A Review of the Food & Beverage Sector – Part 3
Are you in the driving seat or just the passenger?
These 5 relationships represent two different scenarios. On the one hand in the face of changing environmental factors such as fuel costs, road congestion and carbon footprint the partners took the initiative to pool their under-utilised resources and gain significant business benefits. On the other hand, four long standing relationships allowed themselves to be driven by change, to become reactive and tetchy.
Food & Beverage Logistics 2008 – 2016
Background
This section describes 5 long-standing, major logistics relationships in the food and beverage sector. Their aim was to optimise the logistics movement of goods with effective collaboration programmes which brought together manufacturers and third-party logistic service providers. This was revolutionary because it involved competitors working together. The highlights are described through ‘voices’ from within the organisations according to whether the relationship was seen as successful or struggling. Their overall relationship performance is compared in the chart below.
Successful Relationships
The business case is key
“As a result of participating in a sustainability and carbon footprint project run by an independent broker we saw that opportunities for us abounded.”
“There is a compelling financial case for outsourcing our food logistics operations and we will derive significant financial benefits from moving to a new operational location. We chose them because they offered the most attractive and competitive solution and clearly demonstrated their commitment and desire to work with us.”
“Initially the 3PLs hated the scheme because they thought it would hit their margins. Most 3PLs and 4PLs are only focused on the cost effectiveness of their operations. They are not interested in the bigger picture or sustainability.”
“We wanted to set up a hub outside of town where all the suppliers of the retailers in the city centre would deliver, and then a shuttle service would run backwards and forwards making deliveries. The main contender to run the hub wanted financial compensation because they said it was their idea in the first place. This killed the initiative.”
Making it happen
“There are three main rules for this relationship. We must share benefits equally. We mustn’t compromise security of product or development. Neither of us must lose out because of something the other does, such as lack of care with customer deliveries so that our partner loses sales.”
“Interoperability of computer systems such as SAP was the enabler.”
“Geographical synergies between the distribution networks of the companies played an important role. We realised that our operating models and objectives were similar and therefore we could work together. There was common understanding between us – your direct competitor can be your best partner.”
“There was a common bond that we were all kind of in it together and therefore anything we could do to help each other was a good thing.”
“Thank god my boss doesn’t come over here very often. I’ve been doing collaborative deals with Boots and anybody else; anything that we could get to backload. It’s what was keeping the depot profitable. As long as the head office can’t see it, you can do what you *** well like.”
Scope of operations
”We took a very pragmatic approach to the thing at the beginning and said we weren’t going to overcomplicate it. We started small to see if it would catch on. It was just 2 runs a week on an ad-hoc basis.”
“By consolidating our loads we have eliminated 28,000kms of empty trailer journeys, saved 95,000 litres of fuel, cut 250 tonnes of CO2 and saved £300,000 in fuel and other costs year on year.”
“We have to be very careful with some of the European legislation. Commercial relationships with third parties have to be done by individual companies.”
Breaking the mould
“People were used to one-way deliveries. We tried to get people to think outside the box on what they could actually backload.”
“The independents were closer to the front line and the profits because it’s their own money. When you actually get into some of the bigger boys they’re so removed from it that the politics gets in the way of common sense and profit.”
“They really couldn’t see that we were trying to get to the point where instead of them all hunting for work on a daily basis, having to go for spot rates, they could actually get a degree of stability and then the profit would start.”
“Sure, you’ve got a big contract, but actually you’re making no money on it. You invested in the kit for a high maintenance retail customer and your trucks are only 30% full.”
“They were petrified that if they shared a truck they would lose control over who got the first delivery.”
How important is branding in logistics?
“If I’m driving down a motorway and a Sainsbury’s truck is in front of me that’s not going to entice me to go in to the store. What will entice me is the product range, the service offering and the quality and value for money.”
“What is their truck doing in our yard, is it lost?”
Exploiting competitive capability
“We have learned a lot from our collaboration and have taken the concept to other partners. These operations are now worth £22m per year.”
“We are both in-synch going forward with a new initiative on short lead time deliveries to the retailers of non-competing products. This also satisfies our need to maximise the use of our vehicles that are run 24/7.”
“We are ideally positioned to offer flexible solutions to support their growth in a dynamic market. We look forward to working in close partnership, and adding value to their supply chain.”
Struggling Relationships
Customer frustrations
“We used to be a traditional business providing a standard offering to our customers but in the face of greater competition we are changing and becoming more innovative. We need a different logistics service that is more dynamic.”
“Requests to our logistics team do not result in any changes to the way the businesses operate; I therefore assume they are not acted on.”
“Alignment between the businesses seems to be stuck at a logistics level i.e. how much effort goes into wider business engagement? As long as the costs and mechanics behind the contract remain a mystery to us, it may prove difficult to get real traction behind business improvement initiatives outside of the core logistics team.”
“Our business is growing rapidly and we opening new outlets weekly. Our logistics service is not keeping up!”
HQ view of logistics
“Our business has changed dramatically since the start of the contract with our logistics provider, and whilst I believe that they are committed to supporting our business, I feel that they do not fully understand the intricacies of each of our brands and sub brands. This can inhibit their ability to fully support the strategic objectives of our business.”
“Our logistics provider tends to be reactive and unwilling to generate ideas. However the customers are also vague as to what they want and the communications systems that support finance, procurement and planning from both sides are not great.”
“I am committed to mapping out and putting in place processes that touch my team and our logistics supplier, and look forward to building new relationships with them.”
Logistics provider in the dark
“Their systems creak to contend with the information needs. They take a limited view of analysis and understanding of the costs.”
“Improved Management reporting is essential as is a clearer breakdown by individual brand.”
“There does not appear to be a forum to discuss their vision for the future and what the joint strategy between us should be to achieve this. With many brand owners, potentially wanting different levels of service, it is not always easy to deliver what everyone is looking for or least having an open forum to explain what can be achieved.”
Conclusions
It is clear that a compelling business case is a foundation to the establishment, continuation and successful benefit realisation of collaborative logistics operations. Without strong, determined leadership from relationship managers, the business rationale will fail to adapt to support changing requirements and complacency or dissonance will result. Following on from these, collaboration implies close interactions between the partners which demand tailored processes and commercial frameworks. An important but often overlooked benefit that can emerge is the capability to replicate such collaborative relationships with other partners. Finally the traditional view of vehicle branding, when considered pragmatically within the logistics context, is a ‘non-issue’.