Mar 31, 2011 Comments Off
This is a transcript of an article written by David Jackson of Business Day, published on the 19th March 2011
Companies may have to review their entire distribution network strategy as they seek viable and cost efficient alternatives
Companies involved in the distribution of goods by road – including courier, logistics and large retailers in the supply chain – could well be faced with passing toll road fee costs on to their clients or incur squeezed margins if they don’t.
Many may have to review their entire distribution network strategy as they seek viable and cost-efficient alternatives to the toll road system.
While some will try to use byways and back routes to avoid using the tolls, this is unlikely to be the major response, he says. A possible alternative is the M1 (the Ben Schoeman highway), which if used in combination with the N12, for example, could enable heavy commercial vehicles to take advantage of a shortcut en route from the west of Johannesburg to Midrand, which would result in a saving of 69% on toll fees – at the original mooted rate – by avoiding several of the N1 E-tag plazas. E-tags are the discs attached to windscreens that are activated when vehicles drive through plaza booms, triggering the electronic payment process. There are other options available to companies from a supply chain perspective, according to Houston. Of late companies have been creating distribution hubs – in effect regional distribution centres – in Gauteng.
Large retailers are setting up mega distribution centres in the same areas, getting closer to their customers and achieving economies of scale.
“Many of these retail distribution centres are being fed from coastal cities such as Durban and Cape Town, so even though they are achieving economies of scale in this manner they are having to pay toll fees when they enter the network and again when leaving the network to reach their customers – so effectively being impacted twice.
Rather than expanding the mega distribution centres to meet growing demand in the future, especially with goods coming up from the coast, these companies might consider setting up regional distribution centres in the rural areas, thus avoiding toll fees entirely.”
He says that companies that do not already have a mega hub within the E-tagging network might consider going to less fashionable areas such as Devland, for example.
‘Rent is cheaper and if they are transporting goods from the coast they will not have to pay the double handling fee by entering the E-tag area to get to their distribution centre and then paying again when delivering to their customers”
From a Gauteng tolling perspective they would not pay at all to get to the Devland area but pay the single tolling cost of serving their customer.
“This is another alternative we expect to see happening more and more, to include areas such as Lanseria and potentially even as far as Heidelberg”
Houston says that in the past many manufacturing and retailing companies have been reluctant to become involved in distribution, not regarding it as their core business and effectively outsourcing this function. However, companies that both manufacture and distribute have already started to seek synergies with companies that are not necessarily competitors in their industry, with a view to sharing the delivery of loads on long distance hauls.
“That thinking could be expanded to the e-tolling network,” says Houston.
“The bottom line is that many distribution companies, or companies that have distribution arms, need to look at their distribution network strategy. There are variables to consider – and there are now compelling reasons to revisit the situation totally.”
Houston believes that the South African National Roads Agency (Sanral) is not discounting the option available for companies to transport their goods at night sufficiently.
At present there is a mooted 25% discount for using the system at night, which Houston suggests is insufficient, taking into account the costs incurred in keeping the dispatch and receiving facilities at distribution centres open at night.
“If businesses were given sufficient incentive to use the trucks at night it would help to relieve congestion on the roads between 6am and 10am.”
Abrie de Swardt, marketing director of Imperial Logistics, says: “Toll fees are a statutory charge. Therefore, logistics service providers, depending on specific contractual terms agreed with a customer, will be in a position to recover this cost. The reality is, however, that related price increases will be passed on to the customer, which theoretically would mean no impact on profitability.”
However, there could likely be a portion of this that is not recoverable, he says.
“In a sense the new levy could force businesses to optimise supply chain performance further and manage the total cost of logistics even tighter. There are numerous tried and tested ways in which to do this, such as through ‘extra distance’ analysis, network optimisation and night time operations.”
De Swardt says that Imperial Logistic’s subsidiary, e-Logics, is assisting in developing a toll management solution to enable the company to manage toll costs effectively and efficiently.
“As Imperial Logistics has been intimately involved in this process with Sanral, our vehicles will be used as a pilot project in implementing the toll system.”
He says the management solution that Imperial Logistics will implement “will increase our level of confidence in toll transactions through validation tools and fraud and abuse detection. This will allow us to control and allocate toll costs accurately and to inform transportation planning.”
Clinton Houston leads the supply chain strategy practice at Deloitte Consulting, South Africa. With over fourteen years experience Clinton has played a leading role in areas such as designing “plan to deliver” business processes, including sales and operations planning, production and distribution planning and scheduling, designing and implementing advanced planning and scheduling solutions. Clinton recently lead the Deloitte consultants in a Supply Chain Planning project at a major beverage company in South Africa. A significant focus area of this project related to source of supply, network design, transportation mode and route optimisation, and warehouse and inventory optimisation and integration into SAP. Clinton has also recently lead an engagement at a major local dairy company. The focus of the engagement was to evaluate their current outbound distribution network and propose a new distribution network model that minimises cost without compromising service levels, whilst taking into account the changing requirements of the major retailers. Clinton may be contacted at email@example.com
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