Channel logistics

The IT supply chain remains a complex affair. Logistics has become a vital value add arena for distributors plying their trade in the Middle East.

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By  Stuart Wilson Published  July 26, 2004

Driving efficiency|~|LogAramex.gif|~|Iyad Kamal, VP logistics and ground services at ARAMEX International|~|At first glance, channel logistics looks like a simple affair. But scratch below the surface and you enter a world of complexity where the smallest factors can differentiate one distributor from its rival. Logistics managers thrive on efficiency and are locked in a perennial quest to drive down costs and streamline processes while simultaneously boosting the volume of goods that passes through their cavernous warehouses. As distributors drive for reseller breadth and cope with the challenges imposed by complex import and duty legislation in the Middle East, logistics has become the ultimate value-add. The brains behind boxshifting in the Middle East are working overtime to drive IT channel logistics to the next level. A vendor manufactures a laptop in the Far East and a few weeks down the line it ends up in the hands of a Saudi end-user. This simple statement masks the complex world of IT channel logistics — the fulfillment mechanism working behind the scenes to ensure that IT kit reaches the right markets in sufficient quantities quickly and efficiently. As many IT products assume the characteristics associated with fast moving consumer goods (FMCGs), the efficiency of the supply chain has become a fundamental way for vendors and distributors alike to achieve a competitive edge over their rivals. Distributors in the region are constantly assessing their logistics skills and capabilities to make sure they stay ahead of the game. Navin Tikoo, regional manager sales and operation at Aptec — a distributor spanning the Middle East and parts of Africa — says: “Aptec is one of the few distribution companies in the region to have its own in-house logistics. We have nine stocking points across the region to meet the needs of our vendors and the channel. Eight of these are located in-country and this regional network is complemented by our central logistics and stocking hub located in the Jebel Ali Free Zone.” While Aptec owns and operates its warehousing operation in the Middle East and Africa, others believe greater flexibility can be achieved by using third party logistics service providers (LSPs). Tech Data’s warehouse at Jebel Ali Free Zone is operated by Danzas with freight forwarder ARAMEX on board as a primary logistics provider when it comes to actually moving product. “We’ve seen a 10% increase in our storage needs year-on-year and have increased our storage capacity to 2,400 square metres,” says Mike Vosper, operations director at Tech Data Middle East. “Working with Danzas gives us the flexibility to expand the warehouse as and when we need it.”||**||Third party warehouses|~|LogForklift.gif|~|Pick it and pack it! Consolidating orders quickly, efficiently and accurately is a vital part of the logistics operation.|~|Tech Data is not the only distributor using Danzas as an LSP. Emitac also rents warehouse space from the company and believes this model brings valuable flexibility to its operation. With major distributors striving to increase customer breadth and execute more transactions for more customers, the need to control logistics costs is of paramount importance. Increased maturity in the regional freight-forwarding sector and third party warehouse services has helped distributors keep their internal cost per transaction low. Vivek Gupta, finance and operations manager at Emitac, explains: “We have been able to deal with more transactions because of the efficiency of using third party logistics providers. We have a set billing pattern based on the number of picks they are doing and the number of outbounds. They realise that our business will grow as will the number of partners we serve and they are prepared to invest in our business because third party logistics is a competitive arena. We have streamlined our operations by catering for more resellers and improved turnaround times by boosting our internal resources. All orders are consolidated through a reseller portal, pulled up by our logistics and operations team with invoices generated automatically online.” Using third party logistics providers can offer benefits to IT distributors. “It allows for companies to concentrate on what they do best — sales, customer acquisition, marketing, and it relieves them from the burden of attending to logistics, which is our core competency,” comments Iyad Kamal, VP logistics and ground services at ARAMEX International. “It allows companies to reduce fixed cost infrastructure and control their variable costs through the use of a pay-as-you-go model." Not all distributors are convinced by outsourced logistics, with some distributors, including Aptec, preferring to keep the function in-house. “There are some cost savings from outsourcing. However the lack of control can negatively affect the needs of the channel and the market in this region. Aptec believes that our model of maintaining in-house logistics is currently the right approach for our market given the diverse requirements and expectations of our channel,” says Tikoo. With Jebel Ali still operating as a regional hub for stocking IT kit, major distributors have already dedicated resources to building up customer breadth in Dubai and across the UAE. With ‘man-in-a-van’ delivery services, no minimum order quantity and quick delivery times, local resellers should, in theory at least, be able to operate a just-in-time (JIT) model for supply of product from distributors. Emitac is pushing hard for power retailers and channel partners to take this approach. “Ensuring the channel is actually achieving sell out is vital,” says Gupta. “We want retailers and resellers to have product on the shelf but not overstock. They should not choke themselves by over-ordering and instead should let us manage the risk of holding inventory. If they over-stock they are tempted to resell to the channel rather than end-users. We’re pushing towards piecemeal transfers of stock where we replenish on a regular basis. This frees up the customer’s business and also helps minimise credit requirements.”||**||Stocking points|~|LogsTikoo.gif|~|Navin Tikoo, regional manager sales and operations at Aptec Africa|~|Major distributors are keen to shorten the channel route that IT product takes to end-users. This means serving genuine second-tier resellers across the region and slowly eroding the role of sub-distributors, re-exporters and brokers. Change is happening, albeit at a fairly slow rate. Vosper explains the breakdown of transactions by the volume they represent at Tech Data Middle East: “Currently 73% is transfer of ownership transactions, 12% is local van deliveries and 15% is door-to-door deliveries where goods are collected from the warehouse by a third party but we do the export documentation. In the last year alone the transfer of ownership as a percentage of sales has fallen by about 4%.” Transfer of ownership deals tend to be much larger in volume than door-to-door drop shipments. Customers will regularly tour the warehouses at Jebel Ali consolidating their orders before moving the goods to wherever. These are the deals that feed the market for sub-distribution and re-export across the wider Middle East. If GCC customs authorities begin to restrict the companies allowed to do transfer of ownership transactions in Jebel Ali, major distributors expect the importance of door-to-door shipments to rise dramatically. As the movement of product becomes more standardised and reseller breadth increases, the case for increasing stocking points in the region will become more compelling. Kamal at ARAMEX believes three main hubs are required to effectively serve the regional market: Jebel Ali to serve the GCC; Bahrain as a gateway to Saudi Arabia and Amman as the location of choice to sell into the Levant.||**||Drop shipping direct|~|LogVosper.gif|~|Michael Vosper, operations director at Tech Data Middle East|~|The evolution of IT logistics in the Middle East is implicitly linked to the import and export regulations that exist in the region and the ability — and propensity — of government authorities to enforce this legislation. Whatever happens, Dubai retains significant advantages as the primary stocking point in the region. “If you want to ship product from Europe to Dubai, all you have to do is send the original invoice with it,” explains Vosper. “To ship it from Europe to Saudi, you have to get the invoice legalised, produce a certificate of origin and getting the documentation can take two to three weeks. In Dubai, the documents can be done in 48 hours meaning product can be moved into Saudi in just two to three days.” Tikoo at Aptec adds: “Although there is an improvement in regulations that facilitate cross border movement of goods in the region, we still have varying infrastructures, customs regulations, duty structures, documentation and certification requirements that impede efficient movements. We feel that regulators need to minimise excess documentation and ease restrictions to move the goods in and out of the region, which will improve the competitiveness of our markets.” Distributors are working hard to ease the impact of these regulations and procedures on their customers through methods such as pre-clearing customs and making product available in warehouses at a local level. “We want to get to a stage where ordering a product from Tech Data means delivery within three to four days wherever you are in the region and within one or two days if it is stocked at our hubs. Bahrain has been running smoothly and the Jordan warehouse has achieved some tremendous value-adds,” says Vosper at Tech Data. Vendors also have a role to play in encouraging local stocking points by drop-shipping product directly into these warehouses and not leaving it up to the distributor to move the stock from Jebel Ali to their other locations. Distributors report that vendors are now more open to the idea of drop-shipping product into locations such as Jordan and Saudi Arabia to reduce the inbound cost of product movement to distributor’s warehouses. “Product vendors play an important role in ensuring supply chain efficiency in this region,” explains Tikoo. “Close co-ordination with distributors to reduce transit lead-time and where applicable landed costs are important aspects. Packing of products in a protective manner conducive to the regional environment, proper customs clearance documentation with shipments and using reliable airlines are some of the factors vendors must share ownership of to ensure smooth logistics.”||**||Handling 'hot SKUs'|~|LogsSKUs.gif|~|Fast-moving SKUs must be readily available from stock|~|Distributors’ warehouses remain the focal point linking the upstream channel logistics controlled by the vendor — such as the sourcing of raw materials, the manufacturing of product and the drop-shipment of these goods — and the downstream channel moving kit through the resell channel to the end-users. With many IT products commoditising rapidly, supply chain optimisation is a vital part of any vendor’s business model. “Competition in the IT industry has brought prices down and forced suppliers to revisit their supply chain and take a careful look at the processes involved in order to save costs and be more competitive,” says Kamal at ARAMEX. Logistics remains a fundamental value-add arena for distributors to make their service to resellers stand out from the crowd. All resellers want is an accurate order delivered quickly at the best price. That is all they should focus on with the distributor partner taking on all the additional complexities this seemingly simple request entails. Distributors offering the very best in logistics can build enviable reseller loyalty. Distributors also need to make sure that the most popular products are readily available from stock. Each product carried by a distributor is referred to as a stock-keeping unit (SKU). Often called ‘hot SKUs’, the most popular products can account for a significant proportion of business. But distributors will only order in what they believe they can sell out, and this forecasting can only be achieved through an excellent knowledge of their customers’ business models. No distributor wants to over-order and be stuck with ageing product suffering from price depreciation. With the largest IT distributors in the region often carrying upwards of US$20m worth of product in their warehouse at any one time, ensuring a high number of inventory turns and a slick operation is vital to the overall health of the business. Major distributors use ERP systems, frequently available online for resellers to view, to track and trace order shipments. Tech Data offers online access to its shipment tracking database to customers through its recently upgraded regional website. “Every time there is a shipment event such as signing the product over to a freight forwarder or putting it into the local van for delivery, it is entered into the database within half an hour,” says Vosper. “This has already proved very popular with Tech Data customers.” Logistics remains a complex affair in the Middle East IT channel. The more regulations that exist, the harder authorised distributors have to work to build customer breadth, ensure product is actually being sold out of the channel and begin eroding the role of sub-distributors, brokers and re-exporters using the complexities of current systems to gain an advantage. It is very much a game of cat and mouse at present with major distributors doing everything in their power to build efficient logistics infrastructure but understanding that certain elements cannot be resolved without the full commitment of the relevant authorities. Resellers hold the key to logistics evolution in the Middle East. If they see genuine benefits from the value-added logistics services major distributors provide, the channel structure will continue to change. ||**||

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