---

Past Issues

October 2005

---

---

Inspired intuition or just good business savvy on the part of its executive team led by David Hood, Vector Logistics, the specialised 3rd Party distributor, has achieved a distinct edge in the business of multi-temperature contract distribution (MTCD) by developing and implementing activity based costing (ABC) in preference to the traditional percentage-based method. FleetWatch's Max Braun visited three prime Vector hubs in Cape Town, Roodepoort and Clayville to gain firsthand impressions of ABC in action.
 

It has taken Vector only four years to develop and effectively implement activity based costing and while ABC is not a new concept, it has not - as far as we know - up to now been the basis of negotiating transport and distribution contracts.

ABC accurately apportions costs attributable to customers and principals alike. The concept is driven by the innovative and intelligent use of Road Show routing and scheduling tools, Duo, a tracking device developed specifically for supply chain operations, SAP R/3 and other integrated software applicable to supply chain modelling. ABC demands total transparency and the many disciplines that go with it. The benefits for principals, customers and Vector are significant and ongoing. 

Following its original launch in mid-2002 as an independent specialist logistics business within Anglo Vaal Industries (AVI), Rainbow Farms acquired Vector Logistics in October 2004 to ensure that the distribution of its prodigious poultry production would be efficiently and cost-effectively managed.

Operates as an independent
Although now a wholly owned Rainbow subsidiary, Vector continues to operate as an independent company delivering to several thousand wholesale, retail and food services outlets on behalf of various principals. In addition, Vector holds contracts for multi-temperature distribution for clients such as the Nando's and Spur groups. Vector employs around 1 600 people at 18 strategically located warehouses and depots. Its current fleet consists of 175 insulated, temperature controlled vehicles.

The Road Show (RS) routing and scheduling system is fundamental to the development of a credible ABC model says William Sears, projects manager at Vector in Bedfordview, Johannesburg. "It takes time and considerable effort to build the data needed to equip the system with customer locations and other relevant detail such as delivery frequency, key delivery days and so on," explains Sears.
 

Benefits and opportunities
Vector interfaces RS with Duo and SAP systems to identify the various cost elements attributed to each principal and customer. The integrated systems provide huge cost benefits and endless opportunities. These include:

• Reduction in fleet size. Once fully operational and bedded down, Vector achieved a 22% reduction in vehicles - a healthy reduction in employed assets and running costs.

• A reduction in total kilometres travelled and improved payload utilisation.

• A 60% reduction in returns due to integration of centralised route planning and scheduling.

• Vehicle schedules are still flexible in that if required due to extraordinary circumstances, they can be amended at any time before departure, and to some extent during the delivery cycle as well.

• Multi-temperature loads allow the delivery of frozen, chilled and ambient products in a single vehicle. This simplifies picking, loading and documentation.

• Principals and customers can obtain up-to-date delivery data for each client within 24-hours.

Vector's innovative and determined approach to develop the RS package into a sophisticated management information system is paying handsome dividends in terms of the speed and accuracy with which usually hard to come by information and data is generated.

The system produces actual fixed and variable cost drivers by product, by route and by region. Such information is rarely available without undertaking a cumbersome, time-consuming analysis of questionable data.

Planned routing, integrated with a GPS supply chain tool (DUO), allows key cost factors to be ring-fenced by any truck, any route, anytime. Sears, a BCom graduate with previous experience in the FMCG business, plays a major role in the ongoing refinement and continuous upgrading of Vector's integrated systems. "The system relies on high-calibre competent people to nail down the rules and drive it effectively. However, the Return-On-Investment benefits are huge," he says.

The advantage of customer contracts with companies such as Nando's and Spur says Lourens de Waal, operations manager coast, is that there are clearly agreed SLA parameters which allow greater predictability in terms of service requirements. This makes the transport element easier to manage and improves warehouse efficiencies.
  

Innovative culture
De Waal believes much of Vector's success as a provider of specialist logistics solutions resides in the company's innovative culture. Management encourages original ideas and promotes lateral thinking. 

Vector's flat decision-making structure adapts quickly to change while retaining the flexibility needed to operate efficiently and transparently within the dynamics of the fast-changing perishable foods industry. The speed of communication between Vector's control centre and drivers is a good example of their ability to adapt quickly to changes that arise with meeting customer and principal needs.

Part of Vector's core business is serving principal clients such as Rainbow, McCain and I&J with a specialist supply chain across the large and rapidly expanding national wholesale, retail and food services sectors. As testimony to Vector's ordered and transparent customer service, Owen Porteus, MD at McCain Foods recently said: "We at McCain see it as critical that we align ourselves with a logistics service provider that is modern, dynamic and technologically advanced"

Vector's Roodepoort depot, the largest of 18 strategically located depots and warehouses with a fleet of 48 temperature-controlled vehicles, is managed by Rin de Wet, operations manager inland, a company doyen with extensive experience in perishable distribution. Rin has total confidence in centralised routing and scheduling. Apart from the flexibility and added efficiencies he derives from the system, the 60 percent reduction in returns is a major positive factor.
 

Flexibility of systems
De Wet illustrates the flexibility of their systems with the change in delivery times retailers have implemented as a result of crime. Retailers no longer accept delivery later than 1600 hours - and sunset in the case of food services. The frequency of criminal activity during the hours of darkness made it necessary to modify vehicle schedules and driver working hours. He believes Vector's decision to introduce multi-temperature contract distribution (MTCD) has paid off handsomely in giving the company a head start in a growing specialist market segment.

Ivan Rampersadh, also a veteran of plus 20 years in temperature controlled distribution, heads up the MTCD in Clayville just outside Kempton Park. Vector has four such depots located in Cape Town, Durban, Gauteng and Port Elizabeth. Apart from the many advantages of multi-temperature distribution already mentioned, Rampersadh places his emphasis on Vector's ability to provide its customers with virtual real time data in respect of sales volumes, delivery times and progress in agreed performance standards, up-to-date, within 24-hours for each customer's franchisees.

"That's taking cost and the pain out of perishable distribution," he says.

What then of the future? DeWaal, DeWet and Rampersadh are optimistic. Individually and collectively they see possibilities to expand their customer base, increase volumes and variety with existing principals and customers and extend the ABC approach to the broader supply chains of their clients. Watch this space!