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Wed 3 Aug 2005 04:00 AM

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Cut the fat

George Xavier has helped transform Spinneys Jordan’s operations by taking excess capacity out of the supply chain, closing warehouses and shedding staff. Service levels, however, are better than ever.

|~||~||~|In just six months, Spinneys Jordan has been transformed from an ailing money-loser into a highly profitable business. A change of ownership followed by a logistics overhaul have been key to this turnaround, but it has not been a story of investing large sums in new equipment and new IT systems. Instead, the new owners have focused on using Spinneys’ existing assets smarter and more effectively. This has then enabled the company to raise its service levels and cut costs, most noticeably through plans to close four of its five distribution centres.

The 75 year old Spinneys Jordan is one of the oldest FMCG distribution companies in the region, servicing supermarkets, wholesalers, small shops and government bodies across the country. It also boasts a number of big name clients, such as Unilever, Kraft and Wrigleys. However, despite this impressive heritage, the company made a loss on sales of just US $23 million in 2003. HBG Holdings, a UAE-based FMCG distributor, recognised Spinneys’ potential though, and bought the company last year. Then, in January, George Xavier joined HBG from Unilever as group logistics manager, and his first task was to sort out Spinneys Jordan.

“There were a number of issues to do with sales, supply chain, principals and customer services, but the major one was cost of operations,” Xavier recalls. “Spinneys’ cost of operations was simply too high and the single line target was to bring it to acceptable levels.”

Xavier subsequently made three two-day trips to Jordan over the next six months, during which he examined Spinneys’ operation, identified areas for improvements and then implemented an action plan to bring it up to scratch. “I took my first flight to Jordan in April,” recalls Xavier. “It was the first time that I had travelled to that part of the region, and I had no idea what the operations were like, what the issues would be and how we would bring the costs down.”

“Language was also an issue,” he adds. “Most of the team there, especially the logistics team, operate in Arabic, and so understanding their issues and looking at Arabic documents was a big challenge.”

Despite these issues, Xavier soon drew up an action plan covering all areas of the supply chain. The most visible aspect of the programme was closing four of the company’s five warehouses. Spinneys had been operating three DCs in Amman, including the company’s 3000 m2 main facility, one in Aqaba in the south and another in Irbit in the north. However, much of the inventory was passed between the different DCs, so each individual box would be handled a number of times before it reached the customer.

“When I added up the total number of boxes handled in each DC, it was more than the total we were giving to the customers,” says Xavier. “Identifying this was a major breakthrough in the cost saving measures.”

The new owners therefore set about rationalising Spinneys’ distribution facilities, quickly closing the Irbit DC and one of the centres in the capital. The Aqaba facility will be closed next year, with the third Amman DC to follow in the year after, if not earlier. All of the goods will then be held in the main DC, with the outlying regions served by truck.
“This is where the major savings have come from,” says Xavier. “It has not just come from savings in rent, but we have also gained from the overheads we had at each site. The manpower resources, the vehicle resources, the IT resources — all of this got revamped in one shot.”

Closing down facilities, however, requires more than just giving the landlord a month’s notice. Instead, it has only been made possible by using the remaining assets more efficiently and by taking excess inventory out of the supply chain. The company has reduced its stock levels in a number of ways. Firstly, it examined all of the lines it carried and decided which ones were worth pursuing and which ones should be dropped. “We looked at our principals, and asked how much they were contributing to the business,” says Xavier. “Also, where there are products that were moving unsatisfactorily, the suppliers have supported us by taking stock back.”

“We have also identified areas where our [stock] coverage was more than the norm, and said that we will make more accurate market forecasts by working more closely with the sales teams,” he adds.

Improving forecasts will ensure that the company does not order too much from its suppliers, which would both waste money and clog up the warehouse. It will also be key to one of the most significant changes the company is making, which is to move from monthly supplier deliveries to weekly loads based on a six month forecast.

This policy was implemented in June with Unilever, which supplies Spinneys with over 200 different SKUs from its facility in Alexandria, Egypt. The change has greatly reduced Spinneys’ inventory levels, which has thereby reduced the pressure on the warehouses, cut costs and also improved wastage levels, as fewer items are spoilt without reaching the shop shelf. The policy is now being rolled out across all of Spinneys suppliers, who have all reacted positively to the changeover. “I am sure they will also benefit from it… [as] it will reflect on their sales and give them a clear idea of the availability of the right product at the right time,” says Xavier.

For supplies coming from Europe, Spinneys is also looking to bring in goods by road rather than sea. This will both cut transportation costs and further reduce the pressure on the warehouse. “With seafreight, if my requirement is half a container, I am still forced to buy a full container load,” notes Xavier. “However, if it is road shipments, then the volumes will get broken down and the deliveries will be smaller and with more frequencies.” ||**|||~||~||~|Within the warehouse, there have also been a number of operational changes to improve efficiency levels. For instance, none of the four centres that are being closed had any racking in place, so although they were quite big warehouses they did not hold much stock. “A common mistake in logistics is that people look at warehouses in terms of length and breadth, and forget about the height,” notes Xavier. “However, if you palletise your goods and keep them on the floor, every inch of space above that pallet is wasted.”

The main DC did have a seven-storey racking system (including the floor level) in place, but it was not being used effectively. Now, however, it has been re-arranged, with the goods grouped by principal, and with the fast-moving items nearest the loading bays.

Work within the facility is also now being done more quickly and more accurately, as the materials handling equipment is being used more effectively. “We found that we already had enough handling systems [prior to the takeover], but the component of manual handling was very high, and the component of machinery handling was very low,” says Xavier.

This balance has now been reversed through a series of basic improvements. For instance, the forklift trucks have all been fitted with a timer, so that management can see how often they are being used and then compare these figures to industry benchmarks. Spinneys has also invested in spare batteries for each of its machines. This seemingly minor step has effectively doubled the number of units available to the company, as forklifts previously had to be parked for one of the warehouse’s two shifts while their batteries were re-charged. “We have not increased the capital costs, but by improving the utilisation, the products are now moving hands-free,” comments Xavier.

The picking process in the facility has also been greatly improved by switching to master picklists. Previously, each separate order would be picked in its entirety and then be brought to the loading bay, which meant that the picker had to walk the entire length of the warehouse a number of times. Now though, the pickers work from a master picklist, which tells them the total number of units of each item that are required to fill all of the day’s orders. Then, the picker can take 100 boxes of Lux soap, for instance, to the loading bay in one go rather than bringing this amount in smaller quantities while picking each order in turn. “Once you have brought the bulk order to the loading area, you are in a localised area, where you can just pick up those items and put them into customer orders…. This way, you save a lot of effort, you save a lot of time and you save a lot of money,” comments Xavier.

Efficiency levels have also been improved through changes to the two-shift operation, which have also resulted in better service levels. The main change has been to ensure that the evening shift loads the delivery trucks for the next day’s deliveries. Then, the next morning, the drivers are able to leave the facility straight away, which then means that they arrive at the customers at the right time.

“If the customer has a delivery window, our trucks need to be there in that window. If, instead, we are still loading the truck when the customer is ready to receive it, then, when we do reach there, the customer will not be ready... This then causes a lot of customer service issues and also impacts on the efficiencies of our distribution system,” says Xavier.

With the drivers no longer needing to wait around at the customers’ sites for someone to receive the load, they are able to make more deliveries per day. To help ensure that they do do this, the company is also looking to link drivers’ wages to the number of deliveries they make rather than the number of hours that they work.

“When the driver is out of sight of the controller, what motivates him to move directly from one customer to another?” asks Xavier. “We need to ensure that wages rewards on-time deliveries rather than paying people extra money for working extra hours.”

The efficiency of the trucking operation has also been improved by loading vehicles closer to their capacity, while still abiding by safety regulations. This has been done by training the warehousemen on the dimensions of the trucks, both in terms of weights and volumes, which then allows them to better calculate the loads. “If you send a partial load for whatever reason, your operational efficiencies are low,” says Xavier. “However, we are now moving towards 90-95% efficiency in using the capacity of the trucks.”

Through the combined results of these efficiency measures, the company has been able to cut back its fleet of Mitsubishi trucks, which includes both 2.5 tonne and 5 tonne vehicles, from 66 to 56. This has already saved Spinneys a considerable amount on lease payments and also wages, as each truck has one driver and two porters. However, Xavier believes that further cuts are still possible. “We have already eliminated 10 vehicles, and I can easily see another six or seven more going out as well,” he comments.

The company will also be making more use of technology in the future as well. So far, the major changes have been making better use of the company’s existing Sage Line 500 ERP system, so that management sees and uses the information it contains. “We have a system that is good, and it is able to give us all of the information that we want, it was just a matter of using that situation to our advantage,” says Xavier.

However, Spinneys is now drawing up plans to replace its manual inventory system with a handheld-based application, which will further enhance its tracking of inventory, particularly perishable items. “For good control of expiry dates — first in, first out — IT is a huge advantage,” Xavier notes.

Other future plans also include further staff training [see box], completing the reduction in the number of SKUs and finishing the centralisation of the distribution into the one facility. However, Xavier is justifiably pleased with the results so far. “To have been in Jordan for just six days, and to have achieved as much we have, I don’t think we have done badly,” he says.||**||

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