EFFP VIEW / THE BEST SUPPLY CHAINS ARE COLLABORATIVE

THE BEST SUPPLY CHAINS ARE COLLABORATIVE

20/21

An interview with Tim Slater

Managing Director

DHL Industrial, UK

Tim Slater, Managing Director, DHL

Industrial, UK, shares his views on how

DHL are involved in the agrifood sector,

how agrifood businesses can benefi t from

supply chain management opportunities

and what practical steps they can take

to capitalise on them. Tim draws on his

considerable expertise and knowledge

to explain that:

■ There is an opportunity to capture

signifi cant value from the agrifood sector

by driving out supply chain ineffi ciencies

and businesses should seize the initiative

to capture that value before someone

else does.

■ The biggest gains can be achieved by

taking a holistic approach and optimising

the whole supply chain, not just

individual silos.

■ The best supply chains are collaborative.

EFFP: DHL has been working with

downstream businesses, such as the

major multiple retailers, for a little while

but more recently you have broadened

your focus to work with upstream

businesses that are closer to the

farm gate, why is this?

Tim: Our increasing involvement

upstream is the result of some research

that we undertook to identify where the

next growth opportunities are. We found

that the UK outsourcing market is very

mature and this is certainly true when

working with the consumer companies

[i.e. food manufacturers] and the

retailers – they are very sophisticated

and very mature outsourcers. They

have outsourced twice, three times

and now some of them are now

insourcing because they have gained

a lot of value by driving the costs out

of the proposition. What we have tried

to do is spot areas of opportunity at

the other end of the spectrum in the

agrifood supply chain; there are some

ineffi ciencies there and we feel that

this part of the chain can really benefi t

from the type of skills and capabilities

that DHL has. There are a number of

people operating individual silos of

transportation and haulage [i.e. between

discreet points such as from on-farm

collection to tipping at a mill] but I believe

that we are the fi rst company to look at

this sector as a strategic development.

We really try to understand the sector

and its challenges and to work out how

we can optimise the whole supply chain

for the benefi ts of all parties. So we are

looking at this supply chain in a very

holistic way.

EFFP: What are the skills and

capabilities that DHL can bring

to the agrifood sector?

Tim: We have a real end-to-end

capability to manage the supply chain.

Right from the buying and sourcing

of products, inventory management,

warehousing and distribution and

last mile logistics – that last part of the

chain that gets that product onto the

shelf and into the consumers hands –

as well as a growing concern around

reverse logistics and the environmental

considerations of managing waste. But

I think that where DHL is able to come

into its own is by being able to put a

management layer above all of those

different elements of the supply chain

to co-ordinate the movement of products

holistically – what is called a Control

Tower. By doing that we can look to

design the whole supply chain, not just

the individual silos, in order to maximise

the visibility of that supply chain and

manage the fl ow of logistics and

information and data from end-to-end.

EFFP: How far down the process are DHL

in working with the agrifood sector?

Tim: We are right at the start really,

we have had a large and successful

contract with a large miller working with

their outbound logistics. In doing that we

also identifi ed an opportunity to work

with their inbound logistics and from

this we started to understand some of

the challenges of operating in this sector

in terms of how you operate with the

farms, how you operate the transport

and the health and safety challenges.

This whet our appetite and interested

us to do more.

From then on our involvement has

grown by working with Grainfarmers

and Centaur Grain, facilitated by EFFP,

as part of the merger to form Openfi eld,

where DHL will establish a Control Tower

to manage Openfi eld’s end-to-end

supply chain from the farmer through

to the customer. DHL are able then to

determine the movement of the product,

whether it is part of the core fl eet or

whether it is outsourced to a sub-

contractor, how and when the product

moves and gives it the supporting

systems to support those movements

with the right fl ow of information.

It is very much about working with the

existing supply chain and existing farmer

owned businesses and the existing

hauliers to really drive effi ciency.

However, it took three years to really

understand the opportunity and how we

can bring our own skills, expertise and

experience from other sectors and how

we can apply that to agrifood. But that

now gives us a better understanding

and it is for us to really build on the work

and experience that we have built so

far to see where we go next.

EFFP VIEW / THE BEST SUPPLY CHAINS ARE COLLABORATIVE

‘It took three years to reallyunderstand the opportunity andhow we can bring our own skills, expertise and experience fromother sectors and how we canapply that to agrifood.’

EFFP: To date it has been very

focused on cereals, do you see other

opportunities for other sectors?

Tim: I think we need to be selective

to work out where we want to play in

this marketplace and we have been

working with you at EFFP to do this by

assessing the relative attractiveness for

each sub-sector. What is key for us is to

be selective. We could make ourselves

very busy exploring the opportunities

to understand where we can offer

customers and farmers the most value

but also important is understanding

which sectors are most likely to embrace

change. From our experience we have

found that even where we can add value,

and it is commercially worthwhile to look

at the supply chain, our customers can

fi nd it diffi cult to move forward because

they may have other priorities. Perhaps

with rising food prices customers see

other opportunities and don’t prioritise

looking at the supply chain. So we need

to consider the size of the market, the

opportunity to drive value but also the

willingness of those markets to want

to seize on those opportunities.

EFFP: Have you got any examples of

other supply chains where you have

been able to take control of the whole

chain from end-to-end?

Tim: We have good examples of that

in some well developed supply chains

such as technology and automotive; it is

common practice that they will manage

their supply chain on a holistic basis.

For example, we are providing that role

for companies such as a major car

manufacturer and telecommunications

company. We by no means run it all

but the management and control

function is in one place and it is very

important to have that so that you can

really optimise the supply chain as a

whole and manage it as an entity. The

sophisticated, leading edge players in

other industries are heading down that

route and are starting to appoint the

right companies who have the skills

and systems to provide that holistic

view but in some industries that is not

yet happening and agrifood is a good

example of that.

EFFP: Collaboration is a core element

running throughout the type of supply

chain you have just described.

Tim: Absolutely, the best supply chains

are collaborative and are optimised

across the whole of the chain. Initially you

will optimise your own silo, so if you are

a manufacturer you will make sure your

bit is effi cient, for a retailer you will make

sure your bit is effi cient but you would

not necessarily optimise the links across

these points in the chain. But only by

looking across the whole of that supply

chain can you really drive more effi ciency.

What that moves companies from is

a traditional approach of companies

pushing product up the supply chain as

opposed to a consumer taking a loaf of

bread off the shelf and that starting a

process to pull that product through the

supply chain, which refl ects consumer

demand. If you look at technology

companies, PC manufacturers are

the best example. When you buy the

computer a number of triggers are

passed down the supply chain so that

components are manufactured and

distributed so that the next computer

can be assembled.

EFFP: And what are the benefi ts to

those leading edge companies?

Tim: If you look at the evidence we

gathered comparing the best in class

with the average then there is, roughly

speaking, a 50% cost gain. Although

the costs by sector will vary we can

look at it as a percentage of sales.

See exhibit 1

Those that are best in class have a

signifi cant cost advantage. Not only

do they have a cost advantage but

they also tend to be more successful

companies as well; not only will they

have stronger margins but they will have

stronger growth performance too and

evidence we have collected suggests

that they can outgrow their competitors

by up to four times. I think the reason

for this is because it breeds the right

type of mentality and thinking, the right

data, they understand their customers,

they understand the trends in the

marketplace, they have a much more

agile supply chain and, importantly, they

make data based decisions not instinct

based decisions.

22/23

Telecom

Semi conductor

Pharmaceutical

Packaged goods

Computer

Chemical

Appliances

Automotive

0%

7.4

5.8

3.9

6.5

7.3

6.4

14.1

4.3

14.1

10.4

9.1

11.9

13.3

12

8.1

8.8

6% 12% 2% 8% 14% 4% 10%

Exhibit 1: Logistics costs as a % of sales: Best in Class compared to Average

Average

Best in class

‘I think the best businesses are those that treat their supply chainstrategically. They tend to have supply chain directors on the board and the supply chain is discussed at a strategic level because I not only believe that it makes the currentbusiness perform better but it can also drive competitive advantage.’

The Best in Class■ Use supply chains to gain

competitive advantage■ Draw innovation from the best

in other industries■ Invest strategically■ Develop integrated, value

driven solutions

The Rest■ Cynical about supply chains■ Focus scarce capital on core business■ Do not invest strategically■ Buy supply chain services tactically

EFFP: But there is a divide in the

food supply chain with a great deal

of sophistication and organisation

of the supply chain closer to the

customer and fragmentation and

a lack of sophistication closer to the

farm gate. Is it necessary to bridge

this divide and if so, what can be

done to achieve that?

Tim: First of all, yes I do think you need

to bridge that divide. The danger of not

doing that is if the retailers and the

consumer companies go through diffi cult

times and have exhausted their own

opportunities to improve their supply

chain then they will look at upstream

ineffi ciencies. We saw that a few years

ago in factory gate pricing where retailers

were paying for the product direct from

the consumer company and moving

it themselves. They did that for two

reasons, one: they felt that they could

do a better job than the consumer

companies. Two, the retailer can look at

the price of that product without hidden

logistics costs and more easily compare

that product with alternatives. So there

is a real danger that if you don’t start

to look at the supply chain and make

it operate more effi ciently then the

retailers, through the consumer

companies, will start to come and

look for that value themselves and

of course they will keep the benefi ts.

The opportunity for upstream businesses

is to get ahead and make the supply

chain more effi cient, to make sure it is

more data driven and with more visibility.

That way upstream businesses can

capture and retain that value but they

will need to do it before being told to do

it by somebody else.

In terms of building those bridges then

it is about understanding your customers

and going beyond that to understand

your customers customers; then you

start to look at the supply chain in a

much more holistic way. At the moment,

the individual silos are probably very

effi cient and well optimised but when

you look at the waste across the supply

chain, whether waiting times at the farm

or at mills, safety issues, environmental

issues then, as a whole, it is not an

effi cient supply chain. Once you begin

to understand this then it might only

need some basic, common sense

solutions to be put in place but you

need an understanding of the issues

in the fi rst place.

EFFP: Cost is clearly a big driver but

are there other benefi ts as well?

Tim: Yes, clearly cost is the main driver

but there are benefi ts to be had in terms

of health and safety, the environment,

technology enabling products to be more

traceable, data availability, being able to

secure a route to market and in providing

a reliable supply chain, where customers

can be assured of supply. For example,

the environmental agenda is rapidly

escalating in importance so by making

the supply chain more effi cient and

reducing road miles you can green the

supply chain. In highly effi cient supply

chains you can call on a product and it

will be delivered on time, to specifi cation

and at the right cost and this can help

you build better customer relationships.

So there are many other benefi ts.

EFFP: What comes across quite

clearly is that the best in class really

view their supply chains at a strategic

level and a source of competitive

advantage, but the rest really only

approach it as a tactical issue.

Tim: I think the best businesses are

those that treat their supply chain

strategically. They tend to have supply

chain directors on the board and the

supply chain is discussed at a strategic

level because I not only believe that it

makes the current business perform

better but it can also drive competitive

advantage. If we look at what is

happening in the construction industry

given the recent economic downturn

then those businesses who are more

agile, nimble in their supply chains,

are better able to respond will eventually

be stronger in this marketplace.

EFFP VIEW / THE BEST SUPPLY CHAINS ARE COLLABORATIVE

EFFP: In the background of course

are soaring food prices, what

impact might this have on agrifood

businesses willingness to optimise

their supply chain?

Tim: Whilst volumes, prices and margins

have been growing then supply chaining

has not been (for many) something they

have prioritised. But with a changing

economic climate where costs increase

as well as volumes decreasing, then

companies are all of a sudden deciding

to focus on the supply chain. Those

companies who are not best in class are

more likely to be looking at improvement

projects and looking to streamline their

supply chain to drive costs out and

increase effi ciency.

EFFP: Over the longer-term we can

expect to see increased cost pressures

for agri-food businesses through

increased oil prices and increased

raw material prices. Will this help

to spur businesses focus on driving

supply chain effi ciency?

Tim: Absolutely, but for many players

they will looking at where they have

made effi ciencies in their silos and they

have probably got the movement from

‘A’ to ‘B’ about as effi cient as they can.

But it is only one movement and

by taking a broader picture we can

challenge whether it needs to move

from ‘A’ to ‘B’ in the fi rst place and then

look to optimise the use of that vehicle

once it has reached ‘B’. Rather than

returning back to point ‘A’ empty to pick

up and deliver another load, we can more

effi ciently optimise the use of a common

fl eet, such as effi cient backloading

to deliver at point ‘C’. This can realise

signifi cant cost savings but also

environmental savings too through less

road miles. But this is something that

an individual business cannot optimise

on its own.

EFFP: You identifi ed early that one

of the potential barriers to working in

a sector is the willingness to change.

Tim: I think this is true for any sector.

I think what is really needed is a common

cause or a need for an industry to change

and often what we see is some specifi c

requirement to make businesses look at

their supply chain. In agrifood that may

be environment, it may be reliability

of supply, it may be a rising cost base

to make agrifood businesses really need

to do something differently. Also, as we

see the people in an industry changing

– such as new managing directors

and chief executives who may have

experiences and insights from elsewhere

in the food supply chain – then they will

have seen a different way of doing things

and often they are real catalysts for

change. When things do start to change

then the industry will stop to look and

when they see success being made

they will follow.

How we make that change is through

collaboration and participation with the

right stakeholders and that takes a lot

of dialogue, discussion and openness.

I think the real key point for agrifood will

be about participation, getting the right

people around the table and making

sure we understand their needs and

by addressing them.

This is also why we have been working

with EFFP. First, to identify industry

opportunities and those players who are

willing to embrace change and second,

to really drive change on the ground.

In other industries there are no similar

bodies to EFFP, who are a voice for the

industry, and that makes life harder.

EFFP: Is the main catalyst for change

going to be bold and visionary leaps

forward or are there more incremental

changes that can be made?

Tim: A lot of change is visionary but

often making that happen is often

incremental and this happens a step

at a time, so making big changes is

not the only option. I think it is important

for a business to understand what

it is they currently do, to get some

visibility and really understand their

current supply chain and where the

costs and opportunities are. Once you

have identifi ed this then change can

occur, often only requiring common

sense solutions to be implemented.

This can move you towards something

more visionary.

EFFP: If the agrifood industry could

do three things to improve their

supply chains what should they be?

Tim: I am not sure whether these are

really in order or not but I think that

visibility is important, a real

understanding of what is happening

and what the supply chain looks like

at the moment, where the movements

are and what the costs are. Following on

from that it has to be about collaboration

and working together, whether that

means vertically or horizontally I think

that industry does need to work together

much more. Another point would be to

grab the initiative; there is opportunity

to drive effi ciency but capture it before

someone else does.

EFFP: Finally, what would your vision

for the agrifood sector over the next

4-5 years look like and what would

DHL’s role in it be?

Tim: We would want to see that sector

move up the supply chain sophistication

league to be competing with the

consumer, retail types of supply chains

and hopefully becoming even better –

to get up there amongst the technology

and automotive supply chains and to do

that at a pace we have not seen in other

industries. For DHL we really want to

be a part of that. We have invested a

lot of time and effort into understanding

this sector and we would want agrifood

to be one of our key market sectors and

for us to be the number one provider, not

just in terms of size but in terms of the

vision and thought leadership we bring.

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