says.

Conventional wisdom is that recycled materials are more expensive than new, because of the cost of sorting, cleaning and reprocessing. In the case of plastics, this is no longer the case, Stephenson says: “We find that using recycled material can be cheaper than using virgin plastic, whose price depends on the vagaries of the oil industry. Variations of supply and demand for recycled plastic do not follow the same cycles.”

Linpac has just launched a range of packaging for meat under the Rfresh banner, which is 95

per cent recycled, using super-cleaned PET material from its own unique cleaning system.

This ensures the safety and security necessary for food distribution.

Getting customers to accept recycled materials involves some education, however. The materials are not transparent, and plastics are seen as less environmentally friendly than paper and card. “If you look at the figures, there are arguments on both sides, but we are seeing design trends for mixed paper and plastic solutions because customers want the performance of plastics around shelf life and rigidity, but with a paper look and feel,” Stephenson explains.

This can cause problems when the packaging returns through the recycling loop, whereas using just one material for the whole package makes things much simpler and therefore cheaper at the waste management site. “From the recycling point of view you want the simplest pack possible, so we are trying to educate retailers to use cloudy packs with transparent lids and shingling them on the shelves to show off the contents. We have just converted two major retailers to 95 per cent recycled material.”

Collaboration between producers, distributors, retailers and the packaging manufacturers is essential if waste is to be squeezed out of the system while catering to customer demands.

Sustainability: a big priority for consumers

www.linpacpackaging.com

Business Reporter · October 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Global supply chains

13

The shape of things to come Whether it’s the automotive industry or fashion, technological advances are enabling businesses and their suppliers to work closer together than ever before

By John Pullin

The concept of the “extended enterprise” may sound like management speak. But if you buy a car, an item of clothing, a dishwasher or an aircraft, you’re buying not just from the name on the bonnet, inside the collar or on the front of the machine. You’re buying from a supply chain that has collaborated to bring you the product: an extended enterprise.

A lot of the competitiveness that these extended enterprises achieve is down to the quality of their collaboration, and co-ordinating and controlling the supply chain is helped by a lot of specialists – traditionally in logistics, finance, risk assessment, the law and contractual matters.

Increasingly there are now specialists in design and engineering systems, too. Collaborative design between original equipment manufacturers (OEMs) and their suppliers has a double benefit, says Robert Hodge, life science and consumer products executive with Dassault Systèmes, one of the big names in product lifecycle management (PLM) systems.

Suppliers have specialist knowledge of subsystems and individual components and materials that the big manufacturers want to tap into – involving their technical knowledge early in the design phase of a new product avoids potential problems later.

This technical side of collaborative product design is well-established in industries such as automotive and aerospace. The basis of this is “a single version of the truth”: a master design of a product or component that can be worked on serially or simultaneously by OEMs and their suppliers wherever they are around the world. Benefits include faster development and early identification of problems or mistakes, important where time to market is critical in reducing development cost.

Of course, there are issues in this. Companies in some sectors have been slower to adopt collaborative design technologies because of concern about security, although current PLM systems often emphasise that there is no need for concern.

“Our systems have numerous capabilities for companies to control access to sensitive intellectual property,” says Howard Heppelmann, vice-president of product analytics at systems company PTC. “We can securely compartmentalise data, manage detailed access control rules, generate low-fidelity representation of protected designs, and define and manage digital rights rules.”

The intellectual property owner can specify who sees what and when, and can also track what they’re doing with it. And they can change the rules over time, so a request for a quotation from a new supplier may have limited details of the product, with full 3D details added at a later stage when the new people have gone through to a shortlist.

In any case, design collaboration between OEMs and suppliers has become increasingly sophisticated in recent years as PLM firms add new functions such as analysis

Keeping the crown jewels The crucial word in many supply chain relationships is “trust”. Big companies sourcing components or materials from smaller firms want to know their intellectual property (IP) isn’t leaking out, perhaps into the hands of competitors. Small firms with good ideas would like credit for them and assurance they won’t be ripped off.

Autodesk: using the cloud to get closer to suppliers

tools and context. But many of these developments are outside the traditional remit of design and engineering systems: PTC, for example, has added analytics functions that assess whether suppliers comply with standards and regulations on quality and environmental issues.

A lot of the current development at Dassault Systèmes, says Hodge, is in extending the range of things that can be measured inside the system to encompass “other metrics” that are as much to do with supplier performance as with the product or component they are supplying.

“We can build metrics such as price, quality, delivery times, even location, into the system,” he says. This provides a “scoring” system for rating suppliers when they’re new, but it also means there is an audit trail to show performance and compliance with the rules.

“Having an audit trail with faxes and emails and couriers is difficult. If it’s all in the PLM system it’s exposed.”

And though security remains an issue, Hodge adds, the system enables wider communication about project goals and performance.

The industry that seems to have gone furthest down the road towards using PLM as a central system for supply chain management isn’t automotive or aerospace, though.

In the fashion industry, says Judy Gnaedig, head of PLM development at the specialist group Lectra, the nature of the global supply chain makes PLM “essential”.

“Originally the fashion supply chain was sequential, and it tended to be local or maybe national,” she says. “Now

the supply chain is global and needs to be synchronised and collaborative. Activities need to happen in parallel and information needs to be effectively shared, controlled and managed between different actors,” she says.

The apparel supply chain is more complex than some as product design and development involves such factors as look, feel, texture and colour which don’t crop up in the same way with, say, car design systems. Also the large number of “components” such as fabrics, buttons and zips that need to be co-ordinated across many collections and products is hugely facilitated by PLM critical path management, with activities managed between brands and far east manufacturers.

But if fashion sets some of the standards for supply chain use of systems, then another sector may also have lessons, says Stephen Bodnar, vice-president of data management at the design technology company Autodesk.

According to Bodnar, collaborative technologies were going strong in other sectors before PLM became a commonplace term. “In construction and architecture, they’ve had collaborative technologies and partner networks for a long time,” he says. In manufacturing, collaboration has hitherto been based on hierarchic supply chains.

Bodnar thinks cloud computing changes all the equations. “It enables manufacturers to interact with their supply partners more easily and more efficiently,” he says.

The technology, he believes, will not only control the supply chain collaboration, it will shape it.

Your intellectual property may be one of your chief concerns in a supply chain relationship but, with some care, your secrets can stay safe

Technology can help but, “in essence,” says Lara Quelch, senior IP consultant with business advice group KPMG, “it’s knowing who you’re dealing with”.

That means getting local information on potential suppliers in distant places and using the internet to research people and companies.

“The level of due diligence you do will depend on your budget, but you’d be surprised how much

you get if you dig around,” says Quelch.

There are also legal processes.

“I always say to organisations that before they speak to someone they should get a non-disclosure agreement (NDA) put in place,” Quelch says. “It puts them on notice that you’ve got valuable information and that you’re aware of its value.

But the problem with them is that they’re difficult to enforce – and if

they’re breached, the information is out there anyway, so what is your remedy?”

Copyright and patent laws offer other ways to protect IP, but copyright infringement is “sometimes difficult to demonstrate”, and patenting is expensive.

The fundamental, though, Quelch believes, is to take a systematic approach towards

classifying the IP you have in products and processes: identifying what the “crown jewels” are and what the vulnerabilities might be. If new IP is going to be generated in a contract, sort out beforehand what belongs to whom as well.

“If you understand what it is you have to give away in dealing with a supplier, then maybe you’ll break it down, and give a bit away in the tendering process, a bit more

at qualification, and so on,” she says.

“Don’t underestimate the practical controls you have, ensure employees know what they can pass on, and what they can’t.”

But you have to keep checking.

“I spoke to a company recently that said it did nothing without an NDA in place, but I then asked if they monitored exactly what they let out of the door, and they said no.”

Business Reporter · October 2011

14

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

Keeping afloat during turbulent times With tight margins and rising costs, it’s sink or swim time for companies. Planning and scheduling software could navigate businesses through the choppy economic waters Seldom have companies competed for business in such a highly uncertain economic climate. The ability to drive out cost, increase company agility, and secure and grow market share is fundamental to driving business forward and returning to prosperous times.

But how do you match demand with supply when demand is increasingly unpredictable? And how do you optimise efficiency when cutting today’s surplus capacity could be tomorrow’s blunder?

In other words, what do you need to make your supply chain flexible and keep up with a turbulent marketplace?

At the end of the 1990s, a team involved in artificial intelligence recognised that, to solve complex planning puzzles and raise the level in operational efficiency, a different approach was required. They believed it would be possible to develop a standard software package that would provide an Advanced Planning and Scheduling (APS) software platform across any business to support multiple and connected operations.

Through high configurability and the ability to precisely underpin each process, operations could reach optimum capacity and resource utilisation, thus enhancing delivery performance.

Adding a glimmer of light to today’s doom and gloom, it’s refreshing to see this dream turned into reality. Quintiq is a company that consistently grows at 40 per cent year-on-year

Software: P&O Ferrymasters benefits from a centralised planning model

through increasing the profitability of its customers’ businesses.

Quintiq’s software is now a global platform for planning DHL’s and TNT’s ‘last mile’ pick-up and delivery businesses. It also provides the planning software for North America’s air space, assigning tens of thousands of highly skilled air traffic controllers for the Federal Aviation Administration. Many of the world’s largest producers of aluminium plan their production capabilities and supply chains using Quintiq.

Logistics is one of the toughest markets.

Margins are tight and operating costs are escalating. Failure to perform can spell disaster.

FORTHCOMING EDITIONS FROM BUSINESS REPORTER

Precious metals

In The Sunday Telegraph on 6 November 2011 As stock markets nosedive and government debt rockets, investors are crying out for a safe haven for their assets. But given the recent stratospheric price of precious metals, are they still worth the investment?

Mergers and acquisitions In The Sunday Telegraph on 6 December 2011

Executed correctly, the right acquisition allows companies to benefit from greater economies of scale, gives access to new markets and technology and delivers shareholder value and breakneck growth. What are the risks and opportunities in today’s troubled economies?

Strategy execution

In The Sunday Telegraph on 11 December 2011 One of the biggest problems facing company bosses today is the disconnect between business strategy and operations. How can businesses communicate strategy effectively and create a high-performance organisation?

Lyonsdown.co.uk

One of Britain’s logistics operators decided to invest its way through the current climate.

P&O Ferrymasters is a highly complex business involving 26 regional offices, a huge freight forwarding business, and ownership of 2,000 trailers and 2,500 containers. It also has a profile of customers with varied expectations and contractual commitments. Additionally, there’s the requirement to ship goods across Europe, making decisions on the best use of road, rail and sea, contending with timetables and capacities.

All of those attributes need significant support.

The managing director of P&O Ferrymasters,

Bas Belder, wanted a completely integrated solution where his operational teams would be able to see synergies across the business, protect his customers’ supply chains, drive out cost and drive up the customer experience. By exactly modelling his business processes in Quintiq’s APS software and integrating with his existing software systems, Belder is delighted with the results. He says: “This has been a model IT project. Quick to implement, the Quintiq system provides real planning transparency and, most importantly, quick returns.”

Belder now has centralised planning, where a single view of operations is helping P&O Ferrymasters identify opportunities to achieve return loads between countries. This initiative alone recovered the investment in six months.

Additionally, the company is able to extend the concept to triangulate the movement of freight across more than two countries, taking into account compatibility of loads and routes with different hauliers and different trailers or units. The combined capabilities of systems give P&O Ferrymasters a very tight grip across the business to enhance its competitiveness and operational agility.

Albert van de Liefvoort is marketing manager at Quintiq albert.van.de.liefvoort@quintiq.com +44 208 899 6676

For copies of our reports, email info@lyonsdown.co.uk

Business Reporter · October 2011

an independent report from lyonsdown, distributed with the sunday telegraph

Industry view

15

Changing the logistics landscape A major transformation is happening in the way goods are transported across the UK and Europe And the change is being led by Palletforce – a new breed of pallet network that is carving out a smarter route for businesses that want to use more flexible and greener logistics.

“Without doubt we are seeing a fundamental shift in culture as more businesses take a completely fresh approach to how they run their supply chain,” says Palletforce chief executive Michael Conroy. “Palletforce gives companies an attractive, alternative way to move goods around – allowing them to break from less efficient and often more expensive traditional practices.”

The Palletforce network represents the combined force of about 87 of the country’s best transport companies which, between them, operate almost 100 depots with 4,500 staff. All this expertise is brought together at Palletforce’s

£30m central hub, where state-of-the-art technology is used to ensure goods are moved smoothly and efficiently wherever their destination.

This operation gives businesses the flexibility to transport smaller consignments while continuing to harness the economies of scale of a large distribution network. Against dedicated fleets or traditional logistics offerings, this alternative also gives a variable cost base to manage distribution requirements, reduced lead times, reduced stockholding and improvements to cost control.

One of the largest benefits of using Palletforce is it can cut a company’s carbon footprint, too.

Average usage figures show pallet network trunks run at 82 per cent full – which can be a huge

Boxing clever Businesses could benefit from software that enables them to manage the movement of reusable packaging more efficiently Maximising efficiency in the supply chain is an ongoing priority for every business today, but too many often overlook the part played by reusable packaging – the pallets, roll-cages, crates, boxes and totes in which goods are transported.

There are a plethora of savings to be made, both financially and environmentally, by optimising the use of what is termed “returnable transit equipment” (RTE). Recent advances in the design and management of RTE have already proved highly significant. Businesses are discovering how space-saving, energy-efficient crates, boxes or pallets can reduce weight, cut transport costs and minimise the amount of space wasted on a lorry and so reduce empty running.

Besides saving money, it also helps to decrease your carbon footprint – a significant factor given the legal requirements now for businesses to cut emissions and reduce their impact on the environment.

There are other innovations, such as units with integral support for fragile loads or ones designed for shelf-less retail display, which can help speed up the delivery process. And while your company could own many different types of RTE, a variety of others could be hired from third parties or even pooled and operated on an exchange basis to cut costs.

Yet in their search for savings, many companies have overlooked the question of how all of the disparate RTE, plus collection of the data associated with it, is managed.

Even those who attempt to tackle the issue face the problem that the vast majority of existing supply chain software is simply not sophisticated enough to track all the information required to run a modern distribution stream.

Can your software tell you, for example, the condition of your RTE and whether it is awaiting cleaning and repair, empty or under-load?

And if your software struggles to cope with the facts and figures of a single style of RTE, multiple types of packaging delivering goods far and wide will only succeed in increasing the complexity to a wholly unmanageable level.

By choosing the ideal type of RTE for your business and managing it cor re c t ly, you can unlock

Network: a combined force of 87 transport companies, with 4,500 staff between them

saving against some traditional fleets which run at nearer 50 per cent.

With the current financial squeeze and government targets on reducing carbon emissions, now is the golden opportunity to seize the benefits

Call: 08450 944441 www.palletforce.com

Get from A to B the variable way In challenging economic times, opportunities to increase profit cannot be overlooked. Pallet networks could reduce costs and enhance customer service Andy Turner, a MANAGING director at Palletways, Europe’s largest and fastest growing network for deliveries of small consignments of palletised freight, says going down the route of a variable logistics model is good for business in the current challenging economic climate.

He says: “With recent economic indicators reinforcing that we are some way off recovery, company boards across Europe must continue to take a hard look at their businesses to ensure they are not missing any opportunities to increase the bottom line in the wake of ever-growing downward pressures on the top line.

“Logistics is one of those business-critical considerations and, increasingly, we are seeing companies looking at variable cost solutions for storing and distributing their goods.

“That’s why our business is growing during the downturn as it allows organisations to use our pan-European network as and when required and, at the same time, enables them to take previous fixed costs – such as transport vehicles and overheads – as well as associated expenditure such as fuel and maintenance, out of the business.”

efficiencies in parts of the supply chain that have previously proved resistant to improvement.

Equipment tracking provides the live intelligence every business needs to monitor and manage the movement of RTE carefully and efficiently. It offers bespoke solutions which can strengthen your existing systems and enable you to track equipment movement in real time, across all networks, dramatically improving and simplifying the whole process of managing your RTE. www.equipment-tracking.co.uk/whitepaper

of using an innovative logistics solution such as Palletforce, and make a change, too.

Competitive: flexible pallet networks

Pallet net works have emerged as a major logistics force over the past decade as companies have recognised the cost, customer and environmental benefits of moving small consignments of goods on demand and on a next-day basis via a shared distribution network.

“The competitiveness of pallet networks lies in their flexibility,” adds Turner. “For example, we can use our network of more than 300 depots across Europe to collect goods on one vehicle, whether they are quarter, half or full pallet loads, and deliver them to multiple end points across 11 European countries.

“One of our operations, Palletways Fulfilment, also provides stockholding facilities adjacent to our national hubs, thereby allowing users to place orders later into the day than before – which is particularly useful for companies that have special promotions or seasonal peaks in demand.”

Turner concludes: “Above all, our business model is driven by the level of vehicle utilisation our network can offer customers, which provides a win-win benefit in terms of cost-efficiencies and environmental impact. The average vehicle fill for one of our trunking vehicles is more than 85 per cent, whereas the national average for haulage is 51 per cent.

“The growth and success of pallet networks are a good reason for organisations to put variable logistics on their board agendas and, in doing so, take a more holistic view of the supply chain rather than just how to get goods from A to B.” www.palletways.com