The downturn has made markets like the UK even tougher places to do business. Retailers are watching costs like a hawk while at the same time using promotions like never before. The first part of just-food’s latest briefing on logistics features an interview with Dan Myers, head of the food unit at logistics giant Norbert Dentressangle, who outlines the pressures affecting his business.
just-food: Amid the even more acute promotional environment in the UK seen in the last two to three years, what are the new pressures you are working under?
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Myers: There’s always been a drive for what the retailers all refer to as ‘faster, fresher’. Although we’re dealing with predominantly frozen goods, it is about having a far more responsive supply chain, something far capable of reacting to seasonal and weather-related peaks and demands. Retailers increasingly are looking to shorten their supply chain and lead times. As a supply chain provider, it’s absolutely incumbent upon ourselves that we are able to respond to meet their demands. In the last few years, we’ve moved increasingly from a day-one-day-three environment to a day-one-day-two environment and in cases are now operating in a day-one-day-one environment on order lead time. That gives us very little flexibility of future demand and requires us to be exceptionally flexible to meet the requirements of the retailer.
Their requirement is not only to be able to meet their consumer’s demand – if all of a sudden, there is sunny weather, they want to be able to have barbecue goods and ice cream available for their consumer but they don’t want to have it in stock if the good weather doesn’t come along as we have seen this summer.
just-food: Retailers invest a lot in weather forecasting. Putting in myself in your shoes, one would help they would be aware of the vagaries and volatility in the demands they are putting upon you.
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Myers: I can say, from the point of view of stock forecasting and financial forecasting, that forecasting is always exactly wrong. That is the reality. There are so many variables you are trying to deal with that it only takes one of those variables to change to have a material impact. You see that with new product launches and with general weather-related and seasonal demands.
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By GlobalDatajust-food: From the promotional data we carry on just-food.com, it is clear the UK has traditionally been the market where the greatest amount of volumes are sold on promotion and that has ticked up again in the last 12 months. The market is even more promotional, retailers using targeted money-off vouchers and that must have a ripple effect along the supply chain to you guys.
Myers: Absolutely and we can see that despite the UK probably being associated with a heavily promotional retail environment, one of the reasons why Tesco put down their poor Christmas results was that the fact they didn’t do enough promoting in that period. I can categorically assure you there will be a significant amount more promotional activity certainly in Tesco come Christmas because we are already starting to see some movement of stock that allows them to go through that promotional activity.
just-food: What specific pressures does that put on ND?
Myers: We find ourselves in the middle. We’re the squeezed middle in the supply chain. We’ve got a manufacturing supply base that want to keep stocks very, very tight. We’ve seen stock-holding reduce and inventory turn increase. They are working the stocks work much harder and reducing their working capital as much as they can but equally we continue to see the high promotional activity as well. Stock cover is less, promotional activity is becoming greater so our need to respond – whereby literally stock is almo being manufactured to order, it’s coming into the warehouse, it’s spending less than an hour in the warehouse before it’s being outloaded ready for delivery to retailers. We do a huge amount of cross-docking activity in an industry that tended to be operated from a stocked environment. We see that continuing. It’s not only flexibility in having the additional vehicle resources to deliver it but creating flexibility in warehouse environment that allows us to respond to stock coming in on a just-in-time basis and outloading it to maintain on-time, in-full.
just-food: Are you investing more in drivers and vehicles? Given the volatility in the cost of fuel, that’s another massive consideration, isn’t it?
Myers: This is an industry that is not synonymous with high margins to be honest with you. It’s about investing in the ways we work and making our assets work harder. We’ve invested quite a lot in systems in order to be able to take stock in and fulfil orders very quickly in a just-in-time basis. Our warehouse system, which should be working from a stocked environment has now got visibility of inbound loads that allows it to allocate stocks for outbound before the actual goods have even hit the warehouse. We also look at dual-shifting vehicle fill to make sure that we’re getting utilisation out of our equipment. We’re fortunate as a company of the scale of ND that we’re able to utilise our sister operations to create greater flexibility.
just-food: Investing in the most up-to-date stock software systems is vital, isn’t it.
Myers: Our customers are demanding greater visibility so our system is going through perpetual evolution in order to meet current requirments and what they forecast as future requirments.
just-food: Has ND seen margins fall in the downturn?
Myers: Price is under immense pressure. A number of retailers are finding it particularly challenging at the moment. We are a cost in their supply chain, they look at the prices we pay and there is a degree of over-capacity. Prices are under pressure. From a margin perspective, in order to protect our margins it is about working smarter. Our focus is on investing in our systems and our process, ensuring our equip is modern. If you looked at our fleet, it is no more than two years old on average, which means we’ve got the newest engine designs to get the best miles per gallon out there. Fuel is a massive cost to our business so squeezing out a 7-8% improvement in your MPG helps bridge the gap when you are under pressure from price.
just-food: In the UK, ND serves the major multiples and manufacturers like Quorn Foods, Mars Inc and McCain Foods. Diversifying your customer base could be a way of spreading risk but could mean your supply chain becomes even more complex.
Myers: We’ve seen our stocks being work harder so it’s become v important to make sure we fill that space that we’ve created through under-utilisiation with new customers, which we’ve been relatively successful at doing. It’s not about over-complicating what we do. It’s about being better at what we do. We don’t want to be a jack of all trades. We want to be good at our core business. Diversification can lead to a loss of focus of what you are and what you are truly good at. Our business is predominantly frozen but we work with a lot of cereal manufacturers – Kellogg, Weetabix – and other large FMCG businesses but in temperature-controlled, it is predominantly frozen. One of the unique things about our business when we look at a lot of our competitors is we cover the whole supply chain. We go from pre-manufacturing to core manufacturing to co-packing through to freight forwarding and primary distribution and storage to secondary distribution and storage. There’s few businesses that covers the whole supply chain but ND does. And that gives you a unique perspective.
