Global Drinks Industry Logistics - Part IV: Middle East and South Africa
In the final part of this month's management briefing, the spotlight moves to the logistic set-ups in the Middle East and South Africa.
Drinks distribution is highly fragmented in the Middle East, and ranges from best practice at leading companies in the Gulf countries to less automated and more labour-orientated methods in the Levant region, which comprises Lebanon, Syria, Israel, the Palestinian terrorities and Jordan. Modernisation is currently underway throughout the region as company’s bottom lines are pressured by rising fuel, commodities and labour costs. Subsequently, demand for the latest systems at factories, warehouses and in distribution is on the rise.
In the region’s wealthiest area – the Gulf Cooperation Council counties - there are 231 beverage companies, around half of which (48.9%) are in Saudi Arabia, followed by the United Arab Emirates at 27.3%. With beverage exports nearly doubling in the three years to 2009 to US$696m, and imports increasing by a third over the same period to around US$1bn in 2009, according to a 2011 report by the Gulf Organization for Industrial Consulting (GOIC), companies are investing heavily to meet demands. Gulf investment in the drinks sector (largely non-alcoholic), was estimated at US$2.5bn in 2010.
These investments are being pushed by major players such as Saudi Arabia's Aujan Industries, which is expecting to hit US$1bn in sales this year through its brands Vimto, Rani and Barbican, and it is investing more than US$130m in upgrading its distribution network. The company is also planning on ramping up capacity by 40% at existing factories in Dammam, Saudi Arabia, Dubai and Iran.
Another major Saudi Arabian beverage player upgrading its distribution network is Almarai, a major dairy and drinks player, which boasted turnover of US$2bn in 2011. The company has a fleet of 1,000 tankers, reefers and tractor heads at its main facility in Riyadh, and uses around 3,200 delivery trucks from 70 sales depots in the Gulf to reach 48,500 retail customers on a daily basis.
Due to the high temperatures in the Gulf - which reach above 40 degrees Celsius during the summer months – Almarai, like other Gulf manufacturers and distributors, uses cooling systems to retain product freshness. “From manufacturing to depots to distribution, everything is cooled,” said Almarai spokesman Hussam Abdul Qader. "The trucks are all chilled for dairy and beverages."
With a van leaving a company depot every six minutes, Almarai has adopted automated storage and retrieval systems (ASRS), along with warehouse management systems (WMS). “We are strong on hand-held terminals (HHTs) as, [they] give us a high utilisation of our resources, whether from storage in the factory or in the depots, as [product] moves from van to retailer,” says Abdul Qader. He adds that, although the company has been using HHTs (hand-held terminals) for a while, they are being “continuously upgraded”.
At the retail end, Almarai has its own fridges to monitor temperatures. “It is not 100% foolproof - as some small retailers do switch off fridges to save electricity – [but] once we get a product complaint, it is tracked back to where it was bought and if there is temperature abuse we can see if there is a pattern and pinpoint it,” says Abdul Qader.
To improve logistics, Almarai is also considering adopting Radio-frequency identification (RFID) in its supply chains. “RFID seems very interesting, but we are not sure how soon it will be feasible for the region, so we are keeping our eyes on it,” says Abdul Qader. “There is cost involved, and anything adding on to cost is approached carefully as commodity prices are rising, prices are flat and there is an aversion to raising costs per unit.” In terms of noticeable packaging trends, there is growing consumer preference for PET bottles over HDPE (high-density polyethylene) ones, which companies are shifting towards, inevitably causing some changes in manufacturing and distribution.
In Lebanon, carbonated beverages and juice distributor Interbrand is upgrading its fleet with 20 new trucks with higher payloads, to improve efficiency due to higher fuel costs. The company is introducing its own ASRS (automated storage and retrieval system) to reduce labour costs, and is also thinking of RFID and WMS, according to Interbrand VP Marc Tabourian. “We are investing in this right now and doing it slowly but surely," he says. "Overhead savings come from reducing transportation and warehousing costs.” Overall, while the Gulf is moving towards PET, Lebanon is still lagging behind: “I think there will be a move to plastic but it takes time, as technology is not up to date,” added Tabourian.
According to global brewing giant SABMiller, a number of special logistical difficulties exist for South Africa’s beer industry, in terms of getting company’s products to retailers around the country.
Thinus Van Schoor, head of supply chain development at SABMiller South Africa, says that current issues include a lack of reliable rail infrastructure, a sometimes undisciplined workforce, patchy road conditions in some areas – particularly in remoter regions - and congestion at some of the country’s main ports.
However, the brewing company believes that “a collaborative effort between SAB and relevant stakeholders such as Transnet [South Africa's national transport businesses, which include ports, Petronet, Metrorail, Transtel, and South African Airways] will lead to effective solutions to these challenges”.
In relation to the next big trends and processes in drinks industry logistics, Van Schoor says that the future lies with ‘Vendor Managed Inventory’, “whereby the wholesaler owns stock at the retailer, and the retailer orders directly from the supply chain and manufacturer”.
When it comes to the local wine industry, Wines of South Africa spokesman André Morgenthal says that the rising cost of transportation and bottling is proving to be a headache. “Fuel prices have increased dramatically in South Africa in recent years and [this] has led to wine being shipped out of the country in bulk and bottled in countries at the heart of our target markets,” he says. “While bulk shipping is good economically, the vineyards lose control of their product, which can affect quality.”
In the past, says Morgenthal, 40% of wine has traditionally been shipped out in bulk – the remainder 60% in bottles – but rising costs have led to a shift. The trend is now in reverse, he says, with 60% of wine shipped in bulk.
Morgenthal notes that there are several ongoing developments in the works to help overcome South Africa’s rising fuel and energy costs, such as light-weight bottles and plastic containers, which have been introduced to enable vineyards to export greater volumes of wine abroad for a lower cost.
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