In-house logistics lowers prices, improves quality - Walmart

Swimming against the global trend towards outsourcing, retail giant Walmart has embraced in-house logistics as a more cost-effective approach. In 2009 UK-based Asda, which is owned by Walmart, purchased International Produce Ltd (IPL) to handle its logistics and procurement business – tasking it with improving quality and lowering prices. And it’s something they have been doing with great success, according to Mike Newton, regional manager of IPL South Africa. “Taking full control of the supply chain has allowed us to improve visibility and transparency at all points in the supply chain, while it removes unnecessary margin takers,” said Newton during an address at the Cool Logistics Conference in Cape Town recently The model is proving to be so successful that “aggressive expansion plans” are being put in place for the next five years, said Newton. “Managing product for other regions such as Japan, USA, Mexico and Canada has already started, but our focus of activity is still in the UK,” said Newton, whose role in South Africa is to source and move product to the UK from across southern Africa. Experts, however, maintain handling logistics cost-effectively in-house is only possible if one is controlling and moving large volumes of product. According to Newton, they negotiate a fixed price with all suppliers prior to packing of any goods. “While we can take ownership of the product at any stage of the supply chain, we prefer to negotiate with growers and farmers directly.” Many farmers have bemoaned the clout of the big retailers saying they are at their mercy in setting prices for goods. Following the massive farm worker strikes over wages in the Western Cape earlier this year, labour union Cosatu said a big part of the problem was that retailers were squeezing farmers dry. “Research has shown that retailers are setting ridiculously low prices for products that they buy from farms,” said Tony Ehrenreich, spokesman for Cosatu in the Western Cape. “It is partly these practices that have seen the distorted pricing structure in agriculture.” He said farmers, instead of paying low wages to labourers to keep costs down, should be working with the unions and Government to ensure that they got decent prices from the retailers and that there was more international market access for their products. Newton said IPL Southern Africa exported around 2900 40-foot containers from the country every year of which the bulk was fruit. In Kenya the company bought and exported some 53 million rose stems last year. “Our aim is to take responsibility for the product and the logistics as quickly as possible allowing the growers to focus on what they do best – which is farming. Our price negotiations are focused on getting the product to market as quickly as possible and are not profit driven.” He said the IPL model was built around efficiency and therefore they strove to be a low-cost business to service for the benefit of the company itself, its suppliers and farmers. “We strive for simplicity in our approach. We focus on accurate forecasting, we negotiate and pay for our product and we get it to the consumer as quickly as possible.” He said having aligned themselves with the right suppliers, the model was proving to be extremely successful for all the roleplayers, benefiting the consumer in the end. CAPTION Mike Newton ... ‘removing unnecessary margin takers.’