Warehousing as a stand-alone business modelby Faysal Khan on 2012-05-14 02:19:09
Over the past 22 odd years, from Shipping to logistics and supply chain management, one thing has become very apparent to me at least when looking at the concept of ‘Value Add’ in this sector.
It is the fact that downstream logistics very rarely come before the upstream element. That is to say, Warehousing is nearly always the result of a value added service for businesses such as Freight Forwarding, Shipping, Manufacturing or Manufacturer’s Representatives, Indentors or In-House requirement, i.e. a group of companies who individually deal in volumes that would justify the creation of an independent warehouse service provider as one more entity in the group.
In countries where raw materials are harvested, it is natural to have a ‘holding area’ for cargo to be stockpiled before being shipped and this is one of the few exceptions where a warehouse is created without having an active client base feeding business to it. Very rarely is it the other way around. In the UAE market in particular, one struggles to think of who put the cart before the horse and I suspect this is the same thing looking at the bigger picture, i.e. world-wide.
The question would probably never have occurred, had one not personally become involved in establishing a 3rd Party Warehouse in Dubai without having any base clients to start with. Operating without any one of the above mentioned support structures to feed the initial ‘wheels-up’ stage of the warehousing business is clearly not an easy task, trust me on that! With fairly high CAPEX and operating costs, the pressure is on to start filling the racks almost as soon as they are up. Hence, most companies hiring a ‘business development manager’ are basically saying “come over and bring your client base with you”. It is the unspoken criteria which dictates the pivotal decision to hire for a majority of HR managers. I have personally given several interviews in which the General Manager, after about 20 minutes of general discussion about this and that asked me point blank how many cubic meters of freight was I able to bring with me, were I to get the job!
In a group company environment, one assumes that you have the support of one or more companies within that group who may be treated as ‘base’ or ‘start up’ clients. Several examples of this exist in the Dubai market with 3 prominent families leading the pack. By having access to ‘base’ clients, the newly formed logistics company can at least start it’s active life with the assurance of some business in its pocket allowing for operating costs to be partially met. Many such arrangements end up relying wholly on their group activities to sustain their total business model however it is debatable whether this is or is not a healthy situation to be in. Some of the reasons include:
1.Business Development complacency in the part of the Logistics Service Provider, knowing full well that they would get the business as part of the group anyway.
2.Lack of benefit arising from insufficient KPI’s and commensurate improvements brought on by a natural sense of fair competition since they are too comfortable in the knowledge that the business really isn’t going anywhere else.
3.Being made to offer rates below market levels as a precondition to doing business.
4.Favours being extended which are non-billable from time to time.
5.Sacrificing the intake of external, better paying customers.
It is a fair assumption that if a good service is not provided, group company or not, they will find alternate solutions whilst justifying their decision to the ultimate owners who will most often not object. We have had several such clients over the years.
Coming back to the concept of establishing and running a 3rd Party Warehouse business without the parallel backing of any one function such as those mentioned in the start of this blog, let’s look at some of the problems facing a company who has, despite the inherent hurdles, still decided to go ahead with the concept. To make it even more complex, let’s assume we want to achieve this on a shoestring budget where operating costs are concerned – more to the point, with a limited sales team.
I think one can safely assume that where operations is associated with a warehouse function and marketing is responsible for the external perception of the company, so sales is inextricably linked to obtaining fresh business. Using the aforementioned parameters, it would be logical for the operators to ensure that maximum outreach is obtained by soliciting relevant customers rather than all and sundry. This tedious task is not only time consuming but can actually be counter-productive in that it can be a very disheartening experience.
My challenge was how to sell a service with a very limited sales team – or in this case, one person! Conventional wisdom would state that ‘maximum feet on the ground’ leads to more rounded contact with the market and thus a higher volume of enquiries which can be then translated into business. In the event, we concentrated on using market contacts such as freight forwarders and used their sales teams and/or customer databases to do the separation of wheat from chaff for us. By initially keeping our rates competitive, offering a more personalized service through contact at management level and going the extra mile in matters of customer service & inventory reporting among others, we managed to enter win/win relationships with freight forwarders whilst gradually establishing our own client base. That was six years ago.
Invaluable was the surgical use of advertising and having a strategy of transparency and straightforwardness which helped in cementing relationships. It is an interesting indictment of the positive response by the Dubai market that an honest and open relationship with a warehousing service provider can work! All information is shared, whether good or bad. Rates and terms are kept in line with agreements. Invoices raised show a clear and simple breakdown of the charges and if these are in any way confusing to the customer, a strident effort is made to clarify these.
Accidents are taken ownership of by us and Damages are reporting using photographic evidence to the customer immediately upon arrival of freight. An interesting element of building successful relationships has been not to over commit in our ability to perform services. We have maintained a policy of ‘know your limits and work within them’. In the same way, outsourced operations are clearly mentioned from the onset – heavy lifts, carnage, customs brokerage and heavy transportation is shown as it is, i.e. external to our core competencies. Last but not the least, we kept the internal physical structure of the warehouse flexible in such a manner, that over height pallets may be accepted (1.8m), project cargo may be accepted (1250 sq. meter of open space within the shed) and a climate controlled Self Storage facility is also available for more personalized storage needs.
Far from what one could call a mega success, Storall has been fueled by a combination of manageable size, creative sales and the will to make it succeed.