Boxing clever

Channel logistics steps up a gear in the Middle East as major distributors look at enhanced services that drive business efficiency

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By  Stuart Wilson Published  May 29, 2005

Jebel Ali hub|~|Anaand_Mario_200.jpg|~|Aanand Rai and Mario Veljovic of Aptec|~|Without boxshifters, the flow of IT kit through the Middle East IT channel would grind to a halt. Moving boxes through the supply chain with minimum cost and maximum efficiency is the recipe for logistics success. Efficiency is the watchword for the major IT distributors in the Middle East. Market dynamics are changing fast and the development of regional logistics processes will play an instrumental role in driving the pace of change. Visit one of the major distributor’s warehouse facilities at Jebel Ali and it soon becomes apparent just how fast the Middle East IT market is growing. Capacity requirements are increasing rapidly, forcing major players to invest more in their facilities to keep up with demand. Tech Data alone holds between US$25m and US$30m stock in its regional facility. Tech Data recently expanded its premises in conjunction with third party logistics provider Danzas, while Almasa IT Distribution is working on plans to construct a new warehouse during the next year that will mark a massive expansion compared to its current set-up. For these players and many others, the continued allure of Jebel Ali as a regional IT distribution hub for vendors and distributors shows no signs of weakening. Aanand Rai, logistics manager at Aptec Gulf, said: “Jebel Ali is the regional hub. No other location can compare to the facilities and benefits of Jebel Ali and Dubai. We have excellent access to sea, air and road networks serving the entire Middle East and North Africa region. We can clear goods quickly and move them out quickly.” ||**||Centralised or in-country?|~|ALMASAteam_200.jpg|~|Almasa's Jebel Ali boxshifting dream team|~|While Jebel Ali’s importance is not to be underestimated, other locations also possess strategic value in the region. With distributors and vendors pushing hard to reduce delivery times, serve new markets and improve product availability, the potential for secondary stocking points across the region is growing. Bahrain has emerged as a prime location for serving the Saudi market and for some distributors Kuwait and Jordan are now becoming gateways for the emerging Iraqi IT market. The logistics model for Iraq remains embryonic at present due to the instability in the country. Aptec moves much of its product destined for Iraq by sea to Umm Qasr where customers with local knowledge clear the shipments. For all distributors and vendors the optimum logistics model demands regional efficiency and rapid delivery times coupled with local touch and local stocking points in locations where it is deemed appropriate. The case for in-country stocking points depends on myriad factors including the overall market size and the situation regarding tax, customs and import procedures. “In a given country, if customs creates a long lead time to physically import the goods, then we need local inventory to satisfy the local reseller needs," explains Parvez Ahmed, sales and marketing director at Almasa IT Distribution. "Of course it is less efficient to have large amounts of stock tied up in multiple countries so we try to keep this to a minimum. It takes experience and market knowledge for a distributor to balance this equation correctly." One distributor that is investing in the creation of in-country stocking points is Emitac Distribution, a major partner for both Acer and HP. Amer Khreino, general manager at Emitac Distribution, explains the strategy: “Emitac is becoming a more dominant regional player. We possess one central warehouse in the Jebel Ali Free Zone and we are in the process of setting up in-country warehouses as part of a developed logistics infrastructure.” ||**||Just-in-time delivery|~|Vosper_Mike_200.jpg|~|Mike Vosper, operations director at Tech Data|~|Redington has also made a significant investment in developing local touch across the region. Mathew Thomas, senior VP at Redington, explained the regional distributor’s network of stocking points: “We have the central warehouse in Jebel Ali and a local UAE warehouse in Rashidiya. In addition we have a Saudi warehouse in Riyadh and an Egypt warehouse in Cairo. Kuwait will soon have a local stocking point as well. The aim is for all these warehouses to have local stocking, billing in local currency and local credit terms.” When examining IT logistics in detail it quickly becomes apparent that the best model varies not only by geography but also by product. While small high value products with volatile pricing such as CPUs lend themselves to movement by air, the same cannot be said for bulky items with relatively stable pricing such as computer cases and CRT monitors. “It all comes down to cost, margins and in the end profitability,” adds Khreino. “Efficiency, minimum transit time and economical costs are the key elements that all customers look for and hence the choice of sea, road or air transport varies accordingly.” The type of transportation used and the lead times that customers require is also related to the nature of reseller buying patterns. At present, the market is undergoing a major transition, which is intrinsically linked to the maturity of the market and each vendor that operates within it. The market is undergoing a bifurcation related to the propensity of vendors and distributors to build local touch and in-country logistics capabilities. Where this investment occurs, and local stock availability is encouraged, resellers become more confident buying in small regular quantities and employing a ‘just-in-time’ purchasing model. In markets such as the UAE this model is becoming a reality for the resellers that genuinely serve the local market as opposed to engaging in sub-distribution. At the other end of the spectrum, sub-distributors and import-export specialists continue to buy product by the container load to ship to some of the more inaccessible regions in the market. With many of these deals happening as a transfer of ownership transaction within the confines of Jebel Ali, vendor and distributor visibility concerning the eventual destination for the shipment is often pretty much non-existent. In a region where embargoes and trade restrictions still exist for certain products there remains a certain inevitability to this activity. ||**||Logistics efficiency|~|Mathias_Prem_200.jpg|~|Prem Mathias, logistics co-ordinator at Almasa|~|Mike Vosper, operations director at Tech Data, believes that distributors will eventually take control of much of the role that is currently being undertaken by specialist export houses and freight forwarders. “We want to minimise the hassle and the logistics cost for resellers by leveraging our channel volumes to get better service out of the freight forwarders and take away the headaches that partners have,” he says. “Why should resellers have to worry about finding an importer and a shipping agent and arranging customs clearance as well?” While major distributors are pushing hard to develop the concept of door-to-door delivery around the region, there remains some way to go before it becomes a reality. When customs procedures are eventually tightened up around the region, many of the loopholes that are exploited by the companies currently using transfer of ownership in Jebel Ali as a way of sourcing product will be closed. Mario Veljovic, sales and marketing manager at Aptec, also believes that just-in-time delivery is the channel logistics model of the future in the Middle East: “Shipments need to be broken down and supplied as and when the customer needs it. Resellers should buy on demand for their customers, focus on sales and marketing and not keep stock. It is already starting to happen in larger markets across the Middle East region.” “With the market maturing this is a very important point. Stock turns should be maximised for resellers and inventory levels minimised by working closely with the distributor they buy from,” he added. If the market does mature as the major distributors expect, the role of sub-distributors and transfer of ownership deals will decline. In this scenario, the ability of the major players to provide an effective door-to-door delivery model becomes important and the decision on whether to develop internal logistics or outsource processes to a third party logistics provider (3PLs) remains a tough choice. Some distributors, including Tech Data and Emitac, already employ 3PLs to provide warehousing capacity for them. “Outsourcing our facility to Danzas was definitely the right decision,” says Vosper at Tech Data. “Look at the capacity for growth that it gives us. We are looking at needing a footprint of 7,000 square metres in two years time. It is here and it is available and Danzas is already talking about a new facility.” ||**||Vendor support|~|Forklift3_200.jpg|~|Aptec's forklift operator in action|~|Unsurprisingly, those distributors still handling their own warehouse operations view the situation slightly differently. Both Almasa and Aptec control their own warehousing operations in Jebel Ali. Prem Mathias, logistics co-ordinator at Almasa has a team of 20-plus staff looking after the regional distribution giant's Jebel Ali facility. Veljovic at Aptec believes that outsourcing is not necessarily the best option: “Logistics is one of the key elements in distribution — it is a core process that links us to our customers and we can offer specialist skills and services that 3PLs may not be able to. If you see a specialist at the hospital and you need an operation, you want the specialist to do it, not a junior.” It is not only distributors getting to grips with the optimum logistics model required to serve the Middle East markets. Vendors too are faced with tough decisions, such as whether to set-up their own dedicated warehouse at Jebel Ali or drop ship directly into the warehouses of distribution partners. Last year HP announced tentative plans to set up a facility at Jebel Ali but distributors claim that there has been no real development of the idea or concrete plans put in place yet. Manish Bakshi, general manager at BenQ Middle East, puts across the vendor viewpoint: “It is crucial to keep supply chain reaction to a minimum. The best prices and the earliest supply will secure the business.” BenQ currently has a warehouse in Jebel Ali serving the GCC markets and drop ships directly to distributors in other countries around the region. As the market grows and margin pressure continues, the need for logistics efficiency becomes more acute for vendors and distributors. Do not expect local stocking points and ‘just-in-time’ delivery to replace sub-distribution and container shipments anytime soon. Each country, each market sector and each product has a specific and unique set of characteristics that ultimately defines logistics best practice in the Middle East. ||**||

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