Packing up and leaving

Britain's manufacturers hardly need queues of politicians, economists or business analysts to tell them to hedge their markets by growing exports. Some already have good global penetration, more trade successfully with nearby Europe and many others are making or taking the first tentative steps towards trading abroad. They will have already established or responded to a demand for what they make – they have the product and potential customers. That leaves the sometimes complex conundrum of how to deliver the one to the other safely, on time and at a price the buyer is prepared to pay. International supply chain integrator Gefco puts it this way: "The challenges faced by manufacturers and logistics companies in the export market are to organise outbound flows coupled with increasing cross channel charges, packaging requirements and replenishment strategies, which are all part of the cost considerations. Manufacturers need to consider carefully where they are exporting to and within what lead times." Organising flows is a subject that James Burwood, managing partner at the eponymously named consultancy, has something to say about. He's the man who offered Marks & Spencer's chief executive Marc Bolland, under the cosh following the retailer's recent decline in sales, the unsolicited advice: "Manage according to replenishment (once you sell one, order another one so the supply chain is always primed). In essence; why try to be better at predicting the future if you don't have to? Then, Marc, instead of cutting costs you can focus on the business of making money, which is the reason your business exists at all." He told WM: "I have a client that manufactures food and medical packaging in the UK and replenishes its customers' sites all over Europe. By merely changing the way it managed this process, the company was able to release over £1m of cash from stock while improving its availability of stock for its customers." Not everyone can be like Toyota, Burwood contends. Forecasting customer needs or, as he puts it "predicting the future" to facilitate just-in-time delivery of, say, car parts, is a complex business for both customers and suppliers. Big OEMs can persuade suppliers to build a factory right next door or hold an enormous amount of stock. "When you're a big boy, you basically make it someone else's problem," he says. His packaging client, Thetford-based Camvac – the people who, among other things, make the silvered plastic bags that keep the wine in your wine box – has a different solution. One that Burwood says counters the challenge of variability in product demand and the amount of time it takes to replenish stock. "It sounds ridiculously simple but solves the dilemma of trying to predict the future," he explains. Camvac – which has customers in territories such as Germany, France and the Far East – has consignment stock held by its customers. "The customer gives them daily stock information. If we make the assumption that the target is 100, the customer tells us tomorrow that the stock level is 80, so they must have used 20, so we put 20 on a truck to them and that takes a few days. The next day they use another 20 and the next another 20. On this day, the original 20 we sent on day one turns up so the pipeline is thus replenished." By throwing the forecast out and just replenishing to demand, less stock is held and availability is increased. "It's a win-win," for customer and supplier, Burwood believes. Simple as that solution may be, the cost-benefit equation that pits distribution costs against stockholding can be complex. As Brian Templar, chairman at logistics and supply chain management consultancy Davies & Robson, points out, airfreight is fast but costly, sea is cheaper but may take six to eight weeks; that means warehousing and that is, in any case, inappropriate for very high fashion products. "Oil costs are one thing but stock is expensive, too," he says. The reluctance of banks to lend means that retailers, for example, find it difficult to get funding for stock so attempt to push the problem back to the supplier. No one wants to be paying for stock even though consumers now live in a world of instant gratification in which "everyone expects to go onto their laptop one day and take delivery the next". "The most cost-effective way [to shift product abroad] is a shipping container. Some products like Apple computers from China can come in on 757s – if you're selling something for 200 quid and it's quite small, the actual transport cost is probably a fiver; but [it's different] if you're shipping bags of potatoes from North Africa." Getting products that are neither computers nor potatoes to Shanghai when one of its customers became an export client by moving there from Cardiff posed Ash & Lacy the challenge of "getting the product to them as if it was going around the corner instead of several thousand miles". The Smethwick-based firm makes perforated and expanded metal products; components for finished items like satellite dishes and speaker grills or, as sales and marketing director David Nock puts it, "anything with holes in if you want to filter noise, water or other material" to a quality that means customers are happy to have it shipped halfway across the world. It already numbers Bentley, Land Rover, Rolls-Royce (aero engines) and Dubai Airport among its customers and is working at expanding its export business. Working with customers on the best fit for containers was the answer. In the UK, an internally shipped component might be 2.5m long. "But knowing our customers don't use them that size – they cut them up or form them in some way – and that 2.5m doesn't suit a container unless they're inefficiently packed lengthwise, we ask if they can accept product 2.1m wide, for example, to allow us to maximise the space in the containers." Despite often having to comply with lineside or construction site delivery schedules, Ash & Lacey's priority is to ensure the methods of transport it deploys are secure and safe. "What we can't have with these products is returns, so we spend a little bit more time and money on the packaging and understanding customer needs," says Nock. "Lead time is less of an issue; through communication with our customers at the enquiry and tendering stages, we build the lead time into the delivery schedule. In the UK it can all be about lead time; people want delivery quickly, quickly, quickly. It's less so abroad where it's more about getting product there in one piece. If you don't, you're completely dead in the water and you have to ship it all over again. "We pay a lot of attention to the quality of the packing. It's all about having it arrive in the same condition as it left here." That is a sentiment that chimes with Nick Lowe, managing director at the freight operator Dachser UK. In addition to a competitive advantage over more local suppliers in terms of price and product quality, to compete with Chinese suppliers, reliability of delivery is also required. "You need clear information about lead times, loading times, transit times, advice on documentation," Lowe insists, before offering would-be exporters a useful tip – "and order frequency". Suggest consolidating orders, he advises, because with the longer distance markets there are benefits in terms of freight costs which can be a significant proportion of total product cost. "Ten tonnes is cheaper to ship per tonne than one tonne," he says. "The pattern of the ordering may not allow for that but always offer the option if you are able to: 'I can ship that for you now but if you are planning another order in two week's time ... I can give you a discount.' And optimise packaging – the maximum freight within the smallest possible footprint. Don't load stuff over two pallets if you can load onto one." He also proffers the thought that although the accepted wisdom is that holding stock is undesirable and expensive, "it may be that space is available – a few pallets might not make a lot of difference". And when calling for carriage prices he urges accuracy: "You don't want to get pricing in for a 500 kilo load if it turns out to be 330 kilos, it will make you uncompetitive." But like Ash & Lacy's David Nock, on-time-in-full delivery, no damage and no missing products, is Lowe's Holy Grail. "Damages can be a problem," he says. "We do everything we can to prevent it." For main trunking lines in Europe, Dachser uses double-deck box trailers that have adjustable metal bars inside so that pallets can be double-stacked without piling one upon the other. Lowe says he quite regularly sees freight that's not packed very well. He draws on the example of electric motors sitting on a small skid, "with lots of pipes and knobs exposed". He continues: "You think it should work, we shouldn't damage that." A risk analysis might show that it just needs a cover that might add a little to the cost but, particularly with high value goods, will ensure there's no accidental damage. But getting product safely to market is only part of the story, warn both Templar and Burwood. Manufacturers need to recognise, says Templar, which service and parts support are of equal importance and in some cases of greater importance than the product itself. "Carefully construct your business model with realistic costs for back office, service and distribution support," he advises. Burwood puts it more bluntly: "If you want to move anything anywhere, you'll find someone who can do it for you. That's not the difficult bit – it lends itself to a man and a truck or even a man with a bike or a man with a donkey. A lot of the problems come with back office failure, not product failure. You very rarely hear that the product was crap; more likely that it was late or out of stock; 'we couldn't get through on the phone' or 'they kept on making mistakes, delivered the wrong item'. Therein lays the real challenge. If you're thinking about exporting, chances are it's because you believe your product is good; put as much effort into the back office; the IT systems and the service levels required." When things go wrong A Norfolk-based manufacturer of agricultural chemicals is counting the cost after HSE issued an enforcement action in July ordering the firm not to move any of its UK stock because inspectors believed there was a breach of safety regulations linked to the packaging of an outgoing shipment of the herbicide glyphosate from the port of Felixstowe. AgChem Access accuses the agency of being over-zealous in imposing a blanket ban on the movement of all its products stored in two local warehouses instead of focusing solely on the shipment issue. The cost? AgChem Access says 10 of its 65 staff have been laid off and the firm almost brought to its knees in an "absolutely disastrous" episode. Existing customers have gone elsewhere, potential new ones lost and out of season products are stuck in warehouses unable to be sold until next year. AgChem Access is now suing HSE for damages amounting to £2m in lost business, incurring £200,000 in legal costs so far.