Market movers

As the middlemen in the IT supply chain process, the ability to move products from A to B quickly and effectively remains a yardstick by which distribution companies are measured. Yet as distributors across the region will testify, implementing a successful logistics strategy is fraught with challenges.

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By  Administrator Published  June 30, 2007

Operating in a region as competitive as the Middle East requires IT distributors to be at the top of their game when it comes to logistics management. Failing to properly forecast inventory or submit the right documents to customs officials can have serious financial consequences if enough diligence isn't taken. And with the prominence of so many borders, discrepancies in terms of customs regulations and the pervasiveness of grey marketers, distributors in the region face some tough decisions when it comes to formulating their logistics gameplan.

For many distributors, the logistics policy they choose to adopt will ultimately be shaped by the extent of their geographic reach and desire for customer intimacy. As a distributor supplying product into the Middle East, Turkey, Africa and CIS, Aptec is one company concerned with keeping a firm eye on how best to serve such a diverse territory. Its footprint requires it to define certain logistics hubs, according to operations and commercial manager, Mario Veljovic.

"Jebel Ali is number one in terms of centralising most of our in-bound shipments from overseas and then from there we dispatch it into local warehouses," he explained.

"Across the region we have several stocking points -the UAE, Lebanon, Turkey, Egypt, Kuwait, where we are using outsourced services, and then three in Saudi. The big challenge we have is just the explosion in transactions. There are so many customers we need to serve that we have to be in-country. The whole concept of distribution is very much based on logistics and that is sometimes underestimated," he added.

Rival Redington Gulf is equally adamant that the optimal logistics model is based on the ability of a distributor to get as close to the customer as possible, a fact borne out by its admission that in-country operations with stocking points will be opened in Kuwait and Qatar during the next three months.

"Our strategy will be to go in-country as much as possible in the various geographies," confirmed Mathew Thomas, vertical head for IT distribution at the distributor.

"Similarly, in Africa, we are currently in Nigeria and Kenya with warehousing and we are already discussing about putting together a plan to go in-country in Libya."

Frank Sheu, CEO at broadline distributor Almasa, which has opened offices in Egypt and Saudi Arabia this year, also agrees that reseller proximity is a primary component of a reliable logistics strategy.

"We are building up a responsive supply chain to support customers' business growth," claimed Sheu. "For example, in order to support power retailers' business needs in Dubai, Almasa has a warehouse facility located in Karama, which provides retailers with just-in-time delivery."

This trend towards establishing in-country operations is leading to a change in the way distributors and vendors engage with one another. In Saudi, where new regulations introduced earlier this year removed the 5% customs duty levied upon most IT products, Redington is requesting vendors to make CIF (cost, insurance and freight) deliveries directly to Riyadh airport, a move which reduces the cost of freight from Jebel Ali. "The arrangement we have with our key vendors is that wherever we have an in-country operation we would like it shipped to there," explained Thomas. "When our Kuwait warehouse is ready in one month's time, we will be requesting delivery to Kuwait airport."

Distributor Mindware has struck similar agreements with several of the vendors it carries, including PC and server manufacturer Dell. "There are some products where we bring them here and ship them to Saudi and there are some products which come directly to Saudi," revealed managing director, Jacques Chammas. "It comes down to the vendor arrangements and also the volume. Dell in Saudi Arabia represents a huge volume for us, which is why all the equipment is going straight there."

Sheu at Almasa says a distributor's product portfolio will determine which model is likely to prove the most efficient. "It really is a combination of both, depending on the nature of the business," he said. "Almasa stocks fast moving and volume items in-country while retaining a regional hub to support the solution-type business."

Striking a balance between regional and in-country hubs is a topic that has been heavily debated among the authorised distribution community during recent years. The creation of Jebel Ali airport is expected to reinforce the Free Zone's importance as a strategic hub to serve the rest of Middle East, particularly among trading companies focused on moving product from one location to another. But, at the same time, the emergence of potentially large markets such as Saudi Arabia and Egypt dictates the need for a local approach, especially for firms committed to customer reach and true value added distribution.

The sheer number of companies currently in the process of establishing state-of-the-art distribution centres and hubs in Jebel Ali - such as Empa, Golden Systems and Almasa - suggests a model that blends in-country and regional distribution is heavily favoured. Mindware, which is currently introducing an Orion management system to strengthen its supply chain capabilities, is in the process of shifting its logistics facility to a 20,000 square feet hub in Jebel Ali and harbours plans to eventually buy premises when the airport is completed. Although it outsources shipping, Mindware has its own team of 25 logistics staff looking after warehouse management, system management and stock functions. "We have outgrown the facility in Cargo Village and a lot of our customers want their shipments in Jebel Ali," conceded Chammas. "Moving the product from Cargo Village to Jebel Ali is costly and cumbersome."

With Dubai playing such a critical role in the dynamics of the Middle East logistics process, the role of Jebel Ali as a central hub to break bulk, manage consignments and feed product into smaller facilities positioned elsewhere around the region doesn't appear to be in danger of deteriorating just yet.

Redington recently identified a location to construct an automated distribution centre that it hopes will be operational within the next 12 months. Although such a move would seemingly defy its strong in-country philosophy, the company insists the centre will complement its local facilities by acting as a mother hub and satisfying the needs of vendors that still desire a central approach.

The distributor also denies that the danger of the market slowing - and therefore causing the centre to operate below full capacity - poses a potential long term risk.

"The challenge we have faced until now is the reverse," argued Thomas. "We have always run out of space, which is compelling us to go in-country and, secondly, to look at bigger space in Jebel Ali. Within our plans and our internal vision we don't see a slowdown."

Just as the argument of local versus regional distribution is dividing the distribution channel, so to is the issue of when to bring in third party logistics (3PL) organisations. For many wholesalers and sub-distributors, deciding which parts of the logistics process to outsource and which to rein in presents a dilemma. 3PLs play a massive, and often understated role in the Middle East IT channel, but logistics sources say distributors are still not using them to the same extent as their counterparts in Europe or the US.

Of course, that statement isn't true of everyone. Networking specialist Online Distribution - part of South African group Datatec - currently handles RMA functions itself, but believes logistics should be left to the experts. Its logistics support, order placement and product dispatch processes are now handled by Aramex following an agreement penned between both parties earlier this year. Online previously worked with Gulf Agency Company (GAC), but opted for Aramex on the basis of cost and the sophistication of its systems.

S. Venkat, operations and commercial manager at Online Distribution, says Aramex's EDI and warehouse management capabilities bring added efficiency to its overall business model. He said: "We have always believed in third party logistics because we think it is better to use their expertise and avoid the hassle of warehousing and customs clearance. This leaves us to focus on our core activities and as a result we are able to achieve our objective of customer satisfaction."

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