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Wed 3 Aug 2005 04:00 AM

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Centre point

Already one of the largest users of airfreight in the region, HP is set to send even more traffic into the Middle East, particularly Jebel Ali.

|~||~||~|HP is overhauling its distribution strategy in the Middle East, Africa and much of Eastern Europe by drawing its distributors into the Jebel Ali Free Zone. The plan will allow the company to have a centralised stocking point and reduced transportation costs, but without exposing itself to the risks of holding items with highly fluctuating prices and short lifecycles. The IT giant is also considering assembling a greater range of items in the region, in addition to PCs, which would then enable it to respond more quickly to customers’ orders.

HP manufactures a wide variety of IT products, including printers, laptop computers, desktop PCs, servers and monitors. It uses different supply chain strategies for each line reflecting the differences in the costs of the units and also the instability in their prices. For instance, PCs are assembled in Saudi Arabia, so that the company can keep a minimal supply of the components needed, such as chips and motherboards, which have prices that change almost by the hour. By contrast, inkjet printers are manufactured in the Far East and then transported to Jebel Ali, where HP holds them in a Danzas-run facility.

“The lifecycle of these products is quite long, so you do not take a risk in having local inventory,” says Christoph Schell, director & head of solutions partners organisation, Europe East & Centre, MEA, HP. “Also, the unit price of the printers has come down significantly, which means that the shipping costs would have represented 20-25% of the price to the end user [without a local hub], which would clearly have been crazy.”

The company is now considering increasing its level of locally held stock further by assembling servers and/or notebook PCs in the region. This would shorten the time for goods to get to market, which is a key factor in the IT sector, and also cut transportation costs, but the potential business risks still need to be assessed. “From a logistics point of view, everybody is convinced that it is this right way to go, but it means taking a risk at the product level by keeping inventory locally,” says Schell. “For instance, we might have 2000 units in stock and then the Intel or AMD chip becomes obsolete.”

Alongside reassessing how goods reach its hub, HP is also looking at the second leg of the products’ journeys, namely from the hub to the distributor. In this area, the company has already made large strides over the last year in line with its wider policy of working with fewer partners covering larger geographies. “We are looking at how to consolidate the number of distributors that we have from a regional level. We are not looking at it on a country level or a sub-regional level, like the Middle East, but rather across 102 countries, and trying to build critical mass players,” Schell explains.||**|||~||~||~|While covering larger markets boosts the distributors’ sales, it also complicates their supply chain. Therefore, to avoid building duplicate facilities in different countries, the partners operate centralised purchasing and shipments. HP offered the companies, whose markets are spread across Africa, the CIS, Eastern Europe and the Middle East, a choice of locations for these stocking points, including London, Johannesburg, Amsterdam and Marseille, but the majority opted for Jebel Ali. “The only ones that went for France were the partners catering for French-speaking Africa,” says Schell. “All the others went for Jebel Ali, and that is obviously very convenient for us, as the critical mass is increasing significantly... For instance, we now have a lot more air cargo capacity booked into Dubai, because it is not just the Middle East that takes advantage of this [lift] but the entire region,” he adds.

This consolidation has reduced transportation costs for HP, and the company is able to pass these savings onto the distributors. These partners also benefit from getting hold of the products more quickly, which then allows them to take advantage of the 2% discount that HP offers for early payment. “In the past, some distributors were reluctant to do this because it meant they had to pay us before they received the goods, but that has now changed,” says Schell.

Choosing Jebel Ali as the stocking point, rather than the alternatives, also means that the distributors are able to choose from a wide variety of logistic providers, which produces better rates. The huge amount of IT activity taking place in the free zone also drew in distributors, as a large number of retailers, particularly from Africa, visit Dubai looking to buy goods on the grey market. HP’s distributors therefore need be in the free zone in order to help combat this. “The distributors need to be present in both worlds: in their local market, and in the trading hub where it is all happening, and right now, that is Jebel Ali,” says Schell.

Because of the threat of grey marketing, HP is also going to continue shipping some goods, such as laptops, to some countries, including Saudi Arabia, Egypt and Lebanon, despite its wider policy of centralised stocking in Jebel Ali. “For now, we still want to have control over some of the products, because the risk of those goods not reaching the country of destination is quite high,” says Schell. “However, that is something that we are starting to manage a lot better out of Jebel Ali.”

Given the success of its operations in Dubai, HP is also keenly watching Jafza International’s expansion around the world, particularly plans to manage operations in Tangier. Schell hopes that this could improve service levels at the Moroccan port, as well as leading to lower transportation costs between Jebel Ali and North Africa. “Jafza has created one of the most efficient logistics and trading hubs in the world, and that level of professionalism is still missing in Tangier, so if Jafza does go over there, then the learning curve will go up significantly,” he says.

“Also, as we have our partners already consolidated in Jebel Ali, I think the costs of servicing North Africa will be significantly reduced if they can stay within the framework of the Jebel Ali Free Zone,” he adds. “From a commercial point of view, we also hope that it will be so competitive for us and for our partners that the level of grey marketing we are seeing from places like France and Portugal into Africa would significantly fall as well.” ||**||

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