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One for the road

Deciding whether to outsource distribution depends on each individual retailer. But if they decide to go ahead, there are plenty of providers, says Simon Jack

Retailers' perceptions of outsourcing are constantly changing as the fashion market develops. For some, progress means working more closely with third-party logistics providers (3PLs) who are increasingly offering all-embracing, one-stop-shop-style services. Others believe logistics is now so important that it should be managed in-house.

Nick Weetman, a director of logistics consultancy Davies & Robson, says that either way, logistics is no longer regarded as a non-core competence by retailers. "Not having control of distribution is now seen as a risk and a potential threat to the business," he says.

He adds that many companies outsourced some years ago because of union issues or to gain better access to IT, but are now questioning if this is the right approach. "Companies are asking themselves: 'Why don't we do our own distribution?'" he explains. And in many cases, the answer is that there is no reason not to.

Peacocks is an example of a retailer that already keeps its logistics largely in-house, as group operations director Neil Burns explains. "At the value end of the market we have to maintain low overheads. If we were to use a third party it would be more expensive because of their need to make a margin. We would need an in-house team anyway to manage the contract," he says.

Companies that decide to outsource have to choose whether to use one company or several. According to the 3PLs, using a single supplier is becoming more popular. Paul Robinson, managing director of logistics provider DHL's fashion and department store division, says: "If companies use one provider they only have one focal point to worry about, but if they use two or more they are likely to incur extra costs, because each 3PL will have its own infrastructure."

Martin Taylor, managing director of retail at supply chain solutions firm Wincanton, adds: "Generally you can get the job done more cheaply if there is only one management team. Also, if you use one supplier you are a bigger customer as far as the 3PL is concerned, and can wield a greater influence."

Department store group House of Fraser is among those using a single supplier - DHL - for the bulk of its logistics. Logistics controller Devinder Chana says the company's size does not justify using several suppliers and then benchmarking them against each other as, for example, some of the major grocers do. "There is no right or wrong answer when it comes to this. It's a question of what's best for your company at that moment in time. Our scale and the complexity of our ranges means it makes sense to work in partnership as an integrated team with the 3PL," he says.

NYK Logistics director Michael Storey says that 3PLs are more likely to be able to introduce improvements if they are working alone. "Sole suppliers are able to be more proactive and engaging than, for instance, one of six suppliers, which would have a limited vision of the supply chain," he says.

Whether they use one or several logistics suppliers, retailers need to be careful how they set up the selection process. Mark West, principal of logistics consultancy PPS, says that many companies make the mistake of not defining their goals closely enough, and of inviting too many companies to tender. "Companies need to set out in a document, backed by data, what their needs are today and what the business is going to need tomorrow. That way everyone understands what you are trying to do," he says.

However good a retailer's forecasting, it is still sometimes necessary to rethink a strategy during the lifetime of a contract and Weetman says this possibility needs to be built into the contract. "Companies can find themselves in a straitjacket and unable to move forwards," he says.

Alan Chapman, commercial manager of Clipper Logistics Group, says some of these dangers can be decreased if the retailer uses a shared-user rather than a dedicated facility, which allows them to expand or retract more easily. "It gives a lot more flexibility," he says.

Once the contract is up and running, retailers must find the right balance between retaining some control over what is happening and not hampering the 3PL's freedom to operate.

Woolworths uses Clipper to distribute its hanging garments from a distribution centre in Ollerton, Nottinghamshire, while for boxed clothing it uses its general merchandise network, which is a mixture of in-house and third-party operations. The relationship is managed through weekly reports and the 3PLs are also included in the business's internal meetings so they can build up a knowledge of the company.

Woolworths head of supply chain development Alastair Charatan says: "If you need a manager constantly shadowing the 3PL, you would have to ask yourself if there was something wrong with the relationship. Similarly, you don't want weeks to go by without seeing them."

Several retailers use key performance indicators (KPIs), which provide information about cost, accuracy and the delivery rate success, to manage the contract and enable them to step back from day-to-day involvement in distribution.

This is the case at World Design & Trade (WDT), which owns Firetrap, Sonneti and Fullcircle. The company splits its warehousing between anin-house facility in west London and a warehouse run by Davies Turner in Dartford, Kent. Before setting up the contract, it agreed a management and staffing structure, the warehousing processes and provided the IT system.

Logistics director Nick Fox says: "In that sense we're quite hands on and control it very tightly. But once those matters are settled we manage the operation on results."

Many retailers favour 'open book' third-party contracts, under which costs are openly defined and then paid for by the retailer, with the 3PL's profit coming from a management fee and a share of any cost-savings they have managed to introduce. This system is used by both House of Fraser and Woolworths.

However, Philip Bracken, development director at retail logistics firm TNT Fashion Group, says that such agreements do not suit everyone, and that some retailers want greater certainty about the costs they stand to incur. Instead, it is possible to agree a budget for the entire operation, again with incentives, to ensure KPIs are met. "It takes into account all the variables, including fluctuations in volume, so that the retailer knows exactly what they are dealing with," he says.

There is clearly no single answer for retailers in deciding whether - or indeed, how - to outsource their logistics, but there is also no shortage of choice in searching for a company-specific solution.

CAST THE NET: ASOS OUTSOURCES

Etailer Asos.com moved to outsourcing in May last year, choosing logistics firm Unipart to run its 50,000 sq ft distribution centre located at Hemel Hempstead in Hertfordshire.

Asos finance director Jon Kamaluddin says the company wanted to improve its speed of throughput at the facility and reduce its cost per unit, but felt it lacked the specialist expertise in-house to do so.

"We wanted to focus on what we are good at but found that logistics was taking up more and more of our time," he explains.

Asos began discussions with a number of 3PLs and decided that Unipart would be able to transfer its experience in the automotive market, where it was already used to handling large volumes of small items, to online fashion. Now the operation is live, there is still close contact. "There are open lines of communication. We see this as a partnership," says Kamaluddin.

Asos recently signed a lease on a new 150,000 sq ft distribution centre, also to be run by Unipart in Hemel Hempstead. This will be used as an overflow facility in the run-up to Christmas, before stock is moved over by next spring.

"In fitting out the new property we will have access to industry experts, such as space planners and engineers, that wouldn't have been possible before," points out Kamaluddin.

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