Business transformation

Dubai Refreshments is on the move. Sales volumes are growing, infrastructure is being overhauled and the company is finetuning its procurement and distribution strategies to keep up with demand.

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By  David Ingham Published  December 8, 2004

|~|drc2.jpg|~|The Dhs14 million warehouse serves retailers and wholesalers in Sharjah and Ajman.|~|It’s been all change at 45 year old Dubai Refreshments Company (DRC) since new management took over three years ago. IT and manufacturing systems have been modernised, the product line has been expanded and the company continues to evolve and finetune its supply chain and distribution strategies. One of the company’s latest moves is the opening of a Dhs14 million, 140,000 sq ft distribution facility in Sharjah. The move will allow DRC, which has represented Pepsi in Dubai and the Northern Emirates exclusively since 1962, to better serve retailers in Sharjah and neighbouring Ajman. Before the creation of the new facility, outlets in the two emirates would receive their deliveries directly from DRC’s central manufacturing hub on Dubai’s Sheikh Zayed Road. With demand for soft drinks burgeoning (see data box) and Dubai’s roads becoming increasingly clogged up, the company felt that it needed to have products stocked closer to retailers and wholesalers in the area. “We have two issues: We have space constraints and we need to decentralise in order to avoid growing congestion,” says Wael Nehme, plant manager, Dubai Refreshments Company (DRC.) “Instead of having a truck that leaves here every day and gets delayed in traffic, it’s better that we decentralise and have a warehouse in Sharjah to be responsible for the operation there.” The total built-up area of the facility is 140,000 square feet, which includes a 35,000 square feet warehouse, 40,000 square feet loading and parking bay, and 4,000 square feet office block. A two storey, 20,000 square feet facility has been built for the 180 strong team at the facility. The warehouse can stock around 120,000 cases of beverages. Another distribution and logistics facility in Ras Al Khaimah services the requirements of the rest of the northern emirates. The requirements of the Dubai market are currently met from the company’s factory and head office located on Sheikh Zayed Road, while the Khorfakkan depot serves the east coast. Besides having products closer to customers and avoiding traffic, building the warehouse in Sharjah allows DRC to better serve what is called its ‘traditional’ trade. This refers to the smaller outlets, often known as ‘bikalas’, that make up 99% of DRC’s customer base, but around 40% of its business. These customers do not pre-order products, but make their purchasing decisions each morning when a delivery van turns up. With a wide selection of products now easily available, DRC hopes to drive more sales directly to these smaller outlets. The recent rollout of handheld computers from Intermec and Mirnah Technologies to around 100 delivery vans should help the company considerably in this area. Equiping fleet personnel with small terminals and making them log all sales information electronically will allow DRC to build up more accurate records of what customers are buying and when. “A certain customer, although I don’t have a standing order, might usually buy two cases from me every day. However, nothing is pre-sold and there is no guarantee [the customer] will buy,” explains Jacob Potgieter, PA & logistics manager at DRC. “With the help of [handheld computers], you can start gathering more sales information, so you can predict when he is likely to buy, when not to buy and, in terms of pricing, see whether he is a credit or cash customer… All this will be better controlled with the help of handhelds.” The type of information captured could also be used by DRC to help it further finetune procurement, inventory management and production schedules. “With a manual system, how do you measure efficiencies?” Potgieter continues. “When you have an automated system, you have parameters to measure yourself by. In terms of efficiencies and cost benefits, automation is the way to go.” Principles of efficiency and cost effectiveness are being applied rigorously in the area of materials procurement. Prices for raw materials are negotiated at the start of the year based on an annual sales forecast. Suppliers are not necessarily chosen on price, but also on factors such as their longevity in the market and compliance with standards such as ISO. Primary product packaging must also comply with standards set down by Pepsi Beverage International. Suppliers must keep at least one month’s worth of back up stock available. In the case of concentrate, which comes directly from Pepsi in Ireland, DRC keeps at least two months worth of stock in its warehouses. Keeping a healthy supply of concentrate on hand is particularly important in case there should be a sudden spike in customer demand or unforeseen delays in shipments. Every three months or so, the plant department will conduct a review, comparing actual sales for the previous quarter with the original forecasts. Adjustments can then be made to the next quarter’s raw materials orders. “We try to have a partnership with all raw materials suppliers, so that they don’t have to lay out the money, sit on the raw material and we don’t take it,” says Potgieter. “Our market is based on customer demand and that’s how we do our forecasting and our ordering.” In 2003 alone, the company’s finance department estimates that around Dhs3 million was shaved off the company’s procurement costs. The recent implementation of Oracle Financials should help this process further, with DRC able to more closely analyse procurement spending and identify where further efficencies could be realised. “We need to break things down into what we’re spending, why we’re spending and our lead times,” says Potgieter. The implementation of the software, which could easily have taken two years, has been wrapped up by DRC’s IT department in around 12 months, according to Potgieter. To help keep stock moving through its warehouses efficiently, DRC uses a principle called first in, first out (FIFO.) This means that within the warehouses, production dates are marked up and storage areas are clearly designated so that whatever was produced first goes out first. The company is also paying more attention to scheduling and, in particular, fleet management. Whereas a truck may have previously made one journey a day before, now, with better route planning and scheduling, it could make two or even three. For example, inventory might now be moved to warehouses outside Dubai late at night, when traffic is at its lightest. “We’ve immediately increased efficiency by not having to hire extra vehicles to do those trips during the day,” says Potgieter. “We’ve learned to work smarter.” In an effort to reduce truck downtime, the company’s fleet manager, Hesham Mandeel, has implemented a policy of preventative maintenance. Everything from AC to electrical systems is regularly checked, serviced, and renewed as necessary, with a major service every 20,000 kilometres. The fleet now averages three years old, down from eight years when DRC began its program of business re-engineering three years ago. This greater emphasis on efficiency seems to be working for Dubai Refreshments Company. Its operating profit jumped 44% year on year in 2003. Looking forwards, there are bigger things in the pipeline. The company is putting together a working plan to build a brand new production facility at a new location in Dubai. This will replace its existing plant on Sheikh Zayed Road and will have a capacity of three times the existing one. The plant should be ready within three years and investment could be in the range of Dhs100 million (US $27.25 million.)||**||

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