Just in time

By Elaine Watson

- Last updated on GMT

Related tags: Supply chain management, Logistics

Just in time
The ambient food supply chain will gradually follow in the footsteps of chilled, the boss of Baylis Logistics informs Elaine Watson

Manufacturers - and third-party logistics providers - are always whingeing about something, says the outspoken boss of Baylis Logistics. "Yes, costs are going up, prices are going down and margins are being squeezed," says Thomas van Mourik, who left Culina - a company he had built up from scratch - to take the helm at Baylis Logistics last November. "But when weren't margins under pressure? It's like the farmers. Whingeing is part of the job! I guess it's when we stop whingeing that we will know something really is wrong!"

Not that van Mourik has much to whinge about. Since he took the helm at Baylis, turnover has rocketed from £41M to £52M, a figure he is confident he can double in the next three years from a combination of organic growth and acquisitions.

As to where all these new contracts are going to come from, the trends should work in favour of consolidators like Baylis, he says. "Retailers are starting to introduce to their ambient supply chains the same short 12-24 hour order lead times and stock management systems that they have rolled out on fresh and chilled," says van Mourik. "This in turn means smaller loads and more frequent deliveries. However, retailers still want full trucks arriving at their depots, which means they have to be consolidated first. Baylis is perfectly placed to capitalise on this trend."

One thing he has no plans to do, however, is go out of his way to bid for primary distribution contracts with retailers following their moves to introduce factory gate pricing (FGP). Some competitors have taken this road and discovered that there is no pot of gold at the end of this particular rainbow, claims van Mourik. "The figures speak for themselves. The margins on this are virtually non-existent."

On the other hand, if Baylis's existing clients are asked by supermarkets to switch to FGP, he would rather deal with Tesco (albeit at a lower margin) and keep the volume flowing through Baylis's shared user network, than lose the business altogether, he says.

But what makes Baylis, a relative minnow in a pool dominated by global giants, stand out in the crowd? Operations director Richard Wright is clear. "It's about the whole package - the one stop shop. Obviously, we have seven shared user depots giving us national coverage, but that is hardly a unique offering these days. Our USP is a single IT system that cascades through the entire business, a central customer service team and a bespoke, online track-and-trace system enabling customers to track the progress of their orders in real-time."

Baylis has also splashed out on a new warehouse picking system and centralised transport planning, he adds. "We've spent the best part of £1M on IT since Thomas came on board, because it is the only way to give customers real accuracy and visibility."

With a rapidly increasing percentage of goods now requiring specific re-work to meet the demands of retailers, co-packing is another opportunity for Baylis, which also offers drinks manufacturers a low-cost means of complying with new duty stamping rules, adds Wright.

For manufacturers, tapping into a network geared up to supplying multiples is clearly preferable to sending product to a specialist co-packer and then transporting it back to the factory or depot again before delivering it on to the end customer, he points out.

Today, Baylis has more than 60 core manufacturing customers including Cadbury, General Mills and Discovery Foods. It also handles some business for customers at their own sites, integrating their product flows into Baylis's depot network, says van Mourik. "The key trend we are seeing is that manufacturers are becoming more and more sophisticated and demanding. A decade ago, many of them were still looking at their businesses in silos. There was no connection between purchasing, production, warehousing and transport. Today, they are looking at the whole supply chain, which means if we want to help them reconfigure it, we might also have to look at raw materials collection, for example."

A family owned business originally set up in the late 1930s, Baylis is now owned by van Mourik, Phil Ellis, Nigel Jury and Roy Vickers with financial backing from the Royal Bank of Scotland. The Baylis family, and former venture capital (VC) investor 3i no longer have any stake in the company, stresses van Mourik.

"Bring in a VC in and you are effectively saying to the market, 'we bought this business in order to build it up and sell it in three to five years.' That's not what we are about. We're in this for the long-term." FM

One stop shop

While the volume of food sold through the chiller cabinets in UK supermarkets is still on the rise, profit margins are not what they used to be, says the boss of Wincanton's chilled consolidation business.

Prices, says Mark Legg, remain stubbornly flat, despite massive hikes in utility bills, which means there is not a vast amount of cash left for the middlemen - the third-party logistics providers tasked with finding the most efficient way of getting our food from A to B.

However, it is precisely this lack of headroom that is forcing manufacturers of all food and drink products to adopt a more radical approach to managing their supply chains, says Legg.

"The opportunities for third-party logistics providers are increasing, and they are getting bigger, more wide-ranging, and complex. People don't just want to tinker around the edges for the best deal on this route or that, they want to reconfigure their entire supply chain."

Some companies that have been built up through acquisition have spent a long time reorganising themselves so that they have a centralised operation commercially, in terms of branding and purchasing, but their supply chains haven't caught up, he suggests.

"If they sit down with a third-party such as Wincanton and look at their whole operation holistically, from raw material purchasing and collection, to production planning, warehousing, co-packing, and the distribution of finished products to the customer, there are always more efficient ways of managing the business."

Up to 30% of product lines that go into retail now require some kind of extra work to meet individual retailer requirements, says Legg. So the ability to help manufacturers create promotional packs, tailored displays and customised product formats without diverting product to specialist middlemen is one obvious way that logistics firms can capitalise on their national distribution infrastructure and add value for customers.

"We can offer co-packing services at the manufacturer's national distribution centre or at dedicated facilities such as our chilled consolidation centre in Brockworth, and then deliver products directly on to the customer because we have that distribution infrastructure already in place."

Merely competing in terms of key performance indicators such as on time in full delivery and pick accuracy is not enough anymore, he adds. "These things are a given. Our average vehicle fill is 23.8 pallets out of 26, with each one running two to three shifts a day. But that is where you have to be just to be in the game.

"What customers really want to know is what else we can do, from track-and-trace to more efficient order processing, or even how we can help them with shelf-ready packaging designs that don't increase product wastage or slow down pick rates."

Today, 60-80% of chilled food sold through leading UK supermarkets is probably purchased on a factory gate pricing (FGP) basis, heralding a major change in the industry over the last five years, he observes.

To address this change, Wincanton has developed commercial relationships with retailers as well as manufacturers, picking up some primary distribution contracts from the supermarkets as they switched to buying their goods ex-works, says Legg.

This has meant that some goods have been diverted from shared user sites supplying several retailers, to primary consolidation centres dedicated to individual retailers. But, he insists, Wincanton did not close its Milton Keynes facility because volumes were decimated by retailers picking up more goods directly from suppliers following FGP deals: "We closed Milton Keynes because with major depots in Gloucester and Manchester, plus satellite sites, we simply didn't need it."

Many customers simply switched to using Wincanton's other sites, he says. "It wasn't a case of our losing major contracts. We actually terminated some contracts to come out of the site."

Related topics: Supply Chain, Services, IT

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