Logistics outsourcing kicks in

Manufacturers in the fastmoving consumer goods (FMCG) sector are increasingly moving to outsourcing, with more than half the FMCG logistics spend already outsourced, according to a study released to FTW by Jean-Louis Hazard, MD of management consulting company, Haute Performance. We decided to investigate after a record number of readers keyed into a story featured in our electronic sister publication, FTW Online, revealing that Mondelez SA had just awarded a five-year contract for transport and warehousing services to Imperial Retail Logistics. While many presumed that this was a new move to the outsourcing of logistics functions, and could be the start of a growing trend, it appears that it is anything but new. The presentation of the study compiled by Haute Performance for the Consumer Goods Council of SA (CGCSA) summit 2013, recently held in Johannesburg, told an opposite tale. “The supply chain potential market for FMCG amounts to around R43 billion, of which R22bn is currently outsourced,” Hazard told FTW. Indeed, he added, most blue chip consumer goods companies are outsourcing logistics. Only Nestlé and Simba are notable ‘in-sourcers’. And it’s nothing new for Imperial Logistics either. In terms of market share, it is currently the clear leader among logistics service providers (LSPs) in the FMCG sector, with about 19%. The next six competitors combined – Unitrans, RTT, Supergroup, Clover, Vector and DHL – are about 25%. Food portfolio companies have a long history of outsourcing supply chain spend. Currently, R9.8bn, 54% of the food producers’ supply chain spend of R18.0bn, is outsourced, and each LSP player has its share, according to Hazard. “The outsourced non-food producer supply chain is estimated at R4.6bn – 56% of the total R8.2bn spend,” he added. “The home and personal care (H&PC) market is also primarily outsourced, highly competed for, and with a high frequency of tenders.” FTW asked Maryla Masojada, MD of Trade Intelligence, which provides insight, commentary and profiles on SA’s FMCG environment and the major retail and wholesale players, whether the outsourcing move just awarded to Imperial could be seen as part of an ongoing trend towards outsourcing? “It goes in cycles,” she said, “and your view of retailers and suppliers is different. “In the suppliers’ market, where logistics is seen as a non-core activity, outsourcing is definitely an increasing trend. Retailers are demanding more and more efficiency from their suppliers, and using an LSP’s expertise in the field of distribution is much more costeffective than employing an in-house team.” While some exceptions exist, producers are more likely to outsource their warehousing than retailers. The over-arching reason for this retailer reticence to outsourcing warehousing is a lack of skills on both the demand and supply side. In general, Hazard told FTW, SA retailers view distribution centre (DC) management as a core competency, and believe they are best placed to understand the function and its critical time and efficiency demands. Some also run their DCs as profit centres through charging a DC allowance. Previous experiments with outsourcing have also not been particularly successful. And retailers are also reticent to lose the in-house capabilities if the outsourcing “experiment” fails.