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Industrial Logistics Systems FEATURE

Real competitive edge in business now lies is having a better supply chain, leading logistics consultant Martin Bailey tells South Africa Magazine. “If you can get that right you can leap-frog your opposition.” But the positive Bailey delivers a number of warnings. By Colin Chinery


he age of production is over - we are now living in the era of the supply chain, says Martin Bailey, CEO of Industrial Logistics Systems. “Get it right and this is where the money is.” Bailey co-founded Johannesburg and Cape Town-based ILS 25 years ago, steering it to become a major sector player and pre-eminent name in ‘Start-to-Finish’ logistic consultancies. But if supply chain innovation and excellence are now a world-wide given, research by Frost & Sullivan for Barloworld Logistics last year showed South Africa still lacks the logistics and transportation infrastructure to compete on a global level, with poor infrastructure, high costs and currency instability. Bailey endorses its broad conclusions and says businesses must re-examine logistics from a completely different standpoint. “The big problem in South Africa is that the centre of our economy – over 60 percent - is based around Johannesburg and Pretoria, 600km away from the nearest port. This puts us at a huge disadvantage straightaway - Saudi Arabia and Riyadh is the only global comparison. “The second problem is our freight railway infrastructure has largely collapsed. Bulk rail freight still works fine but goods freight has almost disappeared.” Government moves to strip out costs in a loss-making business has pushed everything on to the roads, and with it costs and prices have been driven up says Bailey. “So to export or import anything you’ve got this huge lump sum that has to be stuck on the end. And this causes significant disadvantages for us as a country. 41

Industrial Logistics Systems FEATURE

“To fix this would need monstrous investment. And as well as this, skills - which at the moment simply do not exist. Nationally we keep on producing more and more studies to say how we can put this right, but the execution is probably 10 years away. So we have a real problem.” Bailey says there are “many, many world-class operations in South Africa,” notably in the retail sector. “Shoprite, the largest retailer in Africa, runs better than world class operations. We can benchmark them against Tesco and even Wal-Mart - they are in the same numbers as these guys, even better. In most industries we can find some shining lights. But South Africa is a mix of First and Third World. And in amongst the shining lights you come across things that are quite frightening. “Let me sketch you a horrible scenario. As a company we like to employ industrial engineers – they fit our culture. The problem again is that technical education in South Africa has totally collapsed. 10 – even five years – ago I would employ three or four technical graduates and one university graduate. Today I cannot employ any technical graduates. The quality is so bad they are unemployable. “The result is I have to train graduate engineers, and my opposition and much of South African industry has to do the same. The result is we are sucking the number of engineers dry and the costs are doubling. It’s not because we don’t have enough graduates or highly skilled people 42

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– we’ve got them in South Africa - what we haven’t got is the middle level skills. Again this strange First World/Third World thing where we have plenty of labour – sometimes good labour - and plenty of senior management, but we haven’t got the bits between.” Bailey pinpoints what he sees as the fundamental cause. “We did something very similar to the UK -we tried to convert our technical colleges into universities. And it starts at schooling level - we took all the technical colleges out of schools and created one size fits all. “In my day we could go to a technical school or to an academic school. The Germans have got it right, and have

retained this dual stream. But here the choice doesn’t exist anymore and this is where the problem started and continues. There are no technical colleges, and everybody wants to be a university graduate. “We have to take a huge step back and re-establish those technical colleges and stream the people. We put a hundred people into university, we fail 80 percent and the rest end up nowhere. Of those 80 percent we could be turning half into useful, skilled technicians”. On a broader front Martin Bailey says the biggest challenge to business and with it the supply chain and logistics sector world-wide is the future movement of fuel prices. “Everything is inflated at fuel price and energy prices are inflating far far faster than the rest. And as prices start shooting through the roof all strategies need to be looked at. “So the real challenge is looking at energy price, putting our CO2 levels under control, and getting costs into line - whole new strategies. And what we are now teaching at universities is now 10 years out of date. We really need to re-

The real challenge is looking at energy price, putting CO2 levels under control, and getting costs into line


Industrial Logistics Systems FEATURE

look at our supply chain from a wholly different point of view.” How focused is South African business and industry on cutting-edge strategies? ”In retail hugely aware. Worldwide the retail industry has understood that the supply chain is core to their business - you’ve only to look at Wal-Mart and its supply chain system to see how successful it can be. “Elsewhere the picture is very mixed. In the mining sector for example, even through into the ‘seventies, the perception of a consultant was a guy with a lot of hair on his chest who would tell them to use a different kind of container. Again that mix of First and Third World. “And the Government here as elsewhere, loves consultants as long as they are strategic planning consultants; anything that gives them another strategic plan and delays the need for execution.” Bailey’s professional credentials are impressive.Along with Professor Roy Marcus he established the Materials Handling Research Unit (MHRU) at Wits University back in 1979. Three years later he was joined as research assistant by Gary Benatar, and the two went on to establish Industrial Logistic Systems in 1987. Unlike Europe where sector specialisation is familiar, the typical South African consultant works in all sectors. “This is a small country so we engage in everything from mining to motor car parts to retail. The sector is highly, highly competitive. The British are entering the market and so are the Americans. As economies around the world have dropped off, the developing parts have been the fashionable place to be. So we are getting all these guys, sometimes good, sometimes the best, often rejects from these countries where they can’t make it. “We probably still control 50 percent of the South African market in terms of warehousing and distribution. The biggest difference with us is that we do the complete range – the strategic planning and the execution. And there aren’t many guys world wide that cross that border. That’s the Number One factor that differentiates us. 45

Industrial Logistics Systems FEATURE

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“Number Two is our experience. In 25 years we’ve built over 500 warehouses. We can show the battle scars, and people like that. They can go to sleep at night and know we’ve done it before and are unlikely to screw it. We retain the same customers; we’ve never done any selling; no marketing or sales other than a web site. It’s reputation and word of mouth.” Future growth says Bailey is highly dependent on capital investment. “At the moment it’s great, in fact we have as much as we can handle. But will the economy shatter at some point and capital investment fall off like it has in Europe? Who knows, but we are optimistic. We can always look at re-engineering a business, not shiny new buildings but optimising existing operations. There’s a great fall back for us as a business. “There are massive things happening. The era of 46

production is over and we are in the era of supply chain. The real competitive edge in business now is having a better supply chain, and if you can get that right you can leap-frog your opposition. “Here is where real margin can be gained, where you can get your real profits. This is where the money is, especially going global and more than ever as fuel prices rise. The world is changing, and the benefits of getting your supply chain right are getting bigger and bigger.” END



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SA Mag - Issue 22 - ILS BROCHURE