Interview with Dale Good, CEO of GLS Supply Chain Equipment

FMCG SUPPLIER NEWS

Albert Pretorius - Jun 23rd 2011, 08:45

Last week we had the opportunity to sit down with Dale Good, CEO of GLS Supply Chain Equipment, and talk about the current state of distribution and logistics in South Africa. He gave us exclusive insights into the industry and offered his advice on how SA can optimise its operations and in doing so catch up with its foreign counterparts.  

Tell us a bit about your professional history

A few years ago I was a part owner a software company, CoreProcess. During this time we wrote a program, CoreValue, which did financial modeling of supply chains, and launched it in London. Through this I was exposed to major international retailers such as, Tesco, Somerfield, ASDA (Walmart), Carrefour and many others. This was while some of them were all undergoing their centralization processes, which gave me interesting insights into the complexity of this strategy. I was exposed to both the Vendor and retailer issues through this as our program measured the cost from factory gate to shelf and breakdown all the steps, and costs, in between. The knowledge gained from this enabled us to optimize the supply chain and greatly cut costs, information which became very valuable to both buyers and vendors in the industry.

What is the current state of distribution operations in South Africa?

South Africa is in an interesting position because they have been operating 2 existing models for distribution, centralized and direct-to-store. Whilst most retailers in South Africa have started to shift to a centralized distribution system, which is for the better, we are still suffering from the hangover of a dual system and there is still a long way to go and take out these costs in an effective way. The 2 different models and their respective cost structures have resulted in the substitution of costs across both cost structures, this still needs to be untangled over the next couple of years or so.

Claims have been made that the local distribution industry is about 15 years behind the foreign competition, how much truth does this hold?

15 years might be a bit harsh, but we are not far off that. Realistically, working at full capacity the local industry could catch up in 6-7 years. But, that’s firing at all cylinders, not running into any obstacles, and if everyone along the way plays ball, the latter is not very likely. Keeping everyone happy is never going to be easy and compromises will have to be reached if the industry wishes to move forward.

What are the challenges retailers will face in the shift to centralization?

One thing that everyone needs to realize right from the start is that the decision to take up centralization is never an easy one. It is immensely complicated and involves even more players than most people realize. It can take anything up to 10 years before a return can be seen, and that’s assuming everything’s going according to plan and, more importantly, that everyone is going along with the plan. Centralization provides great savings for retailers, but those savings have to come from somewhere and it’s usually the suppliers who bear the cost. Negotiations can escalate very quickly and result in nothing more than a shouting contest and sulking.

Brand position also plays a very large role in local retail, which would be fine if it wasn’t such an aggressive industry. Merchandisers will cannibalize a competitor’s display area without a second thought which then causes a ripple effect, and the next merchandiser does the same to another competitor and so on. This causes clutter and inefficiency. These things seem logical enough in theory but in practice no one wants to be the first to budge. Brands need to be built around the product, and not the other way around.

As you implement centralization, replenishment systems must become a priority. Piling up stock is not profitable and teams of replenishers are required to ensure that the order that goes to the supplier is closely matched to demand otherwise, a centralized supply chain can become bloated very quickly and result in massive losses.

What changes need to be made to facilitate the transition?

Simply put, retailers need to control the front-end of their business (in-store), and be more defensive about the stock (which in turn means cost) which is found in their distribution centers. To get this right retailers have to control how a store is run. This means controlling how a store is laid out and replenished, it means a more uniform and structured store, and in order to accomplish that merchandisers have to be removed, or monitored very strictly. Packer control has to be regulated by the retailer and not the supplier. Store floor space, and shelving, needs to be carefully planned and made uniform. Merchandising space, within the planned layout, should be distributed to suppliers and strictly regulated. By employing these measures, demand becomes uniform and distribution becomes more streamlined. At the moment this is not true for any of the retailers that I know, store managers and even merchandisers have a free hand at choosing space and making “promotions” in the middle of an aisle. This by nature leads to demand being vastly different by store and results in uneven demand for products.

Another major hurdle in South Africa is the store manager. In too many cases he/she is a shopkeeper and not a manager. They need to be less partial to merchandisers and stricter with stock keeping. Above all they must control the floor space, which just is not happening at the moment.

For centralization to be done right, stores have to be standardized. Managers, and their subordinates, need to follow a centralized plan of action and not veer from it in any way.

How does one go about optimizing distribution?

Optimizing centralization is a multi-facetted endeavor, but that does not mean it has to a complicated one. Little things make a big difference; move product easier through your DC by putting wheels on containers, it immediately streamlines the process. Making sure cargo fits efficiently and that the product is adequately protected. Delivering the product in a collapsible, returnable unit greatly reduces time and money spent. Not to mention it has a positive impact on the green strategies.

If products can be packed in shelf ready solutions when they leave the factory floor it means less people have to handle them and that means less people have to be paid. Every ‘touch’ costs you money; the less the product is ‘touched’ the more you will save. Ideally, you want the customer to be the first to ‘touch’ product after it leaves the factory gates.

What solutions do you offer potential clients?

As I mentioned earlier, it’s essential that retailers get their front end right first. Retailers need to be hard to accomplish the needed changes. We offer both software and equipment solutions which will assist in optimizing your supply chain.

One of the software solutions we offer, Exibeo, which organizes off-shelf promotional space, and manages it over a promotional period. Before installation we map the entire store and all promotional areas, suppliers are then given the opportunity to purchase space. Auditors monitor the space in store and load all results into a system which produces deviation reports and these are then made available online.

In terms of our equipment offering, it comprises a host of products designed to suit specific needs.

Finally, Walmart, what are your thoughts on their entry?

Personally, I think one of their first moves is going to be to standardize the store operations. This will result in moving towards retailer managed merchandising operation vs supplier managed services, and a number of other changes at the store end. They are going to be much more ruthless in their approach; they know what needs to be done and how to go about doing it. They employ a Standard Operating Procedure which can only be successful if every step is controlled. The right people need to be in place and Wal-Mart will make sure that staff is adequately trained in order to achieve their goals.

It’ll be a huge cultural change for the local industry and that’s not going to be easy. We as South Africans tend to be stubborn so the merger will have its ups and downs, but I believe that we will eventually see the common sense and the changes will be effective.