Bridging the gap

As distributors begin to feel the pace of competition, so they and their logistics partners are looking for new ways to speed up the supply chain.

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By  Mark Sutton Published  November 4, 2001

Introduction|~||~||~|Resellers in the region have been feeling the pinch from low margins and a highly competitive market for some time now, and while the global economic downturn has not hit this market particularly badly, it now appears that distributors are feeling the pinch too. An overly competitive, fragmented market, not enough focus on specialisation and a failure to move forward has seen several regional distributors facing difficulties-a situation that is causing many distributors to ask what exactly they can offer to resellers.

The answer that comes back most often is responsiveness-fast and flexible delivery. Although finance and support are important, getting the goods to the customer on time is key. Consequently, many distributors are asking how they can improve their supply chain-and the logistics industry is asking itself the same question.
For many of the distributors, the answer to the logistics question lies in location-the closer to the market, the better. Marwan Sami, general manager of Al Yousuf Distribution, says that this the key. "We believe that what makes a difference to the customers is the reach of the product, easy access to the product. Price is an issue, but it is not the most important issue," he said.

Like many distributors, Al Yousuf addresses the accessibility problem by having a number of facilities. The company has a central distribution centre and headquarters in the UAE's Jebel Ali Free Zone, and smaller warehousing facilities in central Dubai, Abu Dhabi, Riyadh and Jeddah. The aim is to be on the reseller's doorstep. "If a customer in Abu Dhabi has to get something from Dubai, he has to waste two or three hours to get it. Time is money, so if we are closer to him, he will pay a premium," said Sami.

Mindware also has a warehouse in central Dubai, referred to as 'the trade counter', according to director of operations Josen George, because trade customers can call in to pick up urgent orders. "Sometimes our customers have their customers sitting and waiting, they might want something immediately. So, the reseller can put in the order to our DIC sales office, the order is cleared and passed through our system to the warehouse and he can go and pick it up from Karama," George explained.

||**||The need for responsiveness|~||~||~|Many of the local distributors are also investing in their own road transport fleets too, to cater to their customers. One of the reasons that distributors have had to provide this sort of just-in-time service to resellers is the difficulties that resellers face in managing stock. "Making a forecast can be difficult for most of the computer shops here, and dealing with the end user can be very difficult-you don't know when he is coming to buy, what he is looking for," said Sami. "For the smaller shops, keeping all your stock available is a big investment that could be better spent elsewhere. We want to give him a free hand to sell, to order the product when it is sold, so there is no burden on their inventories."

Distributors also handle most of the import and customs paperwork for customers in the region. One of the biggest benefits of Dubai, and the reason that many logistics companies have a presence here, are the free zones. Jebel Ali, the Airport Cargo Village and the Airport Free Zone all provide duty free facilities that allow companies to bring in large shipments to Dubai, break them down, and then redistribute to other countries, usually in the Gulf, but often further afield.

Large, cheap, custom-bonded warehouses allow companies to hold and handle stock to provide a much quicker turnaround than outside of the free zones. Tech Access, Sun Microsystems' Channel Development Provider for the Middle East, is able to use it's Bahrain Airport logistics centre to stock standard configurations of servers. Previously Sun would ship the individual components to the reseller and assemble on site. Now the company can meet the most common configurations immediately.

One of the problems with the free zones is that there is not a great deal outside of them. One logistics provider described the UAE as a "bright spot" for distribution, but complained that there are few facilities with the same functionality outside of the Emirates.

Tech Data has taken some steps to address this problem, with the opening of a distribution centre in Bahrain. The centre has given the company a boost into the northern Gulf, and particularly Saudi Arabia, but not enough distributors are taking steps to aid customers outside of Dubai, according to Arul Raj, director of operations for Tech Data. "Even today, distribution companies are opening up in countries with representative offices rather than operational local hub companies," he commented. "Our aim is to provide fast and reliable services, that open up new capabilities such as direct delivery to the customer."

||**||Specialist help|~||~||~|But not every IT distributor can justify regional operation centres, and even the biggest are reliant on the logistics specialists for many parts of the distribution function. Courier companies such as DHL, Aramex and UPS provide invaluable reach and responsiveness in being able to reach customers in far flung locations. Higher up the chain, freight and shipping companies handle the business of getting bulk shipments from manufacturers half way around the world.

Among the freight forwarding companies, there are many that are now specialising in servicing the IT industry. Fritz Companies, acquired by UPS last year, is one such company that is targeting high tech, among others. Fritz has already built strong relationships with Sun Microsystems, winning an award in the US last year for its services to the vendor. Now the company is concentrating activities in IT.

Mike Harrell, Middle East regional director, explained: "We have done some restructuring with regard to how we approach the market, and we identified specific industries that we are going to be targeting, and IT has been identified as one of the primary industries that we are going to pursue," he said.

To cater for IT, the company has established a group at the global level, with expertise drawn from the industry to better understand the customer requirements. "They understand the supply chain requirements of a high tech company, they understand the problems they face, and what inventory carrying costs mean to their company," said Harrell. "To them it won't be someone's freight, it will be the supply chain that they are concerned about."

||**||Total outsourcing?|~||~||~|Alongside specialisation, outsourcing of more and more functions is something that logistics providers are looking to offer to the channel. DHL UAE, alongside a massive expenditure on IT systems to improve customer service (see page 72) has also established an express logistics centre in Dubai Airport Free Zone, which, in partnership with DANZAS allows the company to handle the complete supply chain. David Wild, general manager, said that the idea is not to compete with distributors but to offer customers whatever service it is they want. "When we are dealing with a manufacturer, such as Compaq, we want to provide the appropriate approach to the supply chain to them," he said. "If they want to go direct to their user, we will do that; if they want to go to the distributors, we will do that. We are not targeting any particular supply chain model."

DHL now has a separate company to offer fourth part logistics (4PL)-management of supply chains, without actually physically handling freight, and third party logistics (3PL) offerings are gathering support. 3PL business is now a commercial activity for DHL in the UAE, rather than just being a value added service, Wild said. "It is growing very healthily, it is still not a massive part of our business, but it is becoming a significant part," he said. "I think the boom [in 3Pl] that was expected has probably not happened because of the dot-com crash, a lot of people thought they were going to build supply chains around that, but we have kept on an even keel."

Although US analysts are predicting a boom in logistics outsourcing, local distributors are reluctant to buy into the idea. Cost and expertise are the main sticking points. "At the moment it is not cost effective," said George. "We don't see anything they can offer that we don't have. They are in the Cargo Village, we are in the Cargo Village, they have a warehouse; we have a warehouse; they pick and pack, we pick and pack; their turnaround time is one day, ours is one day-then you look at costs. My guys have been with us for five years or more, so they know exactly what they are doing with hardware, and the chances of mistakes are a lot less."||**||

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