Using an external warehousing service provider with a good understanding of your business can spare exporters a headache and expense.
By Sangeeta Anand
By Sangeeta Anand
Exporters work in a global environment in which the pace of change can be daunting, especially for those just starting out. But whether a start-up or an established export house, operational certainty is a major competitive advantage, a prime reason why warehouse contracting has become popular with exporters.
“The advantage is local personnel understand the market in freight, location, staff hiring conditions and when and where everyday delays can occur,” says Rod Giles, managing director of Contract Warehousing.
Giles founded the business in 1980, recognising that Australian companies looking to enter the New Zealand market under the Closer Economic Relations agreement would find it easier without high set-up costs.
In 2002 he opened up in Australia, and has been helping exporters from both sides of the Tasman to cross the ditch. “We have opened the door to several companies that started with us in one city, found the ease of doing business with us, and went on to expand into other cities,” says Giles.
“One company in Brisbane joined us to hold bulk product in July 2009; we now handle all of his business and operate out of Brisbane, Sydney and Auckland.”
It’s an often-repeated story: the company has 18 customers that have expanded use of the service from one city to multiple cities, attracted by the uniformity of service and the fact that the stock on the ground is their only cost; they are spared the expense of owning or leasing a building and paying warehouse staff.
The flexibility of customised services is another hallmark of contract warehousing. “In an ideal environment the product would be manufactured and transported to the contract warehouse in such a manner that any requirement for on-site warehousing was limited to purely holding product in quantities that allowed for a cost-effective transport option to be deployed,” says Andrew Wright, general operations manager for Profreight.
“We currently operate an existing client in this manner, where we receive daily finished goods as they come off the production line.”
Exporters using external warehousing enjoy the service of a specialist whose costs are spread over many export clients.
“Factor in the cost of a warehouse footprint, repairs and maintenance, assets such as pallet racking, wrapping machines, mechanical handling equipment leases and labour. Why have your own warehouse when there are solutions readily available for immediate use?” says Wright.
Nor are they expensive: competition among warehousing specialists ensure margins are low, he says.
MINUS THE HASSLE
“The client’s focus becomes the company’s development and growth, rather than managing the day-today movement of stock or the staff problems that will and do occur, and are made all the more difficult by the water between them and the overseas operation,” says Giles.
“It takes a while to develop the right staff who can cope [with running an overseas warehouse]. There is a big difference between someone who works well in head office and can do the same in a distant country without the support of someone next door.”
The warehousing specialist also has the economies of scale to invest in state-of-the-art facilities. “Today we have numerous and robust technical advances in IT that allow real-time visibility of stock-on-hand, and EDI links that reduce potential for human errors and present productivity gains,” says Wright.
Contract warehousing also provides certainty in uncertain times.
“Fixed pricing lends stability in the sales environment; and client relationship managers allow an easy conduit into the business,” he says.
For cyclical businesses, as many Kiwi exporters are, there is an added advantage — warehousing can readily be scaled back to match export volumes without worrying about overheads. “In the case of using third-party warehousing, they gain in that they pay for the services actually being used in proportion to their business,” says Giles.
INFORMATION IS VITAL
However, exporters need to discuss their needs in detail with the warehousing specialist. The benefits of contracting depend on how well the warehousing manager understands the client’s needs. It is important both parties communicate expectations well.
“If the exporter is starting out, he should be clear about time frames and the desired result,” says Giles, so services can be provided with maximum efficiency.
NOT ALL ARE EQUAL
Similarly, the exporter should shop around. “There are a large number of freight companies that say they are in the third-party warehousing business, but they really are just freight companies, and lack the right mindset or inventory systems or suitably trained staff,” says Giles.
With the expected outcomes well defined, and with the expense spared by not managing their own warehouses totted up, exporters stand to make big gains by outsourcing to a specialist. “I have been advised by clients that their savings have been of the order of 20% to 30%,” says Giles.