Logistics lessons

In a distribution sector obsessed with buzz phrases such as adding value, giving customer satisfaction and providing total solutions, it is easy to disregard the actual process of shifting products from A to B.

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By  Andrew Seymour Published  July 1, 2007

In a distribution sector obsessed with buzz phrases such as adding value, giving customer satisfaction and providing total solutions, it is easy to disregard the actual process of shifting products from A to B. But astute distributors are beginning to realise the difference an effective logistics strategy can make to their business when the margin between profit and loss is so finite.

The logistics policies adopted by IT distributors in this region vary tremendously. Some still employ sizeable in-house logistics teams, ensuring they continue to retain a certain amount of control over warehouse, stock management and dispatch processes. Others, meanwhile, have gone down the opposite route of offloading huge chunks of the logistics process to 3PLs with the expertise to genuinely call logistics their core business.

Handling and transporting product might be considered the very definition of distribution, but in the IT channel it is simply one facet of what is otherwise a considerably more far-ranging existence. Distributors' strengths lie in sales, marketing and demand generation, not to mention skillfully managing credit lines.

When it comes to logistics, therefore, the decision of how much to outsource - and who to outsource it to - is taking on increasing significance. The perception of 3PLs among distributors is changing too, so much so that they are now regarded as a commodity rather than a strategic partner with the ability to shorten time to market, or ‘TTM' as it is known in the trade.

Whether you are talking to DHL, Aramex, UPS or TNT, the bottom line is that they can all do the job in the same amount of transit time. The only variables that separate them are price, service level and quality commitment. And these are the very ingredients that every distributor must scrutinise when selecting the 3PL that best matches their requirements.

I am adamant that as the Middle East channel develops further, the level of engagement between distributors and 3PLs will proliferate. Interestingly, some 3PLs I've been speaking to estimate that Middle East wholesalers are three years behind their counterparts from mature markets such as Western Europe when it comes to the level of logistics processes they are prepared to outsource.

Opponents to this view may justifiably argue that the Western European market - which contains a sprawling graveyard of distributors - does not provide the most fitting comparison upon which to base future Middle East distribution trends.

However, this market mirrors its European equivalent in many other aspects and I am sure that given time - and the unrelenting pressure to strip out costs - it will do so in terms of the propensity towards heavily-outsourced logistics models.

Logistics isn't only occupying the minds of distributors either. Vendors are also looking for ways to smooth out their supply chains in the Middle East. The trend of authorised distributors setting up in-country stocking points throughout countries such as Saudi or Kuwait is encouraging vendors to act more flexibly and drop-ship directly into these markets.

They are also showing a commitment to overcoming the issues that, for a long time, have prevented an adequate level of spare parts being made available locally. Vendors want reliable partners to stock their spare parts and distribute them to repair centres around the region and certain 3PLs are enthusiastically picking up their fair quota of contracts to provide these services.

Manufacturers of the ilk of Sun, IBM, and Hitachi have all stepped up their engagement with 3PLs in the Middle East in recent times, illustrating their commitment to improving the way they serve this market.

Vendor inclination for ironing out chinks in the supply chain is also understood to be playing a role in one well-known Saudi volume distributor's decision to explore the possibility of opening a branch in Dubai. Channel sources say that partners of the distributor in question feel it would be much better placed to maximise their logistics services and product support offerings by establishing an office in Jebel Ali.

At this stage, the distributor harbours no plans to sell to UAE customers or seek additional vendor franchises. But it would operate certain administration and account management functions in the UAE, taking advantage of the logistics facilities offered by the vendors.

There is no question of its position as a local Saudi distributor being diminished because its existing strategy for the Kingdom would remain untouched, but it would bring the company in line with regional distributors that profit from a free zone location in close proximity to vendors.

Logistics is rarely seen as a distributor's core function these days, but there is no escaping the fact that the management of it still has a profound outcome on the ability to operate successfully. Look out for our in-depth feature on the logistics challenges facing Middle East distributors in the forthcoming issue of Channel Middle East.

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