There is a growing trend from food sector companies in choosing a logistics partner, which involves suppliers being asked to provide prices and information on services via simplistic online spreadsheets. Recently, ACS&T Logistics MD, Malcolm Johnstone, has called this method of choosing logistics providers into question, arguing that it can often lead to an unsuitable and costly service for companies. He explains the benefits of selecting a logistics supplier based on its services, working practices and additional services:
"The rise in procurement initiatives by frozen food companies has been driven by businesses attempting to cut costs. Whereas once, managers who had experience in the workings of logistics programmes were involved in choosing suppliers and services, now, the process is often made by a procurement department. Matching the rise of these procurement initiatives has been the growth of online platforms designed to help with the tendering process.
Every company wants to reduce the cost of their supply chain, and this has never been more important than in the current economic climate. However, procurement specialists, with no hands-on experience in logistics, often make the mistake of assuming that they can get the most cost-effective supplier by providing a simple set of requirements and asking for prices. In reality, logistics requirements vary tremendously from business to business, and whilst the process might generate cheap headline rates, these can be very expensive once the practical requirements of a business are taken into account!
Procurement initiatives are seen by logistics suppliers as an attempt to reduce complex service offerings down to point of how cheap you can go. However, these tendering processes do not include enough specialist information on the many variables involved in a logistics programme, such as product storage temperatures, blast freezing and tempering requirements, which result in a price which has no correlation on reality. Any price given by a provider on these online spreadsheets will be guesswork, with the likely outcome being that both customer and supplier feel let down when the logistics service begins.
Why does the use of online spreadsheets and procurement initiatives produce such poor results? It is easy to see that the whole process is unsuitable, as often, those who make the decision have no hands-on involvement with the logistics programme itself. Procurement teams are trained to reduce costs, but without proper knowledge of the complexity involved, they may not understand the benefits of value-added services or customer service against the prize of a cheaper rate. For logistics and operation managers on the front line, a supplier chosen by procurement initiative can leave them with a huge amount of work, as they rebuild the service quality and repair relationships with dissatisfied customers. By this time, procurement teams will be working on their next project, in the belief that they have improved the cost-effectiveness of the supply chain.
ACS&T can offer a solution to this problem. With an adaptive, stable and individually tailored service, ACS&T foster value-added relationships with all its clients, adapting to changing trading conditions and short term demands. Whereas a storage rate that is a few pence cheaper may seem like an attractive prospect, in the long term, this is false economy. The ACS&T customer saves thousands of pounds through the assured, consolidated supply of ingredients to the production line and the use of an industry leading, real time stock management system, which enables them to reduce operational failures and minimise stock holdings.
Over the next year, frozen food businesses face a difficult time in the selection of logistics partners. Many providers have been badly affected by the recession, and face the costly prospect of replacing R22 refrigeration units in the near future. With fuel and power costs set to rise, procurement prices can only be sustained as long as suppliers stay in business. Perhaps procurement initiatives should start incorporating the cost of recovering goods from administrators!
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