I interviewed Mark Burgess who discussed Inbound Supply Chain in the Middle East.
Can you give a brief background of yourself?
Well, I'm a 55 years and a “lifer” in operations and supply chain. I've never really done anything else since leaving school at 16. My first role was in the purchasing department of a public authority in the UK, I then moved into the stock control department before the company decided I should be an accountant. So I they sent me off to study at college but I quickly realized this vocation was not for me. I had an opportunity to play guitar for a living so I left the business before qualification and did this for a few months whilst I tried to figure out what to do next.
I ended up taking a job back in supply chain when I met my first wife and managed to get a job in production planning and procurement. I think I was fortunate enough to be able to get a job at that point because being a musician hardly qualifies you for the 9-5 working world in the opinion of many. Luckily for me my new boss wanted to learn play guitar so I guess he was a kindred spirit and he figured on cheap lessons ha-ha
I spent 1985 working in the office equipment industry in a company who were an early adopter of MRP1. After a year, another local company also in the same industry were hiring and looking to implement A DEC MRP 2 system and they needed people with experience to help them do it. I guess I sold myself well at the interview and had to learn quickly. I used to go to bed reading manuals and anything else I could get my hands on about MRP2 and operations planning. The business was a terrific grounding for methe DEC system was excellent especially in terms of production planning, method study, and production. I learnt a lot quickly. In whatever I have done since the knowledge from this time has become a constant reference point for me, irrespective of the systemused it could be Oracle or SAP etc. they all have their own foibles, but the basis and logic is the same as then. Most people who have been around a while understand there is very little that is new.
I've worked in supply chain in Food, Office equipment, FMCG (with many types of manufacturing within that) and Healthcare, So I've pretty much run the gauntlet of many of the different disciplines within supply chain, certainly on the manufacturing and logistics side.
Can you talk about some of the challenges that you faced within food supply chain in the Middle East?
Supply chain in the Middle East is evolving because the Middle East is changing rapidly. I first went there around eight years ago as a supply chain and purchasing manager for a bakery business called Western Bakeries who are owned by Almarai who are the biggest vertically integrated Dairy business in the world and the biggest food group in the MENA Region.
At that time 2009 supply chain really was in its infancy. It wasn't something that was well understood. I was very fortunate to with aUK nationality operations manager who understood what was required and recruited me and a CEO who gave me the authority to go ahead and do it. I had I previously worked as Supply chain director in the UK and as an internal supply chain and manufacturing consultant in a business that was split between manufacturing, and repacking but I had also worked for Manor Bakeries the Mr. Kipling / Cadbury leg of RHM foods. So I was able to effectively bring quite a lot of experience to the table.
The first thing that struck me was the quality of the staff in the Middle East. To be honest people quality was fairly poor at that point in time (its changed now) and there was not many who had the basic skills or understanding of supply chain. The business itself had world class equipment and systems but was not totally sure how to optimize them. The 1st requirement was a matter of really educating the business management to understand the systems they had bought and what they could do for the business. Only then could they progress in learning how to use them to enhance their operation and start to make a strong stable operational supply platform for the business.
Traditional regional supply chain back in 2009 was all about having high inventory to protect from stock outs, buying what was available, and when you ran out you would just buy more. Gaps in supply were not popular but commonplace. There is a further issue in Saudi Arabia where I was based in that flour is provided from government flour mills. This is because the government understood the importance of bread to the kingdom and its people and provides the flour at a subsidized rate to sell at a reasonable price. This, however, gives you no choice in the supplier due the cost of acquisition from elsewhere and provides you with another set of problems as quality of flour is inconsistent due to raw material availability.
This meant you needed good quality production managers or “Master bakers” (if you could get them) to adjust the mixes on plant. The Bills of Material, therefore, could be wildly inaccurate versus reality and the volume of expensive ingredients could be wildly understated as the tendency was always to do the cost roll up at the minimum cost with little waste in the bill.
Because of the poor skill sets and understanding inherent at the time, implementations of systems were rarely done well and there would be huge anomalies in the BOMS. When you compound that with implementations that were shall we say “done quickly “in a bid to prove “The quality of consultancy by showing speed”! Then you generate a cornucopia of problems.
So we had a scenario were we have a variable mix against a production standard from a badly written inaccurate BOM. If you couple that with a desire to keep anything other than production direct operatives to a minimum and no desire to bring in “computer users”.
Not being totally cognoscente of the situation but understanding the need for speed the implementation consultant will roll out extensive “Back Flushing” leading to inaccurate inventories that are never corrected until the annual stock count as only the “standard” is issued from the one location (that of a single warehouse(remember “speed is of the essence”). With this scenario, you get flawed purchasing plans (where they existed). After a while sorting out these issues within Bakery division I was promoted to run the whole of the Operational supply chain for the Bakery Dairy and Juice division of Almarai which at the time was 5 times the size of Bakery and had a similar set of problems that needed to be corrected. This takes time because you have to go through the loops again of education of why it's important to have default consumption locations at the lines themselves and why aggregate numbers put through on a weekly basis for consumption is inadequate.There is good understanding of spreadsheets and these are often overused to the point the mainframe systems are used as typewriters. This “reality” is often a hard sell especially when the company believes they are doing really well with their systems development but a few presentations later on reality and support is usually forthcoming from executive level who are always keen to see results improve.
A lot of work, therefore, had to be done in order to reduce some of these internal issues. Over time knowledge was built and investment made in technical, NPD, people and systems development to cope and eliminate the problems. No company is an island and that is especially true in this region as you then have to face external issues of supply chain into you.
The middle east I think it is fair to say has been slow to develop a customer service ethic. Other factors are important like pricing which can be very keenly negotiated. Margin is everything. In times of prosperity, you do not have to be amazingly good to make money. I do not believe that even now many companies are heavily enough into supply chain to understand its potential positive impact on cost of sales. Supply chain in the region is governed by overstocking at all levels. This is because heavy inventories are still held to guard against poor service from suppliers. It may not necessarily be the supplier you’re directly dealing with but perhaps the supplier that provides to them. As you drift further down the food chain the supply chain is less sophisticated and the risk, therefore, greater of stock out outs with a ripple effect taking place.
This is not limited to raw materials if you take for instance packaging many companies do not measure vendor performance. Pricing is still seen as the key metric. The cost of non-delivery is therefore mitigated by holding high stock in order to guard against supply issues. I think its fair to say that inventories in Europe are significantly lower and stock turns will continue to be higher than in the middle east whilst the supply chain revolution develops.
For me It’s all about building that service ethic. I chaired only last year a supply chain conference and one of the questions I put to the floor was “how many of you actually measure the service from your suppliers or your own customer service. Of nearly one hundred delegates less than four claimed they did and two of them did it by sending out customer satisfaction surveys.
I would say for sure, that's the biggest challenge, the fact that customer service as a concept is in its infancy and people invariably make up for that by holding onto stocks and see it as being a prerequisite to doing business. I do not see that changing in the short term unless the market leaders take so much of the market that that forces change with the competitive set.
And how is the inbound supply chain in the Middle East changing today? What changes are taking place?
I think the Middle East companies tend to fall these days into two distinct groups of companies. Those that really, really work hard at customer service and those that don't and are happy to put up with the noise and cost that comes from having a weak supply chain. Over the last year or so with the oil price dropping there is more of a tendency to want to be in the former not a latter
I was lucky enough to work for one of the early adopters of this service culture in Almarai and can attest to the fact they are absolutely customer orientated. That's why the company has grown to the level it has because they that they really believe in achieving the magical 99.% plus into their sales division.
They’re used to be every Sunday morning. A general managers meeting with the CEO to present the service from the previous week (yes people had to work through the weekends to get the numbers) and there was a grand inquisition if the number fellow below the 99% target.
The companies that have actually taken “service” on board are the companies that really, really prospered out in the Middle East. They really have become much more profitable because they deliver, and they do what they say they're going to do.
Unfortunately, some companies have not followed suit yet and are content with competing for 2nd place. Only when this changes will supply chain thrive. One of the interesting things in the middle east is the fact that the same suppliers will have different service ethics for different customers, this is not always based on profitability but usually based on volume. This is because either overhead recovery is important or more likely based on commission levels of account managers.
The typical GCC customer is demanding of respect and of service especially at the consumer front end. There is not the percentage market share yet that Europe has with National accounts for grocery. Bakalas (which are local shops) are still the mainstay of peoples shopping. However, market share in national accounts is growing strongly every year as people look more to the “one stop shop solution” and are offered huge shopping Malls driven by people like Alshaya retail group providing European and and USA brands and plenty of and most importantly plenty of “out of home” dining opportunities which is really important in the regional shopper.
As this trend continues and the buying power of the National accounts like Panda, Othaim, Carrefour etc.increase they will look to gain a more competitive pricing structure and take cost out. This in turn will put even more pressure on the suppliers that sell to them and apply pressure on their suppliers to reduce cost other than the regions typical price down system of negotiation which is well understood and easily digestible by all. This I think will be a big enabler for the growth of supply chain as people look to reduce waste and cost to serve in response to the demands of the growing national accounts.
The people challenges out there are interesting. There's a huge push onthe employment of nationals and rightly so. The oil driven economy the governments recognize is in decline and there are active plans to generate new investment throughout the whole of the GCC. I believe because Supply chain is still a relatively new profession the demand for GCC supply chain professionals is higher than supply. Companies either have a choice to bring expatriate managers in or put local people in the jobs who in some cases are not yet ready due to the fact Supply chain as we know it has not been in existence that long and the level of adoption is very mixed and varied.
The problem supply chain has with many of the business leaders is they do not yet fully understand the concept of supply chain efficiency and perhaps more so capability and its direct relationship to cost. They still believe supply chain is about purchasing price downs and running a warehouse. Local hires will get there for sure in terms of ability indeed I have recently met some really strong gifted nationals from the GCC, but demand for them outstrips supply. Ultimately I think this is one of the biggest issues facing the region in terms of short-term progress. People moving to the region as supply chain leaders need to understand they are guests in the region and have an obligation to train the next generation of local leaders.
There's a big issue at the moment in the region in that there is not an awful lot of third party Logistics and Transport companies that have actually operated at the very highest levels. Actually, there's not that many third party logistics people here. There’s certainly opportunity for that.Some of the big companies out there actually still run their own supply chain and do it very well. I would say that quality logistics in the Middle East is a very, very difficult thing to achieve and here’s why. The areas of population are dense and widespread which means heavy investment lots of miles on the clock and time.
It’s is a huge issue for the Middle East, particularly in products which are vulnerable to shelf-life issues. You have areas that going to drop down to a minimum of only about 16 degrees and other parts of the region you're going to freezing in the winter, you've got completely different requirements from one side to the other. The same with high humidity in places like Dubai and Jeddah so there's an issue with product sweating and mould growth conversely there are a different set of challenges are in other regions it's very, very, dry and at times can be like having a hairdryer blowing in your face. So there are different challenges for the logistics operations out in the Middle East and this makes third party less attractive than most.
In summary, the region for supply chain opportunity is thriving and will continue to do so for a good while. Yes, the landscape is changing and the pace of it may not be in line with some other areas. But those that do this well and embrace service excellence are achieving great growth and profits The others are just going to have to catch up.
About Mark Burgess
Director of Supply Chain / Manufacturing