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THE HYDRA. HEADED DISTRIBUTION MONSTER

continued from page 37

influence of capital costs and transportation costs in international distribution systems". He underlined that decisive factors in designing a distribution system of goods at regional, national or international levels were (a) minimum cost, (b) to increase profits by satisfactorily supplying customers. These two points aimed in opposite directions, for the higher the distribution costs, the better the consumer could be served, and vice versa. Thus it was a real problem of optimization.

Goods distribution involved problems of administration storage and transport, said Dr Miebach. The following questions should be answered: 1. How much centralization? The stocks could be stored in a large centralized warehouse, or in small decentralized storage units close to the customer. Multi-stage dispatch systems (supplying decentralized warehouses from a central reserve warehouse) could also be used.

2. Warehouse location? Central warehouses could be built close to the place of production or near the customer. With international distribution the choice could be country A or country B. The selection of the most suitable location for a warehouse had a marked effect on transport costs.

3. Dispatch methods and routes? The transport choice could rest between rail, ship, air or lorry — or a combination of these. The firm could chose to use its own transport facilities or to send goods through forwarding agents. Transport costs were strongly influenced by transport routes and the supply cycle.

4. Optimums stocks for individual warehouses?; large warehouses meant a high degree of availability for delivery and thus an increase in profitability; but the capital tied up in warehouse stocks increased costs and reduced the liquid resources of the business. 5: Control methods? It was possible to have a large number of stages in the transferring and processing of information. Fast transfer of data from cutomers to the distribution area aided speed of customer service.

6. Legal form? Marketing companies could become independent, could have headquarters at home or abroad, could function as a subsidiary company or as an independent commercial agency. Administration costs, profit taxes and cutoms duties were dependent on this.

Dr Miebach drew attention to different types of costs involved in a distribution system. Transport costs could include freight costs, write-offs, maintenance, staff expenses for own transport, etc. The cost of capital tied up in the warehouse stocks, the cost of the store-in and withdrawal, and of the storage itself — depreciation of warehouse equipment and wages and salaries had to be borne in mind. Packing costs, taxes on assets and profits, customs duties, administrative costs of data processing, "legal form" costs and the cost of monetary dealings were relevant factors.

Profits, on the other hand, could be increased by greater promptness of delivery, high customer service standards and increased turnover by means of advertising, product quality and price policy. People were studying the effect on turnover of supplying customers daily, or every second, third or fourth day? What did it cost to increase the grade of service by 2, 3 or 4 per cent?

Trends identified by Dr Miebach included the following points:—

Large central warehousing units with cost reduction by means of modern storage techniques; tendency for central warehouses to be independently administered (as regards legal entity); distribution within a radius of up to 200-250km favours road transport. Lorry leasing is of special interest; for over 250km journeys, the so-called "broken-lorry" transport system is interesting. (Goods are driven in large transport units to the distribution points from where they are transported by smaller trucks — there is no intermediate storage at these distribution points); electronic data processing is called for in large distribution systems — data transfer by tele-processing to maintain stock levels and control warehouse procedures. Because of the varying role of customs duties and differing tax levels no uniform trend could be discerned as regards the legal form of distribution organizations.

Mr A. Chilton (General Foods Ltd) and Mr B. Tomell (AB Scanfreight) joined Drs Borchers and Miebach in the discussion period.

Mr J. Arbuthnott (Cory Cargo Services) asked what was the logic behind varying length delivery cycles? Mr Chilton said that too frequent a delivery service was costly both from the documentation and transport aspect. General Foods in England dealt with 25,000 delivery points and service levels had to meet customer requirements without losing sight of the cost aspect. Regularity was the most important factor.

Dr Miebach said basic system factors changed when new parameters were introduced. Basic planning was derived from sales figures but these changed with levels of service. It was essential for O.R. "models" to be dynamic to cater for revised inputs of data.

Dr Borchers agreed about inter-relationships of service levels with sales. He suggested a study of the "through-put" perhaps expressed in sales figures. If these were SlOOm per year, consider the effect of doubling this. Growth for a five-year period must be built into a distribution plan.

Mr G. Buchanan (Canadian National Railways) asked Dr Borchers to expand about the great scope for distribution economies as compared with production economies. Dr Borchers said that barring some true "breakthrough" in means of production there was little prospect of marked reduction in unit costs of manufactured goods. In contrast, distribution offered immense scope for savings if effective integration of goods movement was achieved. .

"The multitude of organizational units both within and outside large manufacturing companies forms a chain along which products move. Each element looks at its own narrow area of responsibility and minimizes its costs," said Dr Borchers. "It is my thesis that when you add up all. these separate costs you do not get the minimum

total cost." He mentioned a company in Europe where inventory costs amounted to some $50m in warehouses and another $50m represented the value of stocks at dealers. Yet the company was only spending $6m a year on transport. Inventory/transport costs must be looked at jointly, not separately.

Mr I. M. Churcher (North Sea Ferries) asked Mr Chilton how liaison between users and providers of transport services could best be achieved to help "iron outpeaks and troughs of demand?

Mr Chilton said he looked upon his own transport contractors as part of the General Foods organization. They were shown round the plant and he and his distribution staff met the contractors regularly. Such relationships were vital for efficiency.

Mr Churcher came back: "Your hauliers are exposed to pressures — port congestion or strikes, trade unions, political interference, etc. How best can we bring the different factors together to help improve customer service?"

Mr Chilton said the question posed a wonderful challenge. He felt the unions in Britain, the RHA and the Food Manufacturers' Federation, etc, had got the message about efficiency. Conferences bringing interested parties together were of much value.

Mr S. Purvis (Davies and Robson) brought the panel down to earth, causing some wizzical looks to be exchanged, when he asked what were the main differences between :ransport in the United States or Great Britain and the Common Market?

Dr Borchers said it was often overlooked hat in the Common Market customs duties lad disappeared "on paper" but for practical nirposes there were many formidable kstacles to free movement. He quoted an :xample in electrical goods where there was maze of regulations, differing in each :ountry. Some countries required a minimum if safety stocks to be held in a local wareiouse though from the distribution aspect it vould be much cheaper to serve the whole 2ommon Market from a central point.

Dr Miebach suggested that once an iperator was established in a country there vere many operational similarities. The probnns arose at borders and in the costly iecessity of having warehouses in each of everal neighbouring countries.

Mr B. Kelleher (Alltransport Ltd) asked vhether there would be a drop in intermediate iarehousing? His firm ran services from arious points in England and transit times fere favourable. If stocks of goods had to be eld in each country of the Market who 'mild be responsible for warehousing — the lanufacturers or the providers of through-ansport services?

Dr Miebach said his firm had studied the apply of spare parts in the EEC. Speed of elivery was vital for customers could require elivery in half an hour. So distribution from central point was out of the question.

'reight forwarders Dr Borchers saw real opportunities for a tight forwarder who could offer guaranteed elivery times from factory to customer. He !It a forwarder should be able to do better Ian delivery by own-account vehicles. But forwarders were reluctant to guarantee 90 per cent service efficiency. The manufacturer wanted a single source of responsibility — "he doesn't want to go down the chain looking for the fault!"

When Mr D. W. Bergeren spoke on "Distribution by road" he was able to boast, on behalf of the Dutch RHA, that merchandise within the Netherlands was distributed in the ratio of 76 per cent by lorry, 18.6 per cent by water and 15.3 per cent by rail. On the basis of ton per km output, lorry transport productivity was higher than rail and water combined.

But, said Mr Bergeren, the bulk of international transport to and from the Netherlands was carried by inland waterways. In 1963 7.1 per cent of the international transportation measured by weight was carried by road. In 1970 the figure rose to 11 per cent, thanks in part to foreign road transport. This represented one-fifth of the entire transport crossing the frontier to and from the Netherlands. In 1963 the percentage was 15.7 per cent which clearly indicated the increasing trend towards road transport in preference to rail. The latter had dropped from 13 per cent in 1963 to a current 8 per cent.

The high labour costs of road transport were of great concern. On average, said the speaker, 70-75 per cent of transport costs were attributed to time rather than distance covered. Three-quarters of this percentage was absorbed by wages, so that roughly half of the total transport costs were labour charges, and this trend was increasing.

Such cost increases could only be counteracted by increasing the lorry load per driver and vehicle, but external factors beyond the control of road hauliers limited the potential. They could improve productivity by increased use of mechanization for loading and off-loading and by increasingly specialized services but increased loading capacity of lorries and trailers would reduce the transport cost per ton/km. Increased carrier weight and length increased payload. The present Common Market negotiations about weights and measures for road transport was of major importance for road hauliers and for the entire transport industry. An increase of authorized total tonnage to 45 tons as suggested to IRU might counteract the cost increases.

Mr Bergerens said the proposed minimum of 8 hp per ton combined vehicle weight should be judged with caution in view of the resulting higher operational cost. He was concerned with the varying standards and conditions for drivers' hours in Common Market countries. The maximum distance of 450km permissible for one driver within his authorized driving time was a serious handicap so far as labour output was concerned.

He concluded that most haulage costs would continue to rise and productivity increases would not keep pace with cost increases as a result of regulations covering labour and transport. Despite this, the volume of road haulage was likely to increase owing to its adaptability to meet shippers'demands at short notice.

During the ensuing discussion Dr Miebach revealed something of the German rail plans to meet road competition. They were based on a 5-7 year research programme to introduce high-speed freight trains. A number of German freight forwarders were collaborating with the marketing projections, the theory being that 300 kph trains could compete with road transport especially on north/south routes such as Hamburg/Munich.

Because of the new equipment envisaged it would not be possible to integrate the highspeed services with existing rail services. The "trainswould "float" on special tracks, under the influence of a magnetic field. The wagons would be at least 6km wide, sufficient to accommodate two lorries side by side on each wagon.

Apart from this ambitious project, not yet financed, Dr Miebach said there was another plan to develop a new rail grid in 100 km "squares". Point-to-point container trains would be arranged to arrive at intersections simultaneously with facilities for rapid offloading or switching of containers. In a reply to another questioner, Dr Miebach said the reason for this new interest in railway technology was environmental and political.

Speaking on "Distribution by rail" Mr J. A. Ross, chairman of Containerway Europe Ltd, showed slides illustrating that the break-even point between road and rail was in the 100-200-mile range except when vehicle capacity was considered. The breakeven point for the cost of 100 cu ft capacity movements extended to 300-400 miles — which explained the use of road haulage for certain commodities.

Freightliner pressure Mr Ross said the Continental railways had not shown a great welcome to containerization but were being compelled to convert to the new system under the pressure of the British Freightliner system and the example of the short sea operators.

Mr I. M. Churcher spoke on: -The need for concentrated throughput by co-operation with the user". His theme was that more regular and intelligent co-operation between users and suppliers of shipping services would maximize traffic flows, reduce cost of movements through ports and lead to faster services and higher profits to all concerned. The lower rates charged for longer vehicle units on roll-on/roll-off vessels were explained by the reduced labour and time involved in their loading.

To establish future service requirements continuous dialogue and contact between all parties was necessary, possibly via Chambers of Commerce or Shippers Councils.

Mr Churcher urged governments to examine carefully to whom they issued international road haulage licences "as cowboys and men of less responsibility than required are in possession of these valuable and vital documents". He referred to a through-carrier who could not get a licence for Italy for a trailer passing through France and sub-contracted it to a said-tobe reliable French haulier, who in turn subcontracted it. When the outfit had not arrived at destination when it should have the trailer was found in a small village waiting while the sub-contractor was doing jobs for himself in the locality. The sub-sub-contractor had the international licence, but did not accept the responsibility called for in the regulations.