Easy PC

Tech Data’s Mike Vosper outlines how the IT distributor has benefited from outsourcing its logistics to Aramex and Danzas.

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By  Robeel Haq Published  December 1, 2005

Easy PC|~|techdata2.jpg|~|Mike Vosper: Outsourcing lets Tech Data concentrate on the core business|~|As a market leader in the distribution of IT equipment, Tech Data has a massive customer base throughout the world, including the Middle East. The company deals with a huge volume of computer products and it has opted to simply its logistics processes by outsourcing its operations to Aramex and Danzas. Danzas runs the company’s central facility in Jebel Ali, while Aramex manages national distribution hubs in Bahrain and Jordan. “On a global level, we serve over 90,000 technology resellers, with sales of US $19.8 billion for the most recent fiscal year,” says Mike Vosper, operations director, Tech Data. “In the Middle East, we are experiencing strong growth each year. The last year in particular has witnessed remarkable growth.” Tech Data sells hardware and software products throughout the region, representing major IT manufacturers, such as Microsoft, Hewlett-Packard, Samsung, Intel and Fujitsu-Siemens. “As a broadline regional distributor of IT equipment, we purchase inventory directly from the manufacturers,” explains Vosper. “We hold the inventory in a central warehouse located in Jebel Ali. The products are then distributed to the various channels right across the Middle East.” As a wholesale supplier, Tech Data only supplies to businesses rather than to end-users. Its customers are mainly computer resellers, such as business solutions providers, value added resellers and retailers, who need goods quickly in order to compete in the fast-moving local market. Tech Data also needs a global supply chain, as it sources goods from a number of different countries. “The products arrive from locations throughout the world,” explains Vosper. “Most of the agreements between Tech Data and manufacturers are door-to-door, which covers cost, insurance and freight. This makes sense because global players like Hewlett-Packard can negotiate some exceptional rates for delivery. By taking advantage of their volumes, a company like HP can bring the price down for everyone, including the end user.” The majority of stock transported from the manufacturers is delivered directly to Danzas’s warehouse in Jebel Ali, which is Tech Data’s main regional hub for the Middle East. “Nearly all the stock comes into Jebel Ali before it is moved into the other Middle East hubs,” explains Vosper. “We will occasionally drop a shipment directly into one of the other hubs, for example a container of monitors may be diverted straight to Bahrain. This option will become increasingly attractive as the level of business grows in these areas.” For instance, Tech Data is currently negotiating a deal with Hewlett-Packard to arrange direct delivery to Jordan on a more regular basis. The agreement, which should be finalised shortly, will help the company deliver products to the customer in a shorter time frame, while keeping the cost of delivers low. “These are important considerations,” says Vosper. “We are also working hard to maintain quick stock turns. On average, we empty the warehouse more than once a month. There are a few products that stay a bit longer, and lots of stock that leaves the warehouse even sooner. Our warehouse in Jebel Ali in particular is a very busy place, with lots of volume moving in and out. In terms of stock turns, we are looking a 13-15 times a year.” “We have eight vendor operation specialists, who are given responsibilities, alongside product marketing specialists, to handle inventory management, demand planning and forecasting,” he adds. “They ensure we achieve a good turnover of stock and do not have any obsolete stock.” As its back end IT system, Tech Data uses an Oracle-based package called Orion, which was developed by ICICI Infotech. The system includes customer relationship management (CRM) and supply chain management (SCM) features to integrate business processes across suppliers, partners, employees and customers. “We use a lot of data and the Orion enterprise system was personalised to suit Tech Data’s distribution business,” says Vosper. Tech Data has also created a solid network of 3PL partners in the Middle East, predominantly Aramex and Danzas, allowing it to outsource its logistics operations. “The concept of outsourcing suits our business model effectively,” says Vosper. “By selecting companies such as Aramex and Danzas, who are experts in the field, we know the logistics are being run successfully. This allows us to focus on our core business.” Danzas operates Tech data’s Jebel Ali warehouse. The IT distributor occupies 50-70% of a 5000 m2 chamber, which is shared with other companies. “We have reached an agreement with Danzas, allowing them to store other customer products in the warehouse, as long as there is no commonality between the companies,” says Vosper. “For example, we would not want another HP distributor in the same chamber.” This flexible outsourcing agreement means the amount of space dedicated to Tech Data can fluctuate, depending on the level of inventory. This is particularly useful considering the company’s growth plans, but it also means that Tech Data avoids paying for empty space in the warehouse, which generates considerable cost savings on a day-to-day basis. “The main concern with such an agreement is security,” comments Vosper. “However, we are happy because Danzas has very effective security measures, including cameras covering each bay, and permanent staff working the warehouse, some of whom are allocated exclusively to our account. Furthermore, any high value items that are easy to steal are placed in a caged area,” he continues. With its present rate of growth, Tech Data will soon begin occupying more space in the chamber. However the total chamber is likely to provide enough space for a couple of years. “We have planned for further growth in the future,” says Vosper. “We estimate that we can make use of the existing chamber for another two years before we need further space.” To ease its cooperation with Danzas further, Tech Data also recently introduced EDI technology to electronically transfer data between itself and the 3PL replacing the need for traditional paper documents. “As a company that outsources logistics, we have to manage the service through service level agreements,” says Vosper. “We are always pushing for better turnaround time and we have actually managed very good improvements recently. The EDI system is already resulting in notable improvements in the SLAs,” he adds. Once the goods leave the warehouse, they are distributed to the customers. Within the UAE market, Tech Data has outsourced its deliveries to Memo Express, which is owned by Aramex. The local market mainly consists of smaller orders and three Memo Express vehicles are contracted by Tech Data. “In the UAE, we offer a door-to-door delivery service, covering deliveries to Abu Dhabi, Dubai and around the other Emirates,” says Vosper. “This covers very small, low value orders, worth around $2000 or $3000. It represents roughly 15% of our turnover.” In Bahrain, Tech Data has created a distribution hub that in partnership with Aramex. This facility has played a key part in the company’s expansion in the island kingdom. “We started in Bahrain over three years ago,” says Vosper. “We identified a requirement to provide the products with same day or next day deliveries. We were able to take out a distribution hub managed by Aramex, which has built up into a very sophisticated operation, with the latest technology, such as a warehouse management system.” Aramex is able to provide same-day deliveries to Bahraini customers, allowing Tech Data to process orders in the morning and ship goods during the afternoon. Tech Data can therefore provide a higher level of service and more cost effectively, as it does not need to send single items to Bahrain from Jebel Ali. “It is a very economical way of operating,” says Vosper. “After completing stock planning and deciding what to place in the Bahrain hub, we send a bulk shipment once a week from Jebel Ali. The items are then separated into individual order and shipped out. Working in bulk transfers results in significant reductions in costs,” he continues. Tech Data has recently started adding new value-added services for Bahrain customers, such as introducing Delivery Duty Paid (DDP), where the duty is paid by Tech Data and then invoiced to the customer, alongside the product. “Bahrain has been operating really successfully and we are having several regular, fairly small sized orders a day,” says Vosper. “It really gives us an edge operating up there. This year we are expecting up to $1.5 million a month in revenue from the Bahrain hub alone.” The partnership between Tech Data and Aramex worked so well, the companies later created a new agreement to cover Jordan. Once again Aramex was hired to manage the logistics, warehousing and distribution cycles for Tech Data from its facilities in Amman. “The partnership with Aramex worked well in Bahrain. They offer a very mature service and I cannot remember the last time we had a service failure in Bahrain,” says Vosper. “When we put Aramex out to tend for Jordan, they ran away with it. Using them again was the most economical, least complicated way.” The logistics process works slightly differently in Bahrain, compared to Jordan, due to different custom procedures and transit times. “The principles are essentially the same for Bahrain and Jordan, but the challenges are different,” explains Vosper. “There is a five day transit time for trucks from Jebel Ali to Jordan. Also, there are some quality assurance programmes in the territory that have added to the costs.” As part of the agreement, Tech Data uses space in Aramex’s logistics facility in the Queen Alia Airport Free Zone in Amman. “We send over three consignments a month, which are larger consignments, consisting of between two and three trucks at a time,” says Vosper. “We use this strategy because the documentation fees and inspection process adds to the costs, so the larger the consignment, the more you save on fixed cost.” The customs process is more complicated in Jordan than in Bahrain, which means that the delivery procedures run differently in both territories. “The Aramex facility in Jordan is operating in a free zone similar to Bahrain, but the customs documentation is quite complex and time consuming,” continues Vosper. “A customer needs to lodge a transfer of ownership document, which is a blank letter with Aramex, allowing them to deliver the next day. Without that document in place, it can take two or three days to actually clear the shipment. The free zone there also charges higher fees for clearance compared to Bahrain.” Aramex is currently working on a new initiative with the free zone and customs authority in Amman to make the procedure easier and quicker, which Tech Data believes will bring huge benefits. “Aramex is highly supportive of Tech Data. If the initiative goes through, it will be unbeatable,” says Vosper. “It will be a great service for all IT channels within Jordan, so we are pretty excited.” All around the region, however, Tech Data is seeing increasing demand for IT hardware and software. The company is planning continuous growth to meet these demands and the strategy of outsourcing logistics to 3PLs should continue to serve the Tech Data’s logistics needs for the foreseeable future. “Outsourcing is very effective for us and there is no need to change that strategy at this stage,” says Vosper. “Look at the company’s growth,” he continues. “If we had built a warehouse two years ago, it would have been too big initially, then after a couple of years, it would become the right size, and finally it would become too small. By outsourcing, we really do not need to worry about investing in the infrastructure, which allows us to concentrate on the core business,” he comments. ||**||

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