The South African solution to supply chain - Supermarket.co.za

SUPPLY CHAIN
The South African solution
to supply chain
By La u r a Du r h a m
It’s a simple equation:
Share your information,
learn from international best practice
and listen to your customers
After reading the headline, I’m sure you’re eagerly scanning the pages for
the magic formula or blueprint for success. The thing is, you’ve actually
known the answer for a long time now. It’s just that you’re all being
stubborn and unwilling to accept that things inevitably go wrong and you
need to prepare for them. You also have to collaborate to succeed.
Welcome to Supermarket & Retailer’s school of supply chain.
South African challenges
“In a business where margins are already
very close to the bone, cost management
and innovative thinking are more important
than ever. It’s often during trying financial
times like these that we get a step change
or major innovation coming because this
is what is required to stay competitive,”
comments Mark Aling, logistics manager at
Permark Supply Network.
Liezl Smith, president of The Association
for Operations Management of Southern
Africa (SAPICS), believes that South African
supply chains generally compare very well
with their developed market peers and in
some cases, are even ahead of the curve.
“One of the reasons for this is that we have
had to become very innovative in the way
we do things in the face of challenges that
do not exist in developed markets,” she
says. “Doing business in Africa is not for
‘sissies’, and so we have developed much
strength in terms of our creativity and
tenacity when confronted with adversity,”
she adds.
Jason Kelly, director at Logtrix, identifies
some of the unique challenges within the
South African context:
■ Erratic supply
and demand relationships
Demand is characterised by daily change
and human emotion. Supply is systematic,
orchestrated and planned. “Finding a
set formula to predict volumes and
inventory levels is almost impossible and is
dependent on consumer behaviour at any
given time,” he explains. Typical the world
over, particularly in this tough economic
climate, even consumer behaviour is erratic
thanks to endless additional cost pressures
and an unstable job market.
■ Lack of orchestrated,
centralised processes
There are many suppliers, carriers, retailers
and third party service providers (3PLs)
in the local industry and all of them do
things differently due to their unique
operating environment. “The lack of
centralised standard operating procedures
(SOPs), industry standards, business
requirements and collaboration has led
to an environment of confusion and
uncertainty of process. What works well
in one company doesn’t quite work in
another,” he says.
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SUPERMARKET & RETAILER, APRIL 2013

Benefits from
centralised
distribution include
better on-shelf
availability, while
at the same time
holding lower overall
inventory levels
in stores
Just in time (JIT) delivery is a growing trend in retail to reduce inventory at store level.
A lot of stores are now built with more floor space and less backroom.
SUPPLY CHAIN
▲
■ Unskilled, non-permanent
labour force
Many of the key personnel involved in
critical supply chain processes are either
casual labour or unskilled. “This leads to
unpredictable turnaround times, stock
losses, damages, lack of ownership of
process and security threats,” comments
Kelly. These pressures are exacerbated
further by the strong presence of trade
unions and the resulting downtime thanks
to the inevitable industrial action.
■ Diverse physical
operating environments
“It is as though every receiving, dispatch,
back-up area and processing zone has been
designed and built differently,” he says.
This adds confusion and restraints to the
planning and delivery execution processes.
For example, stores located next to each
other that are receiving a delivery on the
same day may have to be planned on
separate vehicles due to physical receiving
constraints, adding to the cost of logistics.
Centralised efficiencies
In 2012, Pick n Pay opened its new
distribution centre (DC) in Philippi, Cape
Town – the second of a planned four across
the country.
Commenting at the May launch,
divisional director of supply chain, Cobus
Barnard said: “It will allow us to operate
Most retailers began embracing centralised distribution years ago. However, not all vendors can
go through a DC so there will always be a need for direct to store delivery (DSD), especially in
provinces where retailers don’t have their own regional DCs.
more cost effectively and improve our
ability to serve our customers at the same
time. Benefits from centralised distribution
include better on-shelf availability, while
at the same time holding lower overall
inventory levels in stores. This means less
congestion at our stores’ receiving centres
and importantly lower transport costs in
our supply chain.”
Logtrix provides scheduling and supply
chain productivity services to Pick n Pay
nationally across all divisions and has
been integrally involved in the retailer’s
direct store delivery (DSD) planning and
operations over the past 24 years.
Centralised distribution is also great from
a delivery point of view for carriers as they
have a single delivery point per region rather
than having to send vehicles all around the
country. “Also, vehicles make bookings so
you don’t spend the entire day at a back
door because of queues,” explains Aling.
However, there are cost implications
within the DC model. “Because retailers
know that suppliers want to ship to DCs,
they can charge DC allowances. But it
definitely still makes economic sense to
deliver bulk loads to the retailer DCs and
let them consolidate their store orders and
ship themselves,” he says.
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SUPERMARKET & RETAILER, APRIL 2013

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SUPPLY CHAIN
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Leron Varsha, CEO of the Fore Good
Group, says the three factors to consider
when comparing DC and DSD are
efficiency, control and cost. “Efficiency
will improve over time, however, with
specific perishable items, specialist
focused distribution is required. Suppliers
would also prefer to have control over
their products and ensure that they are
ultimately responsible for the focus on
their own distribution into stores.”
Competing distributors will ensure
that costs are competitive but there are
still pros and cons to each model. “Direct
store deliveries allow for flexibility on
distribution models, for example, direct
sales to owner run stores. The DC model
allows for reducing costs, if stock is
carefully managed,” he explains.
As much as centralised distribution has
become a fundamental part of retailing in
South Africa, there will always be a need for
direct to store delivery (DSD).
“DCs are definitely required, hence most
retailers began embracing centralised
distribution years ago. However, not all
vendors can go through a DC so there will
Ian Moir, Woolworths CEO, pointed out this
empty space on his Nicolway store’s shelf. He
explained that they do not like to hide out-ofstocks
from customers – but rather keep them
visible to remind staff and suppliers of their
unacceptability.
always be need for DSD, especially in
provinces in which retailers don’t have their
own regional DCs,” comments Kelly.
“The planning component is enormous
whether it’s DC or DSD. Ultimately, the
goods still have to arrive at the back door.
Integrating the two schedules is critical to a
productive receiving environment,” he adds.
Getting productivity
at the back door right
SAPICS’ Liezl Smith says that forecasting
and planning are activities that have
traditionally lacked focus from retailers.
“They are generally masters at displaying
their products in the most effective way
or understanding consumer behaviour.
However, when those have to be translated
to product supply, it often fails.”
Varsha says that in order to forecast
accurately, a clear understanding of
the market and distribution channels is
essential. He points to historical data and
market trend analysis as being two good
indicators. The marketing team should
also be involved in the demand plan, he
argues. “There must be joint agreement
on the procurement process with the
supplier or manufacturer. One should
stipulate service levels and ensure there
is continual communication. This includes
updating on shortages in products, delays
on transport, as well as variations in raw
material costs,” he says.
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SUPPLY CHAIN
▲
The procurement team also needs to
be responsible for tracking the order right
through to the warehouse.
Smith acknowledges that some retailers
are getting better at forecasting demand
– and the efforts are paying off. “More
and more are realising that supply chain
planning can provide huge benefits to them
too,” she says.
Scheduling deliveries is a critical
function of planning but it all boils down
to expediting the deliveries in the end.
“Delivery time clashes remain a problem.
We sometimes have a different view of ‘on
time’ in Africa,” comments Kelly.
Retailers obviously need to know exactly
when stock is arriving in order to employ
resources to execute the receipt efficiently.
Turnaround time remains a huge issue
for retailers, suppliers and 3PLs – but it can
actually be achieved if everything goes to
plan. “Critical to supply chain success is
communication, technology and information
sharing – not just strategic information but
hands-on as the plan is being executed,”
he says.
From a cost point of view, retailers will have to get suppliers to remove the cost of merchandising
from their pricing and give what they are paying merchandising companies to do the job to the
retailers.
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SUPERMARKET & RETAILER, APRIL 2013

There’s an enormous planning component whether it’s distribution centre (DC) or direct to store
delivery (DSD). Ultimately, the goods still have to arrive at the back door. Integrating the two
schedules is critical to a productive receiving environment.
Costs of delivery
The steadily increasing fuel price is really
beginning to show through the cracks in
the supply chain. Since 2003 – 10 years
ago – the cost of petrol has increased
by 210%. Looking at the AA’s table of
wholesale diesel pricing in Gauteng for the
last year, we can see that from 6 April 2012
(R9.53/l) to the latest price change on 3
April 2013 (R12.02/l), the price of diesel
has gone up 26.13%.
Besides the fuel price, there are many
pressures on carriers who have to swallow
the costs – rather than push them onto
suppliers – to remain competitive. With
recent emphasis on just in time (JIT)
deliveries to reduce in-store inventory and
rising fuel costs, distribution agents and
carriers are seeing the direct impact on the
cost of distribution.”3PLs are also having
to look in-house to save costs to offset
external pressures,” comments Kelly.
“There must be a tipping point where
these costs will be passed down and
ultimately affect the consumer price,” he
adds. Already, South Africa is an expensive
market in terms of distribution, according
to Fore Good’s Leron Varsha. “When
distribution models change there are often
difficulties in the interim stage. This adds
additional costs in getting the product to
market, however over time with efficiencies
and systems becoming second nature, costs
start to reduce and efficiency improves,”
he says.
JIT – Just too late?
“You often hear people saying that just
in time actually means just too late,”
comments Permark’s Mark Aling. JIT is a
growing trend in retail to reduce inventory
at store level. A lot of stores are now built
with more floor space and less backroom.
Carriers therefore have to make more
frequent deliveries to the back door.
It is difficult for smaller carriers to
execute these smaller loads as it’s just not
profitable for them and also impacts on
their fleet utilisation. There is currently a
big consolidation process taking place in
the logistics sector. “Now, larger carriers
have a larger basket of vendors in order to
still keep it profitable. These larger carriers
work the same as a retailer with a DC –
carrying a number of principals to optimise
costs,” explains Kelly.
Aling suggests that there is still an
opportunity for smaller players. “A lot
of bigger companies are renowned for
struggling to offer the level of customer
service that is needed. Value-adds become
very important revenue generators in times
like this and can be the difference between
success and failure.”
Although retailers are now moving
toward less stockholding space, JIT
does create pressure on the back door.
“Especially if vehicles aren’t arriving on
time or the retailer doesn’t have sufficient
resources to execute the delivery at point
of receipt,” says Kelly.
“Rising fuel costs don’t spell the end
to JIT deliveries (as this is strategic in
overall optimisation) but rather a look
at recovering costs elsewhere in the
distribution network,” he says.
“As Permark, we set ourselves a target
of 95% service levels to customers. If you
expect to meet that while running a truly
JIT supply chain in South Africa you’re in for
problems,” comments Aling. “However, we
never stop looking for ways to reduce lead
times, manage expectations and improve
our operations in order to run more
efficiently. The more efficient you are, the
less cover stock you will need.”
Contingency planning
Retailers cannot only plan for when things
go right – they need to be prepared for
when things go wrong. “I like to think
that you need to be proactive rather than
reactive. If your planning is thorough you
can avoid lots of issues. However, when the
issues arise you need to make a decision
and react fast to sort them out,” comments
Aling.
Contingency plans need to be put in
place so planned or unplanned events don’t
ultimately affect the stock on shelf. These
may include annual stock takes or public
holidays (planned events) or unforeseen
events such as industrial strike action. All of
these could lead to an interrupted supply
to retailers.
“We usually try to base the contingency
plan around minimising damage while
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SUPERMARKET & RETAILER, APRIL 2013

Strikes are a prime
example that
illustrates the need
for contingency
planning, with the
need to get orders
to customers but
not put any vehicles
or staff at risk
to do so
With last year’s truck strike, contingency
planning had to be done daily. “No-one
knew how long it would last so everyday
we had to look at which areas were
affected and establish whether it affected
the outbound delivery from the carrier DC
or inbound to the store,” he says.
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SUPERMARKET & RETAILER, APRIL 2013
SUPPLY CHAIN
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incurring the least possible costs. Reacting
to disasters can get very expensive very
quickly,” says Aling.
Another very real example is when a
public holiday falls on a nominated delivery
day (NDD). It is easy enough to shift the
delivery day to the next day (say to the
Tuesday when a public holiday falls on
the Monday) but the retailer needs to be
prepared and able to receive additional
stock on the previous NDD (say, the Friday
before) to cover the stock required for the
extra day after the weekend.
With stores now reducing their backroom
space, it is easy to see why a retailer might
become unstuck, as he literally does not
have the additional capacity to hold an
extra day’s stock. This will also affect the
turnaround time of carriers as the receiving
bay may now be handling Monday’s
deliveries 100 on top of the regular Tuesday’s
trucks. Logtrix’s Jason Kelly suggests that
95
retailers order up on KVI lines the week
before to limit the extra deliveries to just
75
the perishable items.
Supply chains need to be quite adaptable
so they can accommodate these changes.
25
“Carriers and retailers need to be quite
creative 5 in their planning to ensure supply
in these periods. It’s a trade-off between
stock
0
holding (how long will it last?) and
the next delivery (when can I realistically
receive more?),” notes Kelly.
Contingency plans need to be put in place so
planned or unplanned events don’t ultimately
affect the stock on shelf.
Aling also mentions strikes as a prime
example that illustrates the need for
contingency planning. “Our transporter’s
rule during the strike was that they would
do whatever they could to get orders to
customers but would not put any vehicles
or staff at risk to do so.”
Last year’s snow that closed the N3 for
two days is another unexpected event that
had to be worked around. “We run a crossdock
facility in Durban because we have
a good highway linking Johannesburg and
Durban but, all of a sudden, we didn’t have
that anymore and it meant that we had
problems supplying customers in Durban.
We had to get our vehicles going round the
N3 to reach Durban, which adds to lead
times etc.,” says Aling.
At store level
There’s an easy way to see if retailers are
getting supply chain right … ”have they got
stock on shelf?” asks Kelly. That being said,
out-of-stocks (OOS) aren’t necessarily just
the retailer’s responsibility. Supply chain
management is about the retailer, their
suppliers and the person who carries all the
goods. “It needs to be all three getting it
right,” he says.

Because retailers know that suppliers want to ship to DCs, they can charge DC allowances.
A recent study with a soft drinks supplier showed that moving a 2-litre soft drink from the
supplier’s truck at the back of the store to the shelf was costing around 40-50 cents per bottle.
Another growing element of the supply
chain conversation is the role of in-store
merchandisers. “Merchandising is a very
costly function in retail, especially if you
consider the human capital element of
merchandisers,” he says. And then there’s
the blame game when OOS occurs:
Retailers blame the suppliers and their
merchandisers, and the suppliers blame the
retailers.
There’s no hard and fast rule when
it comes to merchandisers as different
suppliers have different contracts and
operational requirements with retailers.
“Supplier merchandisers are definitely
required at stores where there is
insufficient turnover to justify a visit by a
multitude of merchandisers. However, in
the larger retailers, the expertise to manage
the merchandisers is not always available,”
comments Fore Good’s Leron Varsha.
Dale Good of GLS Solutions believes
there are a lot of things that have to
happen before retailers in South Africa can
take back responsibility for merchandising
their shelves and saving cash. “The major
ones are getting suppliers to let go control
of the retailers’ shelf which they have
through supplying merchandisers to stores.
From a cost point of view, retailers will
have to get suppliers to remove the cost
of merchandising from their pricing and
give what they are paying merchandising
companies to do the job to the retailers,”
he says. This cost is pegged at around 4%
of sales.
There’s clearly still an opportunity to
reduce costs in the last 100m. A recent
study with a soft drinks supplier showed
that moving a 2-litre soft drink from the
supplier’s truck at the back of the store to
the shelf was costing around 40-50 cents
per bottle.
Retailers need to be asking, “how do we
get stock off the truck and onto the shelf
without wasting too much time, space or
money?”
Communication and
collaboration
In every supply chain feature, we heed
calls for better communication and
collaboration between all parties. This year
is no different, as clearly, it’s not happening
yet – despite the obvious mutual benefits
that would result! “A lot of people still
think their information is a strategic
advantage and are therefore not willing to
share,” comments Logtrix’s Jason Kelly.
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SUPERMARKET & RETAILER, APRIL 2013

SUPPLY CHAIN
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“There is a lot of theory around
collaboration between retailers and
suppliers, but in South Africa, I do not think
we have even scratched the surface,” says
Liezl Smith from SAPICS.
“Logistics companies are service
providers stuck between the customer
and the product owner so they can take
shots from both sides a lot of the time,”
comments Permark’s Mark Aling.
“A big no no is the sub-optimisation of
parts of a supply chain network. The entire
Every South African
company needs to
get creative in
trying to improve
efficiencies and
reduce costs to
ensure that they’re
still in business
tomorrow
Ensuring the order is placed on the correct day (taking into account the correct lead time)
will ensure the stock arrives at the retailer in time to replenish outgoing stock and will, in most
instances, reduce returns off invoice.
supply chain needs to be looked at as a
whole,” says Kelly. For example, you may
be able to save costs in one place, but then
you need to see how it impacts on another
part of the chain.
“Planning is great but what is needed is
to build a culture of quality into every step
of the supply chain. This will take years and
needs buy-in from all players so it is very
difficult, but that’s the only way we go
forward,” says Aling.
It’s not even just about collaborating
with the other parties – it’s about
coordinating within one organisation as
well. “What underpins any supply chain is
the link between the sales function and
the distribution. Yet, companies will
often outsource the sales function so
communication fails between the two
divisions,” says Kelly. “If there were better
communications between sales and
distribution, I think sales would run a lot
smoother as well,” he adds.
“With better information, better
decisions can be made. Less guesswork
generally means fewer mistakes. There is a
clear case for better communication and
collaboration,” says Smith.
Quick wins
Looking forward, there’s no doubt that the
tough times are going to continue. Fuel
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SUPERMARKET & RETAILER, APRIL 2013

Contingency plans need to be put in place so planned or unplanned events don’t ultimately affect
the stock on shelf. These may include annual stock takes or public holidays (planned events) or
unforeseen events such as industrial strike action.
Centralised distribution is also great from a delivery point of view for carriers as they have a single
delivery point per region rather than having to send vehicles all around the country.
costs are increasing each month and the
8% electricity tariff hike is coming into
effect.
Every South African company needs
to get creative in trying to improve
efficiencies and reduce costs to ensure
that they’re still in business tomorrow. For
the retailers, suppliers and 3PLs in the fast
moving consumer goods industry, there
is an even greater need to keep up with
the dynamic market they serve because
ultimately, they determine the price of
goods on our tables.
SAPICS’s Liezl Smith says there are a
number of short-, medium- and long-term
measures that need to be implemented
concurrently to get sustainable benefit:
“Some long-term investments include
skill development and breeding a culture
of continuous improvement. Medium-term
measures would include better forecasting
methods, including internal and external
collaboration processes’ and aligning
every employee’s goals with that of the
business. Short-term measures could
include business process re-engineering
to eliminate non value-adding activities;
and questioning ‘the way we have always
done it’ and empowering all employees to
suggest improvements.”
four cost-cutters
Jason Kelly highlights Logtrix’s top four
cost-cutters for retailers:
■ Alignment of order
and delivery day
This process will instantaneously assist
in creating a more controlled and rigid
operational environment and ensure
synergy and collective effort between
sales and distribution teams. Ensuring
the order is placed on the correct day
(taking into account the correct lead
time) will ensure the stock arrives at the
retailer in time to replenish outgoing
stock and will, in most instances, reduce
returns off invoice.
■ Create a scheduled planned
environment
Scheduling ensures all parties are
aware of assets and stock movement
within the supply chain. After the
savings through routing efficiencies
and reduction of drops, this practice
will ensure that resources are allocated
during peak times and ensure that there
are no bottlenecks in the supply process.
■ Expedite the distribution process
We all know that what we plan very
seldom takes place due to reasons
outside of our control, however,
communicating exceptions or problems
to key role players will ensure that the
process is kept dynamic enough to still
create cost saving. Communicating
delays, late departures, special deliveries
will ensure reduced re-deliveries (RDs)
and turnaround times.
■ Share critical data
Most delivery exceptions are recorded
in customer relationship management
systems (CRMs) and reporting the data
can assist in pinpointing delinquent
areas. Sharing this information (a key to
supply chain management) with your
strategic partners allows you to avoid
continuance of the problem and ensure
resolve, ultimately reducing the costs
related.
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SUPERMARKET & RETAILER, APRIL 2013