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Sun 1 Oct 2006 04:00 AM

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Delivering the goods

As competition heats up in the consumer electronics market, companies can stay ahead of the game by outsourcing their logistics requirements, reports Michael Thorne.

The market for consumer electronics in the Middle East has become increasingly dynamic, with retailers and distributors using supply chain optimisation to protect their profit margins and increase market share.

The climate of intense competition in the sector has created new opportunities for logistics providers throughout the region, something that has already been noticed by some of the industry’s biggest players. Companies such as DHL and Aramex have introduced a range of value-added services, aimed specifically at the consumer electronics market, to help clients reduce their overheads and secure reliable routes-to-market.

“The majority of companies are currently handling logistics inhouse, using their own vehicle fleets and inhouse employees to deliver and install electronic items,” says Hussein Hachem, Aramex’s vice president for the United Arab Emirates and Oman. “This raises their overheads, which in most cases are already high, as a result of their increased retail investment in shopping malls across the region.”

By outsourcing the delivery and installation of products, companies can concentrate on their core business, whilst benefiting from their logistics service provider’s economies-of-scale, claims Hachem. “Aramex develops a customised service, based on a particular client’s needs. This will reduce the cost and management problems associated with running delivery and installation inhouse,” he says. “We provide delivery vehicles and train the necessary technicians to deal with specific products. We then link our software system to the retailer. When an order is received, we send the truck to collect the item, deliver to the customer and install everything.”

Aramex will initially launch this service in the UAE, focusing specifically on the consumer electronics, mobile and information technology sectors. It plans to eventually expand the service into other countries across the Middle East.

According to Hachem, Aramex is currently in the process of signing major deals with various unnamed television manufacturers to manage their customer delivery and installation. “We’re finalising a number of deals, which should be actioned in the near future,” he confirms.

The booming market for consumer electronics has also caught the attention of DHL, which is actively developing its Middle East transport network to accommodate growing volumes of televisions, DVD players, mobile phones and other items. “We’ve upgraded our planes from turbo props, capable of handling five tonnes on takeoff, to jet aircraft, which can handle significantly more. Our fl eet of 60 trucks has also grown to 200,” says Dirk Van Doorn, commercial manager for DHL Express Freight and Logistics in the UAE. “This is primarily driven by the consumer electronics and mobile segment. I would say approximately 45% to 50% of our business is consumer electronics.”

New industrial zones are also changing the world of supply chain management in the Middle East consumer electronics channel.

Dubai’s Jebel Ali Free Zone (JAFZ), for example, is having a massive impact in the way distributors service their key markets. The free zone has successfully attracted a range of different companies in the region by creating a tax-free business environment, where products can be sourced in specific bundles at short notice.

One of the companies benefiting from the free zone is electronics retailer Jacky’s. Instead of delivering products directly to different markets and paying duty upfront, the company holds stock in JAFZ and only pays duty when demand exists in individual markets.

“The consumer electronics business in the Middle East is so vibrant that you don’t know what is going to be consumed locally and what is going to be exported to other markets, so the benefits of stockpiling in JAFZ are obvious,” explains Manohar Punjabi, executive director of Jacky’s. “We have buyers in other parts of the region, especially Africa. In these markets you can gauge roughly how much product they will need, but conditions and situations change and therefore having the stock in Jebel Ali is a safer bet commercially.”

The business strategy used by Jacky’s highlights the importance of getting products into the market as quickly as possible. This task has been made easier by the fact various countries in the Middle East are actively improving their transport infrastructure and simplifying customs laws to help streamline the distribution process.

“We are always keen to avoid shipment delays, since they can negatively impact the company’s image in the retailing community,” says Mukkul Shyam, chief operating officer of mobile handset distributor Cellucom. “In the Middle East, you need to get approval for products in each market. These are normal bureaucratic processes, but they can take a lot of time. Our shipment may be ready for delivery, but the product cannot move until this process is complete. Europe is a much more progressive market in this respect.”

A number of factors are currently leading to delays with product clearance through customs. The complications primarily revolve around documentation. “Issues always arise relating to things such as certificates of origin and complying with specific country destination requirements,” says DHL’s Van Doorn. “In Saudi Arabia, they have the Saudi Arabian Standards Organisation (SASA), which makes submitting the correct documentation a very laborious process.”

To receive SASA approval, companies must deliver a sample of the product shipment to a specifically endorsed laboratory, which conducts an analysis of the items and provides permission to ship. Afterwards, the company must legally formalise the shipping documents, such as commercial invoice, airway bill and certificate of origin, which must be stamped by the embassy.

“I’m not sure if this process adds any value to the equation,” says Van Doorn. “There are similar problems associated with getting products to market in Kuwait and Qatar.”

A number of industry players, including DHL, are trying to convince authorities to rescind some of these requirements. “What needs to be understood is that the transportation and logistics industry is highly fragmented, so while you may have all the integrators working together, that doesn’t mean that all the freight forwarders are also working in the same way,” says Van Doorn. “It’s a very cumbersome process trying to get each party to agree to certain standards, which would enable us to provide more efficient services to our clients. By taking away some of this red tape, we would be able to take away some of the associated costs and the end-consumer would actually benefit, but because these obstacles remain, it sometimes proves an unnecessarily expensive process.”

Another key factor in the transportation of consumer electronics is security. Logistics service providers should guarantee high levels of security, especially considering the value of items being delivered.

The Technology Asset Protection Association (TAPA) offers a universal industry standard, which indicates the level of investment a company has made to ensure stock security. Various degrees of certification are available, with A-class representing the highest standard.

“We’ve invested a huge amount of money in security equipment, because these items are highly valuable,” says Van Doorn. “Our facilities are A-class TAPA compliant, meaning that they are 100% compliant with its regulations. We see this as one of the demands that will become a key differentiator going forward.”

Van Doorn believes consumer electronics manufacturers and traders will increasingly demand that their product is stored in a safe facility, complying with these standards, especially as they look to enter markets where the risk of theft is even higher. “It’s on the back of our investment in this respect that we are able to win some key consumer electronics contracts,” he adds.

As the benefits of outsourcing supply chain management becomes more apparent to the consumer electronics market, the number of companies turning to logistics providers should continue to increase. In addition to providing larger economies of scale to handle the transportation and warehousing requirements of multiple clients, logistics fi rms can also offer a diverse array of services, such as shipping, after-sales delivery support and product customisation.

A key benefit of outsourcing logistics is that it enables channel players to effectively control their distribution costs, without facing the added management and logistical burden of dealing with these issues inhouse.

By outsourcing logistics contracts with a particular service provider, who is then responsible for providing logistical support at a set price or pricing plan, channel players can also avoid spiralling costs associated with failures in supply chain management.

This doesn’t mean that problems in the supply chain will not occur, but given the expertise of these service providers, whose core business focuses on logistics issues, it is safe to say that the risks of delay can be significantly reduced.

This article, written by Michael Thorne, originally appeared in Electronics Channel News, published by ITP.

“We are always keen to avoid shipment delays, since they can negatively impact our image in the retailing community” Mukkul Shyam
“The majority of companies are handling logistics inhouse, using their own vehicle fleets and employees to deliver and install electronic items” Hussein Hachem

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