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Thu 22 May 2008 04:00 AM

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Chain reaction

Dubai's Al Futtaim Retail Division is braced to open the biggest distribution centre in the emirate. Lynne Nolan discovers its plans and why retailers should invest in inventory management.

Dubai's Al Futtaim Retail Division is braced to open the biggest distribution centre in the emirate. Lynne Nolan discovers its plans and why retailers should invest in inventory management.

It is "criminal" and "pathetic" when FMCG companies neglect inventory management, the most costly element on balance sheets, according to Sebastian Thomas, supply chain manager of Dubai-based Al Futtaim Retail Division.

"Ageing inventory is a menace, and will have a lot of financial implications.

We are working with Al Futtaim Logistics to build the biggest distribution centre in this part of the world.

If you keep a product for one year, there is no margin in that so it is very important that you closely monitor the ageing inventory and how many months of stock you have. Anything beyond four years is going to kill you.

"Stock will generate revenue when it reaches supermarkets, but if it's sitting in the warehouse then it's adding cost. Inventory management is a gold mine worth exploring, as it will pay by itself. A lean supply chain aims to eliminate waste and reduce the cost in handling.

"Without warehousing, proper replenishment is impossible, which reflects the products' availability at retail stores," he adds.

The company is currently in the final stage of negotiations and working with Al Futtaim Logistics to build the city's biggest distribution centre, Thomas reveals, at Dubai Logistics City (DLC). "It will support in-house business and it is also for third parties. Al Futtaim Retail will occupy a major portion of that facility.

"It could be ready within 16 months, and firstly we would move over our IKEA operation, our biggest volume business." Thomas reveals the brand is set for expansion into other countries, including Qatar and Egypt, which will increase its volume.

The facility would be "one of the best and most modern facilities in this part of the world, with complete solutions for warehousing and distribution," and it will provide value-added services, such as labelling, bar coding and total solutions for traders.The groundbreaking move would feature the opening of a 10,000m² frozen food facility at a 2.4 million-m² plot at the world's first truly integrated logistics platform with all transport modes, logistics and value added services, including light manufacturing and assembly.

DLC, a key component of Dubai World Central (DWC), the huge 140km² urban aviation project, has been instrumental in attracting over 150 of the world's top logistics and supply chain companies in making Dubai their regional operations hub.

The firm is also in the process of building a purpose built, modern, automatic facility for Marks & Spencer in Dubai's Jebel Ali area. The automatic garment facility is set for completion by early next year.

We are planning to take IKEA, our highest volume business, to countries including Egypt and Qatar.

A key challenge facing the industry, according to Thomas, has been that many retail companies have failed to identify the supply chain as their core function. "If you analyse the organisation chart of these corporations, the supply chain is not at the top.

The supply chain plays a vital role in the Middle East, as this region needs to import everything from various parts of the world, he explains.

"This function plays a predominant role in the profitability of any trading organisation. Any service breakdown in any part of the supply chain can have a serious financial impact on the operations of that company. Product availability is paramount in the retail business.

As retailers grapple to improve margins and reduce costs because of competition, the biggest vehicle for change is the supply chain, he says, and "this has to be managed cost effectively in order to support the profitability of the organisation.

The top management at Al Futtaim Retail have recognised its importance, according to Thomas who brings 18 years experience in the field, however he believes there is a shortage of proper facilities with value-added services in the UAE.

"Space is becoming a constraining factor, and there will be a time when traders will struggle to find land to build warehouses. It would viable to invest in property. Due to the space and rent situation, it would ideal for big organisation to own properties and operate them by third parties."In order to support our growth plans, we need a facility of that kind and are seriously involved in that project, or otherwise there will be a situation where we struggle to get space for our brands. Our philosophy is we believe in outsourcing, while we focus on our core activity of retailing.

Al Futtaim's burgeoning brand portfolio - including IKEA, Marks & Spencer, Toys R Us and Intersport - has placed greater pressure on its need for space.

Al Futtaim Retail operates in the GCC, Qatar, Kuwait, Bahrain, Oman and Egypt, and recently added Singapore to its geographical reach after acquiring Robinson and Company (RCL), the country's signature department stores chain and oldest retailer.

Space is becoming a constraining factor, and there will be a time when traders will struggle to find land to build warehouses.

Cross-border transportation is a major challenge, he says, "that is a major stumbling block and unification is crucial to ensure the economical development of GCC countries," while retaining talent at supply chain organisations is also vital.

"Service breakdown in the supply chain often occur when there is a changeover in personnel. Logistics means having the right product, at the right time, at the right place and at the right cost. Supply chain failures can lead to complications including drops in sales and customer complaints.

"In a cutthroat market like Dubai, a slight difference in price has huge implications, therefore having a cost-effective supply chain is a must to sustain growth," he cautions.

The supply chain-profitability linkSupply chain expert Sebastian Thomas argues that warehousing primarily performs the functions of ‘receive-store-pick-ship,' however value-added activities are now compulsory to support retailers in the direct delivery to shelf.

• The freight market is becoming unpredictable and rates continue to fluctuate, Thomas warns. "The demand and supply situation favours the carriers, and the importers here are struggling to secure longer term freight commitment, particularly from the Far East and the US.

• Al Futtaim Retail Division consists of brands including IKEA, Ladybird, Danier, Toys R Us, Marks & Spencer, Sandgate, ACE Hardware, Al Shamool, and Al Futtaim Watches & Jewellery. The company operates in the GCC, Qatar, Kuwait, Bahrain, Oman, Egypt and Singapore.

•The CV: Sebastian Thomas has been working for Al Futtaim Retail for five years developing strategies for its supply chain requirements, and has garnered 18 years of experience in Dubai's retail sector.

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