The choice of service providers may be getting slimmer and control of the market by the biggest contenders is getting larger, but overall the customer and perhaps, in the end the consumer, is getting a better deal. Mergers and acquisitions in the market place are broadening the scope of services offered by the logistics sector, both on a geographical basis and with regards to more sophisticated product offerings. Customers are demanding more comprehensive services from suppliers as they expand into new international markets – global sourcing of products is becoming commonplace and retailing in far away places seems to be becoming the norm.
So, is big better? Apparently, yes – up to a point. Larger operations are able to offer greater scope in terms of products and services, but if the company has grown rapidly through acquisition or merger activity the quality of their offering may be jeopardised by poor integration of the merger or acquisition.
Fraught with dangers
This process is fraught with dangers, not least from issues such as company culture, individual ‘empires’ and of course IT integration. Knitting two companies, or even several, together is no easy task and takes keen, skilled management blessed with good incisive business sense.
A company may buy another for its presence in a particular market, but if integration is slow or patchy, customers may be dogged by poor service. However, when a merger works it can work very well. A prime example would be Exel. Created through the acquisition of NFC by Ocean Group in 2000, Exel has successfully combined the attributes of both companies and created a supply chain services company with a global reach.
Illustrating its progress is the announcement this month of retailer, Marks & Spencer’s, award of a five-year contract to Exel for the management of seven of its eleven general merchandise warehouses across the UK. Exel currently manages the Enfield distribution centre for Marks & Spencer and will add six further sites. M&S has also extended its contract with Christian Salvesen for services to its general merchandising operations. Salvesen already operates three RDCs handling non-food products as well as managing significant food contracts.
As a global player Exel is well positioned to take advantage of the huge potential offered by the expanding economies of the Asia Pacific region and in particular China – the company operates in China as Exel-Sinotrans, a joint venture company formed in 1996. Exel has recently made a strategic investment of $10 million in Sinotrans’ initial public offering. I believe John Allan, chief executive of Exel, has his sights firmly set on the fast evolving market in China.
During 2002 Exel won new business worth more than $930 million and renewed over 75 per cent of contracts.
A company taking the limelight on the acquisitions front recently is Wincanton, a company once content to keep its feet firmly in its home market in the UK, it has launched itself wholeheartedly into the continental European arena by purchasing the contract logistics business of P&O, which constitutes the greater part of P&O Trans European. The move, which cost Wincanton $228 million, gives the company a significant presence in continental Europe, with a particular emphasis on the developing markets of central Europe. It’s a bold move that could work well. All eyes will be on the speed and efficiency of the business integration process.
Up for sale
And what of Hays Logistics? Once the bright star of the City punter, it has now been put up for sale so that Hays can focus on its personnel business where it believes more potential lays. I believe it was not that long ago that the company placed its logistics activity at the centre of its corporate strategy. Hays Logistics sales were three per cent ahead of last year, though profits declined from $34 million in the first half last year to $27 million in the six months to 31st December 2002. No doubt there are quite a number of interested parties out there, but I suspect it is the company’s sizeable contract with grocery retailer, Waitrose, which catches the eye.
Of course the most acquisitive player of them all is Deutsche Post. Arising from the shadows in the late 90’s this state run post office purchased a string of substantial logistics companies and has now, this month, launched a re-branding programme under the DHL banner. In late 2002, Deutsche Post World Net (DPWN) increased its shareholding in DHL to 100 per cent and through the STAR integration programme, embarked on consolidating DHL, Danzas and Euro Express into the new DHL. Over 44,000 of its vehicles across Europe will carry the company’s new red logo. According to the company, customers of all three companies will continue in the short term to receive all existing products. Over time, overlapping products will be integrated to provide a more streamlined portfolio, ‘without losing any existing capabilities or functionality’. Product reorganisation is expected to be complete by 2005.
It is probably true to say that the contract logistics market is still highly fragmented and in many respects outsourcing logistics activity is still a relatively undiscovered quantity in markets such as Germany. So although consolidation may continue for some time yet to come, the immaturity of the market suggests there is little danger of cartels emerging to exert unfair control, at least for the foreseeable future.
Of course some major players have generally avoided the challenges of ambitious acquisitions, choosing to grow by organic means through moving with their clients into international markets. A notable subscriber to this approach is John Harvey CBE, Chairman of Tibbett & Britten. In a statement given at the time of the company’s March announcement of their 2002 results he said: ‘Our business strategy built primarily on organic growth, has served us well in our entries and subsequent developments in North America and mainland Europe. This process is now being replicated in China and other international markets.’ According to its results, over 75 per cent of the group’s growth was organic. The group said it won new business totalling $318 million in annualised revenues during the year.
Big contracts are still around too. Caterpillar Logistics FT Services has just entered into a 15 year contract with automotive manufacturer, Mazda North American Operations (MNAO), to provide the distribution of service parts and accessories to Mazda’s 850 deale ships in the United States and Canada. This is believed to be the largest deal in the last decade and the second largest agreement in the history of the company.
The contract calls for Cat Logistics FT Services to assume operations of MNAO’s five US based, and one Canada based, distribution centres to form an integrated North American network. Services provided will include warehouse operations, inventory management, records management and systems solutions.
The market is still fairly active with a number of smaller contract wins.
Under a new five-year contract with Dolphin Bathrooms, Ryder is responsible for up to 225 deliveries a week to retail outlets and customers’ homes across the UK. A dedicated fleet of five twin-bunked Daf 45 prime movers, plus four trailers and 13 demountable box bodies have been supplied by Ryder to work out of Dolphin’s Wolverhampton distribution centre, as well as outbases in Crawley, Exeter and Edinburgh. Ryder and Dolphin combined to design a unique tail lift for the vehicles.
Car parts and cycles retailer, Halfords, is working with TDG to ‘support growth and realise substantial savings’. TDG is managing a fleet purchase in excess of $3 million and Halfords is investing in a $1.8 million site improvement at its Redditch distribution centre in loading facilities for the new vehicles. Halford believes this will enhance customer service at its 400 strong store network, but reduce unit delivery cost.
Securicor Omega Logistics (SOL) has won a three-year contract to handle the latest sportswear for the German company Puma. The contract is a team event for Securicor with both SOL and Securicor Omega Express (SOE) involved in the movement of sports shoes and the latest line in Puma sports clothing from its regional distribution centre in Yorkshire to outlets throughout the UK and Ireland.
And another recent example: Sunrise Medical, a homecare product manufacturer and distributor, has just confirmed the extension of its UK contract with logistics provider, Geodis Uk, for another two years. The medical company’s complete air, sea and road needs are met by Geodis’ Midlands office.
Although economic conditions may not be conducive to business expansion at the moment, the opportunities are most certainly there for those companies astute enough to streamline their supply chains for increased customer service. Working with a contract logistics service provider could help deliver those benefits to the end customer more swiftly.
It’s a question of taste
Heineken is bringing its authentic Dutch-brewed lager to the UK to keep pace with changes in consumer tastes for stronger, continental-style lagers. To facilitate this launch, Heineken has undertaken an operational restructure that coincides with the expiry of its brewing distribution licence agreement with Whitbread and the disappearance of Heineken Cold Filtered and Heineken Export from the shelves.
To support the UK launch and ensure continuing brand loyalty it was essential for Heineken to select the right supply chain partner. Commenting on the process, Doron Wijnschenk, customer service and logistics director at Heineken (UK) Ltd said, ‘We were looking for a premium quality, creative solution that would demonstrate significant benefits for Heineken and have the flexibility to handle fluctuations in demand. Strong deliverables and a rigorous performance improvement plan were also deciding factors. We started off by talking to P&O Trans European and after the business was acquired by Wincanton they were awarded the contract.’
The location, specification and availability of a modern, food grade distribution centre was particularly important to Heineken, which needed a centrally located facility to act as its UK hub. The Wincanton distribution centre in Lutterworth was chosen as the operational base to co-ordinate all inbound transport direct from Northern Europe and all onward domestic deliveries to major retailers and wholesalers nationwide. Martin Taylor, managing director of Wincanton’s General Retail and Industrial business, comments, ‘Our Lutterworth operation gives Heineken the best of both worlds. It has all the benefits of a shared user solution, but is managed as a dedicated facility. This was an important factor in the decision making process.’
Doron Wijnschenk explains, ‘Because Whitbread was responsible for the Heineken brand in the UK for many years, it utilised its own supply chain. Once Heineken took the decision to sell its own imported five per cent strength beer in the UK we needed a supply chain that was flexible and tailored to our own requirements. The shared user solution proposed by Wincanton gives us both flexibility and a cost-competitive set-up, which is needed for a start-up operation. A dedicated site would not have been preferred at this early stage. Clearly we will review this in time with Wincanton.”
Heineken’s operational reorganisation also coincides with a complete redesign of its packaging and merchandising. The new look will support both the launch of Heineken’s premium lager and the introduction of new products into the range. Efficient replenishment is therefore vital to the success of the market penetration of the product range. Wincanton’s HM customs-approved bonded goods, warehouse management, and stock control systems interface with Heineken’s own SAP software to ensure the efficient running and continuous maintenance of the collection and delivery cycle.
Wincanton has established a dedicated team to service the Heineken contract and manage activities to maximise efficiencies. Initiatives include pallet reworking and a customer collection scheme for empty kegs, which are backhauled to Heineken’s European brewing centres for reuse. The implementation phase at Lutterworth will be completed by this summer with the operation gradually increasing in scale.
Aguas de Levante (AGBAR Group, Aguas de Barcelona) is one of the biggest companies in Spain. Its largest division is responsible for the installation and maintenance of the public water network and water supplies for the whole of Spain.
This is a critical operation because interruptions in service are simply not acceptable, as they usually result in claims from city hall and can involve major penalties.
Aguas de Barcelona came to TNT Logistics in search of ways to optimise the maintenance parts storage and workflow, as it was essential to guarantee efficient processes in their repair activities.
The importance of reducing the time between the moment when the task arises and the response from Agbar was recognised as a key focus. Obviously, an immediate solution to the network problem and securing water supplies are paramount.
In January 2003 Agbar and TNT Logistics signed a contract.
TNT Logistics’ concept was aimed at reducing fixing times. In the past the Agbar engineers, who were assigned to carry out maintenance tasks, had to contact suppliers directly and had to get the parts from the several suppliers’ warehouses themselves, or alternatively they ordered materials transported by different and unco-ordinated carriers. This resulted in a lack of efficiency and control.
TNT Logistics now stores all the materials used for maintenance, installation and repairing tasks in a warehouse managed for Aguas de Levante.
When Agbar receives an order or repair notice from its customers, they send the working orders to the Agbar maintenance teams, and at the same time TNT Logistics will receive a list of the materials that the engineers will need to carry out the emergency repairs.
When the engineers arrive on site, they find all the materials ready to use in order to be able to start the job straight away and fix the problem.
Furthermore TNT Logistics provides value-added services, like kitting, picking and labelling. TNT Logistics will handle approximately 150,000 order lines per year.
TNT Logistics has also improved cost efficiency by splitting the warehouse in two different areas: Indoor storage for sensitive materials and cheaper outdoor storage for plastic materials which can be stored outside without risk of being damaged
Benefits of the contract for Agbar will be improved service to customers, reduced problem solving lead time, optimised parts flows and significant cost reduction.