Navigating business logistics

Quite a lot of my time is now spent back in the world of third-party logistics, which has caused me to reflect some more on how well or otherwise we tackle this area in the rental industry. I suspect, firstly, that when we think of logistics our mind immediately turns to transport.

Of course in the rest of the world there is much more to it than that. A dictionary definition of business logistics would read something like “ensuring the right inventory is made available to customers, at the time they want it and at the lowest possible cost to provide”.

Starting at the beginning, if the first objective is to ensure we have the inventory the customers want (and that we have set ourselves up to provide – not every business wants to be offering 35 m booms or large-capacity tower cranes – and have targeted our customer base accordingly) in places where we can get it to the customer.

This means ensuring that each location, as far as is economically justifiable, has immediate access to the inventory its customers want to rent on a day-by-day basis.

A small depot with a fleet of, say, 100 tools or 80 aerial platforms is always likely to be in a “stock out” position, where the customer’s core demands frequently cannot be satisfied from their local inventory and where the choice then has to be made between letting the customer down, sourcing from a competitor (if they are willing to supply) or shipping down from the next nearest depot.

The more efficient operators will have accurately profiled what their customer base wants to be able to rent and how much they have to hold to satisfy core demand plus a small safety margin.

This is often a source of confusion and, I would say, error amongst non-logistics professionals, including many in the rental industry. There is often an assumption that the best service will be supplied by being physically close to the customer, which tends to then be interpreted as lots of relatively small – in fleet terms – depots.

The truth is, of course, that even in tool hire 80% plus of business is done on a delivered, rather than collect, basis and so the customer has no idea, and even less interest, in where the equipment is delivered from.

The goal, as every significant retailer has discovered, is to find the optimum balance between holding inventory close enough to the customer to be able to react quickly, but not to the extreme of having a warehouse attached to every single “shop”.

The impacts of getting network configuration wrong are, in my view, what allows space for the local independent operator to continue to thrive.

These smaller companies tend to be expert at getting exactly the right volume and mix of fleet for their local customer base and, because they’re not obsessed with their “national network” they consequently end up with much more effective operations than the neighbouring local depot of the national operator who never has quite enough of the right stuff in stock.

Once the depot operation is set up effectively (not too small, not too far from the customer base it is trying to serve) the challenge of running effective transport operations is next on the list, as this is typically the biggest area of truly variable cost for rental businesses.

I think the industry has taken tremendous strides in this area over the last few years. It is much less common now to see trucks leaving full in the morning and returning empty, followed by leaving empty in the afternoon and returning full. The key area of cost optimisation is being able to combine delivery loads and link these to collections waiting to be made so that vehicles are never run empty.

I think there is still a lot to be done with rental company networks in terms of scale and efficiency and this will continue to be a focus over the coming years.

It may even be that we see third party logistics operators coming in to run some transport activities for rental companies although, even working for a logistics operator, it is hard to see how they can bring a lot of added value to the operation of specialised transport equipment across large numbers of locations.

In any event, we remain a logistics centred industry, and we need to strive to get better and better at it.

The author: Kevin is former CEO of Lavendon Group plc and former Divisional Chairman of Travis Perkins plc. He is currently Managing Director of Yusen Logistics UK Ltd, non-executive Chairman of Horizon Platforms Ltd , non-executive director at Ramirent Oyj and non-executive director of the Freight Transport Association. To comment on these articles please email: IRNfeedback@khl.com