Centralising procurement processes allows DHL to reduce product purchasing and supplier management costs
DHL recently decided to simplify its procurement processes and has chosen to work with a limited number of certified suppliers. Erik Brager, Head of Cluster Production Equipment and Air Fleet at DHL Procurement Europe, outlines the benefits of this approach.
What is the current strategy of DHL logistics?
Erik Brager: ICT is of growing importance to DHL, as it is for all distribution and transport companies for that matter. Given the complexities behind the online ordering, tracking and tracing of parcels, doing this without IT is simply unimaginable. Our customers constantly require better and faster information about where their parcels are located and we rely on a robust tracking and tracing system to deliver this in the most accurate way possible. In effect, this means physical transport flows and virtual IT-flows need to be synchronised at all levels.
Added to these challenges, consolidation is a worldwide trend in the transport and distribution industry which is resulting in the need for increased business flexibility and improved service quality. Our logistics strategy is focused on streamlining our business in all European countries to work with fewer suppliers. To achieve this, starting with Procurement, we are developing partnerships with preferred suppliers capable of helping us across different geographical markets. For instance in the past, each country where DHL is active worked with a different system integrator, each operating independently from each other. Now, Zetes has been chosen as one of the two preferred preferred suppliers who work across each of the fifteen EMEA countries where Zetes operates.
What was the trigger behind opting for a limited number of preferred partners?
Erik Brager: The main objective is to reduce both direct and indirect costs. Direct costs are obvious: if you purchase large amounts of the same product at the same time, the price will drop. However, a lot of companies that operate on an international scale tend to forget that the procurement process involves a lot of indirect costs also. If the procurement process is decentralised, the inevitable duplication of efforts during initial selection of suppliers and ongoing relationship management of suppliers (monitoring creditworthiness, managing service level agreements and payments etc) is very time consuming. A centralised process with preferred suppliers is much more cost-efficient.
How do you work with your subsidiaries to implement such projects
Erik Brager: Of great importance to DHL when centralising this process, is to preserve the local approach taken by each of the international DHL branches. A partner able to offer an extended geographical presence is therefore particularly valuable. By taking this approach, we don’t neglect the couleur locale. Centralised and worldwide decisions for auto-ID implementations can be taken, but can be filled-in by DHL and Zetes subsidiaries locally in order to gain more local involvement and acceptance. This also reduces the pressure on our people locally because they no longer need to select suppliers and managing supplier relations is handled centrally.
DHL’s requirements for Auto-ID solutions are very wide, both in terms of technology and application type. What were the criteria behind the selection of your two providers?
Erik Brager: DHL has worldwide contracts for identifying, printing, labeling, picking, tracking and tracing of parcels and other Auto-ID applications with large suppliers such as ZEBRA Technologies, DataLogic and Motorola. Exceptionally important for DHL was to have partners with wide-ranging experience and previous knowledge of deploying an integrated Auto-ID approach with our existing hardware suppliers in numerous vertical markets.
What are the challenges in the distribution and transport industry? Any pitfalls and points of interest?
Erik Brager: On a strategic level I notice that besides the need for uniformity and standardisation, there is a growing importance to keep one’s finger on the pulse with the latest technologies to enrich and further optimise DHL’s market offering. During supplier evaluations, Zetes scored well for this too because they are always involved with developing innovative new solutions using the latest proven technologies like RFID, Voice and Vision Technology.
For more information on DHL, read the case study.