Middle East 3PLs face a shifting logistics market

Third-party logistics providers are expected to dramatically shape the supply chain in the Middle East in 2018 and years to come.
3pl, Logistics, Middle east, Gcc, Retail, Outsourcing, Fmcg

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Third-party logistics providers are expected to dramatically shape the supply chain in the Middle East in 2018 and years to come.

In a recent survey of supply chain executives that are either using, not using, or considering using 3PL services, only 87% of survey participants currently use or engage in activities or services with 3PLs, according to 3PL Camelot Software.

And while retail giants the United States, such as Walmart and Amazon, are increasingly bringing their logistics in house, in the Middle East the opposite is the case, according to David Christmas, CEO, DHL Supply Chain.

“Outsourcing is gaining momentum in this part of the world,” he tells Logistics Middle East. “Out here you have a lot of companies that are ‘first time outsourcing’, whereby they’ve set up and run their logistics operation in-house, but are now focusing on operational efficiencies that can be provided by a 3PL, so that they can focus on their core job of marketing and selling a given product.”

Nestle Middle East is a perfect example of this. It outsourced its logistics operation to a select few 3PLs in the region in order to refocus on the brand. “We have outsourced our logistics operation to provide greater flexibility, but also because we have always played to our own operational expertise when growing our presence in the Middle East,” explains Eric Maraval, supply chain director for Nestlé in the Middle East.

Eric Maraval, supply chain director for Nestlé in the Middle East.

“When we transformed this region into a single market with one head office based in Dubai it prompted us to refocus on our core activities, so that’s growing the brand and advancing technology in our production in the region.”

In 2015, the FMCG manufacturer expanded its relationship with Mohebi Logistics in the UAE, renewing its contract for a further seven years. “This renewed partnership allows us the opportunity to keep providing world-class facilities, leading edge services and highly trained personnel with in-depth local market knowledge,” said Mohammed Mohebi, CEO of Mohebi Logistics at the time of the deal. That may sound like a simple PR platitude, but according to Maraval the provision of highly trained personnel with in-depth local market knowledge is essential in the shifting retail landscape.

“Supply chains are becoming more demanding with smaller deliveries more often to smaller grocery stores, e-commerce and shorter lead times are being demanded by clients, so it makes sense to work with a company that has the ability to do this as its core competence,” he says.

Koshy Matthew, COO of Enhance UAE, a FMCG 3PL specialist, agrees. “Brand owners are beginning to consolidate their operations using fewer people, fewer distribution companies, so the bigger players are going to extend their control over the distribution and the retail segment, consolidating operations which will improve service levels,” he says. But, at the same time that this is occurring, the last mile distribution model is changing.

Koshy Matthew, COO of Enhance UAE

“The supermarkets have traditionally been the bulk of the work in terms of deliveries and volumes, but they’ll no longer command 90% of our focus and operation,” Koshy adds. “Convenience stores are opening all the time and this has implications for the warehouse. We’re no longer shipping 20 pallets of diapers at a time to the supermarkets, for example, instead we’re delivering less than one pallet capacity to much smaller stores, more often. So you need a warehouse with the flexibility for fast picking without having to walk or drive a long distance within the warehouse to reach these various goods.”

In March, Marks & Spencer’s UAE division announced that they were rolling out e-commerce options for customers across the UAE. Although Enhance is not the 3PL working with M&S, Koshy says that developments such as these will continue to shape the 3PL market in the region moving forward. “The retail market will become increasingly fragmented, especially now that people have started to embrace e-commerce not just for books and phones and other products, but for their groceries as well,” he says.

“Imagine the affect that the rise in this type of commerce will have on 3PLs? The statistics show a rise of 16% in the typical number of SKUs that a typical customer orders. So if one of our customers last year was handling 100 different types of products, now he’s handling 116. This will grow exponentially,” Koshy adds. “So the fragmentation is twofold, not just an increase in the number of customers the distribution centre is supplying, but an increase in the pick list as well.”

So retailers and other end-users are increasingly turning to 3PLs to enhance their logistics operations, while at the same time their logistics requirements are becoming ever more complex, putting pressure on even the most experienced 3PL to keep up. For Patrik Seibel, global market leader, Food & Beverage, Swisslog Warehouse & Distribution Solutions, the answer lies in equipment. “Rising costs, changing consumer habits, SKU proliferation and environmental pressures are driving manufacturers to 3PLs just to keep up,” he says.

“In the past, food & beverage companies and their 3PLs needed logistics systems that quickly and efficiently moved large quantities of products through their distribution centres,” he adds. “Today things are different. Keeping pace with the trends towards ever smaller lot sizes and delivery quantities as well as ever faster availability and shorter product life cycles requires systems that are highly automated and flexible.”

As a general contractor Swisslog provides complete systems out of one hand, including software and mechanical equipment. It also provides the technical operation of the automated system as a service. “In addition, to meet the growing demand for frozen foods, speed-optimized logistics processes must be operational at temperatures below  20 C. We’ve made sure that our solution portfolio for the food & beverage industry is tailored to meet these exact requirements,” says Seibel.

According to Ignatius Sholtz, head of operations, INL, a major food and beverage 3PL in the UAE, it’s only through automation that they’ve been able to keep up with customers’ demands. “We’ve automated our entire frozen and chilled section,” he says. “The difference between a normal warehouse and an automated one is that in an automated warehouse you have far fewer inaccuracies in terms of human error and it provides higher productivity with fewer staff.”

“If a customer calls me now and says I need 40 pallets, I can have the vehicle loaded within an hour,” Sholtz adds. “We can do 250 pallets in and 250 pallets out per hour. So we can do 500 pallets per hour in and out. And if you combine both warehouses, frozen and ambient, that’s 1,000 pallets. The other advantage of automation is the accuracy of storage, I can also give the client a minute by minute report of where the products are at any one time.”

Makrem Kadachi, general manager, EPS Middle East

According to Makrem Kadachi, general manager, EPS Middle East, it also comes down to the WMS being used by the 3PL. “In this region there is a lot of pressure on warehouses because the UAE is a very retail strong economy and if the warehouse isn’t delivering on time, it affects the entire business,” he says. “Despite this, warehouses are generally not very well-organised in the Middle East. Many are still using paper.”

Kadachi says this is a problem because if a customer in a shop purchases a product, the shop owner needs the correct information about the real amount of stock in the warehouse. “If the operator goes with his list and picks that item and goes back to the office and updates the inventory, in that amount of time the stock has become out of date. If you have one hundred stores across the country and this is happening every minute, the problem becomes clear,” says Kadachi. “With a proper WMS the information is instantly updated and the system lets the ERP known that a product has been purchased so that inventory remains correct.”

So while manufacturers and retailers in the region turning to 3PLs is clearly good for business, its crucial that 3PLs in the region adapt to changing supply chain needs in order to remain viable.

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