Just-in-time distribution of raw materials the Japanese-inspired technique for getting parts to the assembly line in support of a build program has been practised by industrial companies with varying degrees of success for quite a time. But the art, it could be argued, has been perfected by retailers and their logistics partners.
Foodstuffs pose a very different supply chain problem to that of industrial goods. What, in logistics terms, does an executive saloon car or £45,000 milling machine have in common with a lettuce or any other 45p commodity item?
Yet experts say manufacturing is now the major growth area for logistics service providers. Relations with their customers have soured through what they see as undue pressure on prices and too-short contracts that stifle investment.
The evidence suggests they are right. And manufacturers are now starting to adopt practices learned from retailers working in partnership with their logistics service providers.
This is the case for John Bridges, inbound logistics manager with Land Rover, for whom the retail experience has been useful. Outsourcing, he argues, has brought shared benefits from using contractors who work across different customer bases. ‘We have learned a lot from working with retail companies,’ he says.
Land Rover has 500 production suppliers. Bridges expects logistics costs to rise as less raw material is sourced locally. At present 80% of supplies are made in the UK. He can see that figure dropping to 60%, with an obvious impact on supply costs.
Big retailers such as Sainsbury’s are bringing their logistics back in-house. For them the wheel has turned full circle, some 15 years after the move to central warehousing. That made it possible and profitable to outsource services ranging from warehouse management to collection and distribution and to offload assets such as buildings and stocks of raw materials.
Brandishing the customer service banner, they now argue that total control over quality, quantity and timing is essential to create customer satisfaction. Logistics, in the jargon, has become a ‘core competence’ for them.
What is, and what is not, a core competence provides the decision-makers with a challenge. In industry, less critical cost and time structures, plus the acceptance that manufacturing has become more of a service operation, is encouraging new partnerships between the logistics service providers and companies.
Supply chain management, traditionally cost driven, is still about bottom-line arguments for most retailers, according to Simon Tomlinson of The Logistics Business consultancy. ‘Do we want to get those assets off our balance sheet? Do we want to be removed from the control of our business?’ he asks.
But, with the focus increasingly on service levels, retailers are also asking: ‘Is logistics a core competence and should we be good at it?’
For manufacturers the bottom-line argument is different. They want to invest in the latest production technology rather than manage warehouses or buy lorries. That makes them an obvious target for service providers who believe the sector will give them a new, long-term lease of life. Less stringent cost and time windows as well as the international flavour of manufacturing over 80% of goods made in the UK are exported and a very high level of raw material is imported make the sector look promising.
Despite this, contracts offered to logistics partners by manufacturers are becoming relatively short term.
Bridges remembers back to 1992 when Land Rover following in the wake of parent Rover Group and even more advanced vehicle makers got involved in mainstream logistics and set up five-year contracts. At the time the firm was reorganising its supply chain. Instead of assembly lines at 12 sites, each sourcing from different suppliers, assembly was focused at one location, Solihull.
These days contracts are shorter. Parts for Freelander, Land Rover’s baby sports utility vehicle introduced in December last year, were supplied to Solihull under the latest 18-month rolling contract. The tendency, says Bridges, is to shorten that further. ‘You need to have the right balance between forming partnerships and having the right amount of competitive tension within relationships,’ he says.
Land Rover outsources warehousing as well as incoming delivery or ‘milk-round’ transport services between itself and its suppliers. Bridges says logistics partners, of which there are several, bring a level of expertise which it would not be possible to carry in-house.
Colm McAlinden, manager with the Birmingham arm of logistics company LEP International, describes the manufacturing community primarily automotive as ‘our life blood’. The company partners vehicle and machine tool manufacturers in supplying a range of services that can include transport, warehousing, pick and pack and inventory control, as well as sequenced, just-in-time deliveries to production lines.
LEP has 400 offices worldwide and regards itself as an international logistics operator. Contracts placed with the company are typically one to three years. In many cases there is no contract at all. Contractual agreements are not prevalent in our area, McAlinden observes wryly.
IT, which provides the ability to exchange information quickly and accurately, is seen by more sophisticated manufacturers and their suppliers as a core competence.
Land Rover expects daily deliveries from suppliers to its distribution centre within a one-hour time frame. The control and management of information allows that to happen. The company regards IT as a core competence, says Bridges.
LEP’s McAlinden agrees with this viewpoint. ‘IT is a core competence for us and where clients want it we can put it in,’ he says.
Transportation is one area where manufacturers of heavy industrial equipment have traditionally outsourced because of the very high costs associated with acquiring, maintaining and running large articulated lorries.
In the US the vast size of the market means that third-party logistics is less well developed than in Britain and other countries that have lively import and export markets.
Milling machine maker Cincinnati Milacron has an English manufacturing plant in Birmingham, where, last year with the Hawk, the company made its debut as an international producer of CNC lathes.
In the US, with less than 50% exports, a high level of internal trade dictates attitudes towards supply chain management. ‘We use very little third party,’ says logistics manager Bill Childers. But in transport, where Milacron does outsource, Childers is full of praise. ‘You don’t have all the equipment headaches, the personnel headaches, the insurance headaches,’ he says adding: ‘We haven’t lost a machine yet.’
Problems will arise in the early days of an outsourcing contract. But this is all to the good, according to Bridges. Where once he says he was ‘quite relaxed’ about timing of materials delivered to the shop floor, ‘I have now had to draw up strict agreements.’ Misunderstandings can cause disruption that affects quality in the short term. But it forces you to be more disciplined.