Tips for managing a Russian supply chain – Part three: Quality warehousing
In the third and final part of the series on managing Russian supply chains, Pascal focusses on the myth that quality warehousing space in Russia is either completely unavailable or extremely expensive.
Warehouse is certainly the third part of the supply chain trilogy structure, vital to a smooth and efficient operation. However, I won’t stress enough the overall “glue” needed for each of these pillars to work correctly. By “glue”, I mean the HR & talent management dimension. So whilst this article won’t cover this specifically, be mindful that it is, on its own, a critical element that might actually enable or disable all the work done to establish an efficient supply chain.
Whichever 3PL provider you select, the quality and location of your warehouse – or the speed and reliability of your customs clearance broker – Supply chain is more than ever a people business!
Suitable warehousing is a major issue in Russia. Compared to Western Europe, Russian warehouses are expensive and limited in availability. Selecting the wrong warehouse solution can cause you to suffer from the usual plagues: uneven flooring, exorbitant energy and utility bills, unmanageable maintenance costs, unsuitable process flows in the building, unacceptable error rate, low health and safety performance, high theft losses and obviously unsatisfactory performance & costs. You will also suffer the headache of totally unreliable and additional trucking times, difficulties to recruit decent warehouse workforce and additional costs to re-route inbound & outbound shipments to your location.
Once again, the best solution resides in good planning. Here are some tips to consider when setting up warehousing:
1. Do you need to just cover the Moscow and St Petersburg area, or do you also want to deliver to the regions?
This simple choice will influence greatly your solution. If you go for a central location, the service level in the area will be pretty good. On the flipside, your customers in Rostov, Novosibirsk, Yekaterinburg or Vladivostok, for example, will not be well served at all.
Starting centrally first (Moscow or St Petersburg) is a reasonable choice which will allow you to get the overall backbone of the supply chain sorted before getting into the delicacies of the regions deliveries. However, if you plan to extend into the regions in the future, then plan for a warehouse building and location that is suitable for a potential future extension to these regions.
If, from day one, you need a full coverage, then look for a suitable supplier who has the required footprint or plan to invest with you in the regions or, if you want to go on your own, plan for a very long gestation period: finding a suitable place in each and every key place will be a tedious and costly exercise.
2. Whether you go for a central location or multiple locations, it is a matter of fact that long term forecasting will be a tricky issue and even trickier to plan will be the growth pattern.
You will struggle to set firm volume/space forecasting for a long term period such as three to five years (the minimal term of a 3PL contract in Russia). The solution here is to seek a provider who can grow with you. Here, the trick will be, most probably, to go for a multi-clients facility that offers the flexibility to adapt itself a bit better to your space variations than a standalone facility.
A multi-client facility will also enable your provider to adapt itself more easily to your peaks and troughs and will also share some of the facility fixed costs over multiple clients (management, security, utilities, maintenance, etc).
3. Forget to build your own facility. A better option is to choose a developer who has track record and presence in the region you selected, who can show you some of their past logistics realisations and also demonstrate to you his reliability in terms of building lead time.
Numerous broker and developer exits, from experience some are fantastic and very professional…some are to avoid. However whoever build it, you’ll have to install racks, bins and potentially automation. So do not forget that most of these equipment can be found locally cheaper than in Western Europe and these will avoid circa 15% import tax. When looking for a local supplier for these equipment, share with him the specifications that you have for your racks & bins otherwise you might be surprised about what you’ll received: it’ll be either over or under engineered!
4. You’ll obviously have to agree with the developer on the specification of the building. If you take your project sufficiently in advance, you’ll able to have him change easily and freely the building specs, size and office layout.
Ensure your building has all of the required functionality (height, truck yard, dock doors, office space, access to water, access to utilities, fire brigade proximity), but also double check small details such as floor & roof strengths (that will avoid your racks to collapse or your roof to fall down due to snow weight).
Thermal isolation is a must if you want to stay in control of your energy bill and certainly check that it’s got the right sized generating sets power capacity. Electricity supply could be capricious during peaks so better to plan for a genset that can support ALL of your electricity need at a given point in time. If sprinklers are required by your insurance company, ensure they are in line with the required specifications.
5. Permits and approvals are tedious and slow to obtain so ensure that you plan your project well in advance or that your developer has all of the required ones. If you go for a building that is vacant, ensure permits for your product / activity are available. As already explained, a provider and or developer able to demonstrate experience and track record should also be preferred to one that has nothing to show you.
6. Location is the usual question needing to be addressed function of your supply chain profile: proximity to airport, ports, motorway or railway node (MKAD for Moscow) is key to consider. Small detail to consider too is future development and road works. These could take forever and usually impact the traffic: giant traffic jam, closed roads, truck traffic ban during the night, time restriction, etc…Developers are the best informed and will be able advise. Suitable workforce availability is also an area to explore, especially in the region or the outskirt of Moscow.
7. Security. Best way to facilitate that is to actually select a building which is located in a logistics park. Initial security for the business park will be provided so you’ll only have to deal with the internal security. Here metal detectors, guards (from well-known and respected companies), video surveillance and potentially fences are required.
8. All of these features have a cost and that is probably explaining partly why space is expensive. The crude reality is that the demand for space is well above the offer for space and driving higher prices. A way to mitigate is certainly to start to negotiate with the developer are early as possible and have multiple real estate projects in competition, otherwise if your developer understand that you are sat on the fence, you won’t have any leverage.
The reality is also that a given point in time, there is probably no more than 4 to 5 Logistics Park in development: this limited competition means that everyone will offer you the same buildings and location, even more in the region! (approx. 75% of the Class warehouse are located in Moscow & St Pete) It also means that the faster to take a decision will get the space so socialise the idea with your management: at a given negotiation tipping point, swift decision will be required to either buy / rent your building or appoint your 3PL otherwise you might see it rented / sold to someone else. LOI will be nice but to be honest only money will lock a building for you. Be prepared for fast action again.
Time to conclude this series of three articles. While the situation is complex and certainly not the easiest, I am sure that by now you certainly feel more relaxed and may be start to share my view that the situation is improving and it is time to invest to supply this great promising market. As promised my top 10 key tips:
- Ample time, strict planning and good project management are key
- Partner selection, as usual, will be instrumental to success: cheapest is usually not the best. Give yourselves the time to socialise with him and ensure you share similar values & approach.
- Russia is a complex country with values that can derives from yours : don’t allow for compromise but set clear deliverables & KPI with your partner from day 1
- Meticulous customs clearance documents will make your life easier… so quality data is the name of the game here.
- Local management is not necessarily wonderful so pick the best possible individual and have him / her chaperoned by a solid project manager who knows the ins and outs of the projects and your company. Rookies are banned.
- Whatever the quality of your project team and your partners, be prepared for project “crisis” such as partner selection day, building commitment day or first customs clearance. These are normal: don’t panic
- Ensure your management and decision maker are kept updated, fully committed and engaged. They must fully understand that their support and swift decision will be required at some points….otherwise it will jeopardize your / their project.
- If you work in a matrix organisation, also ensure stake holders, influencers and process owners / users are all aligned. Pursuing conflicting objectives is a recipe for failure
- Be prepared to spend the necessary time in the country. A detail: go for a 1 year business visa at least.
- Once again: PLAN IN ADVANCE. Russia is a country where rush will only generate disasters.
Well this is the end of this series of article and I must thank your patience for having read my tedious writing. To the risk of having you smiling, let me tell you I have had to stay synthetic and had to ignore lot more issues and specific points to consider. After reading these, if you have questions or simply want to exchange with me a few ideas, do not hesitate to contact me at: email@example.com
Free supply chain webinar
Specifically, the webinar focused on:
- Top tips about logistics dynamics with proven solutions from Neovia Logistics and STS Logistics
- Understanding the importance of local partners to help businesses open the door to the regions
- Tried and tested success strategies which have helped optimise logistics accelerate growth
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