Why logisitics are crucial for business profitability

Harvey Jones on how to end your fulfilment nightmares


You can produce the best product in the world but it counts for nothing if you can’t deliver it to the customer on time or it’s broken when it gets there.

Logistics, the process of warehousing and distribution, is vital for business profitability, says Jonathan Solomon, CEO of fulfilment business iForce. “Fulfilment is so much more than just delivering the goods – it’s make or break for your enterprise. If the distribution and warehousing breaks down and your products don’t get shipped, you don’t make any money. But if delivery is fast, reliable and efficient, you’ll make money sooner.”

Fulfilment companies come in different shapes and sizes, ranging from carriers such as DHL and Parcelforce, to pallet distribution networks, to fully outsourced order management and logistics providers.

Then there are logistics consultancies such as The Logistics Business and Supply Chain Planning (SCP), which promise to improve your efficiency by auditing your supply chain, analysing your distribution network, designing a new warehouse or improving the layout of your existing one, or preparing tenders for outsourcing your supply chain.

Dr David Lascelles, managing director of SCP UK, says some businesses have pretty simple logistics needs. “Your only requirement may be occasional transport or warehousing and storage, or you might need additional services such as repackaging and labelling before distribution to your customer. It really depends what your business needs at any given time.”

Don’t underestimate the importance of the fulfilment partner to your business. “It may become the main link with your customer, and even if it’s making a simple delivery, you don’t want your products to arrive damaged or late, because it’s your reputation that’s on the line,” he says.

Getting efficient

You don’t always need to bring in an outside fulfilment partner, but could improve your logistics by reviewing your management structure, reporting lines and forecasting, says Kathryn Burgess, supply chain manager with David Luke, which supplies school, scout and guide uniforms.

In 2003, the business was coming under price pressure. “We deal with hundreds of different schools and groups across the country and sell mainly through independent retailers, but we hadn’t focused on logistics and knew we had to improve our efficiency,” she says.

David Luke contacted consultants The Logistics Business, which quickly identified a key problem – stock control and location. “We knew we were losing stock and losing time looking for it, and they added a stock location module to our business software, Aria,” Burgess says.

The consultancy also identified improvements to the company’s picking and packing operations, eliminated confusion over staff reporting and lines of responsibility, and helped assess the performance of its suppliers. “It also improved our forecasting to prepare for seasonal swings,” she says. David Luke’s recent annual stock take was much smoother. “We didn’t lose half as much in missing stock and finished sooner.”

Cutting out errors hasn’t just improved customer service; it also helped the company get out orders much faster and cut its maximum order backlog by more than two-thirds. This was done with just five days of consultancy advice, spread over several weeks. “You don’t have to be ICI to get logistics support. The service was absolutely affordable, even for a relatively small company,” Burgess says.

Graham Mawdsley, senior consultant with The Logistics Business, says many companies only give logistics a passing thought. “We help businesses understand their logistics requirements, but this can be surprisingly difficult. Businesses often don’t know what they need, and our first step is to identify their options and likely costs.”

The industry’s trade association, the United Kingdom Warehousing Association (UKWA), is worth contacting and its online directory lists companies by industry and location

UKWA director general Roger Williams says: “We’re not a regulatory body, but members must meet our standards of warehousing. We are one of the few bodies to audit members’ operations. This isn’t a cast-iron guarantee, but should give you a nice warm feeling when you choose one of our members.”

Evaluating partners

Once you’ve located a handful of applicants you should either interview them yourself, or seek help from a logistics consultancy. But what questions should you ask? Mawdsley says you should examine the company’s key performance indicators (KPIs) to see how often they hit their performance targets. Ask to speak to existing clients, particularly if they’re in the same industry as you.

Look for a company that can deliver constant innovation. “Previously, fulfilment partners simply looked at your requirements, and did the job. Now the best ones will help you continually improve your operation, and you can incentivise them by giving them a share in any savings.”

Experience, geographical spread and cost are all important. “If customers are in the UK, you don’t need a global shipping operation. If sales are focused in, say, the South of England, it’s fine to choose a local specialist,” Mawdsley says.

Julian Pollard, sales director of mail order trampoline suppliers Trampled Underfoot, based in Woodbridge, Suffolk, says location was essential to its choice of logistics partner. “We had a contract with Surrey-based Cranleigh Freight Services, who were excellent, but it did mean a long drive whenever we wanted to look at our stock. We switched to local Harwich-based Express Transport Systems and saved a lot of time and money.”

This wasn’t the first time Trampled Underfoot had switched partner since the business was launched in 2001. “We initially chose a small local carrier, which was fine when we were selling 800 trampolines a year, but when sales passed the 6,000 barrier it couldn’t meet demand. It’s important that your partner can keep pace with any growth in your business.”

Trampolines are heavy items, and Trampled Underfoot pays £40 plus VAT for next-day delivery and £30 for threeday delivery. “If we sell 10,000 trampolines a year, that’s an awful lot of money, upwards of £400,000, so it does give us some bargaining power,” Pollard says.

But you could find it pricey going for a major national company – or impossible. Supply chain giants Exel and Wincanton only promote their services to larger companies. Many companies use more than one partner. Traditional craft bakery Botham’s of Whitby, which ships hundreds of hampers, cakes, biscuits and preserves to homesick Yorkshire folk uses Parcelforce for standard UK deliveries and FedEx for overseas orders. Managing director Michael Jarman says logistics are vital for the online arm of the family-owned business. “If somebody is sending their mother a birthday cake, it mustn’t arrive a day late, or they won’t thank us.”

The company set up its online business in 1995, and chose Parcelforce. “Whitby is quite isolated, with the North Sea on one side and the North York Moors on the other. We struggled to find another fulfilment company that could visit us every day. Once or twice a week wasn’t good enough for us.”

Parcelforce has another advantage. Its computer-based labelling allows Botham’s staff to input the customer’s name and postcode, and its software produces the rest of the address. “Staff don’t have to type in the full address, which wastes time during peak times such as Christmas.”

Now Botham’s produces labels direct from Parcelforce’s password-protected website. “This automatically updates its database, so by the time the label is printed Parcelforce knows an order has been made,” Jarman says.

The cost of the service varies from year to year, depending on anticipated demand. “We’re dealing in relatively low value items, so we need a competitive quote to remain profitable.”

Jonathan Solomon at iForce says before choosing your fulfilment partner, ask searching questions of your own business. “Are you ready to commit to outsourcing? This doesn’t mean abdicating responsibility, but delegating. Are staff ready for that? Can outsourcing make your company more successful in the long-term?”

Weighing up the cost and service

Smaller businesses typically need more support. “They are used to doing everything themselves, but don’t always have the people to provide information to a company like ourselves. Fulfilment partners will have to take a bigger step into the organisation to help take their sales forward. The closer you work with your partner, and the more feedback you provide, the more effective you’ll both be,” he says.

Cost varies hugely depending on what you demand of your partner. “For core logistics,” adds Solomon, “expect to pay between 2% and 5% of the total value of the goods, depending on what you are transporting, and the size of your business. For total fulfilment, expect to pay between 10% and 15% of the goods’ value.”

Remember, quoting distribution costs against product value is a rough measurement, and will differ greatly depending on whether you are shifting, say, jewellery or T-shirts. Similarly, you’ll pay far more if you’re asking your fulfilment company to stuff six different items into a single pallet on different dates, than just a single item on the same day.

Clearly, you want a partner that offers a fast and reliable service, but doesn’t demand too much. “If you want 100% accuracy and timekeeping, you’ll have to pay for that, and it can be very expensive. You may be better settling for, say, 98% accuracy,” Solomon says.

Items can be delivered by ‘planes, trains and automobiles’, and you can select the delivery block that best suits your business. “That could be next day. Two days. Four days. Seven days. You choose. Your fulfilment company might work with, say, seven different carriers to achieve that. It can get very complex, and the more you demand, the more you pay. We can offer nightshifts, but that inevitably costs more.”

Adrian Lee, managing director of Flooringsupplies.co.uk, says it’s worth paying extra for the best service. “You do get what you pay for. We use a company called Elite Distribution. Their service is direct and reliable, they don’t damage goods and they call our customers before delivery to arrange a mutually convenient time, which reduces the chance of goods having to be re-delivered.”

Finding the ideal partner wasn’t easy. “We tried a long list of couriers before finding the right one. When I tell a customer their goods will be with them next day, I want to know they will arrive on that day and won’t be damaged.”

Every business has particular needs, and Lee says you should negotiate these with your partner. “Some firms wouldn’t deliver to outlying areas such as the Highlands of Scotland. Elite sets aside one weekend each month to deliver to Scotland, including the islands if required.”

Fulfilment partners offer a host of services, including budget management, stock management, payment processing, full contract and account management, and pick and pack services. They can purchase boxes and packaging materials, and even gift wrap and write greetings cards. You could use their call centre, or your own centre, but with your partner tracking what happens to packages once they have left the warehouse. It all depends on what your business needs.

The impact of technology

New technologies are changing the market. Barcodes and radio data transmission remain the key technology, says Mawdsley. “If you have a full pallet, barcode scanning can quickly tell you what’s in the box and how many there are, plus an awful lot more besides. 3D barcodes can carry a huge amount of information,” he says.

Radio data transmission to handheld devices improve speed and efficiency by directing stock pickers to the right location, telling them how many items to collect and which carton to put them in. It also gives management a real-time picture of where operatives are and measures their progress.

GPS satellite navigation software allows third-party logistics companies and transport operators to manage their fleets more effectively, and cut vehicle and driver costs.

Radio Frequency Identification Component (RFID) tags, micro-chips that can transmit and respond to radio signals, could one day make a huge difference to the industry. But not just yet, currently they’re too expensive.

Track and trace technology can improve security. TNT is one operator that offers award-winning technology allowing customers to track the progress and exact location of consignments via internet, mobile phone, email or touch phone, and even view proof of delivery documents within seconds of being signed.

Chris Martin, marketing director of pallet network Pall-ex, says security is a key concern. Its purpose-built hub contains 98 infra-red CCTV cameras, often concealed, to watch the 500 or so staff who may be present at any time. “Once goods have left the hub, we insist they become the haulier’s responsibility. If something goes wrong, all losses and damage are down to them, which helps concentrate their minds.”

It has written its own Point of Delivery software, which logs details of every load onto the Pall-ex system the moment it arrives and leaves the company’s depot.

All parties are covered by their own insurance. “We have our own cover. All 96 hauliers in our network have cover. Clients also have their own insurance. If something is lost or damaged, it’s important to discover exactly where that happened, so we know whose insurance policy to claim on.”

Make insurance a key part of any contract discussions with your partner, to avoid overlap or grey areas. Business is a matter of logistics. Choosing the right partner really could make an enormous difference to the future of your enterprise.

case study

CARVING A REPUTATION FOR SERVICE

Online sports and leisurewear retailer M&M Sports ships more than one million parcels a year through its mail order and online divisions, and logistics are key to its success.

Michael Tomkins, CEO of the ?43m business, launched in 1987, says a sloppy carrier could destroy the company?s reputation. ?We worry about word-of-mouth in the changing room. If a member of a running club says, ?yes, they?re a great pair of trainers, but I had to wait ages for M&M to deliver them?, we?ve probably lost a dozen customers.?

M&M ?under-promises and overdelivers?, offering seven-day delivery but aiming for the goods to arrive within 48 hours. It uses Parcelnet, formed in 2000 by the merger of Freemans and Grattan catalogue delivery companies. ?We found a wide choice of business-to-business freight companies, but surprisingly few business-to-consumer companies,? Tomkins says.

Capacity is important for a business that claims to be the UK?s leading discount sports and leisurewear company. ?We can ship up to 7,500 parcels a day without the system creaking. The average parcel contains four items, that?s over 30,000 units.?

Tomkins is pleased with the quality of Parcelnet?s service. ?Two things matter to us, service and price, but service is our prime consideration. Online retailers suffered widely-documented problems fulfilling orders in the run-up to Christmas, but Parcelnet delivered everything ordered from our site before December 20 on time.?

M&M operates under tight margins, which means it can?t afford to offer free customer returns. It has to take unwanted goods to the post office itself. ?That isn?t ideal, and we are currently negotiating with Parcelnet about offering a collection service.?

Like many companies, M&M uses more than one carrier. For customers wanting guaranteed 24 or 48-hour delivery, it also uses express delivery service ANC Group.

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