In November, DHL Supply Chain revealed it had beaten off rival bids to renew a six-year fuel distribution contract with the UK’s fourth largest supermarket, Morrisons – a deal that extends their overall working relationship to 12 years.
But this time around, both parties wanted to adopt a fresh attitude to the partnership, with a focus on continuous improvement rather than simply operational efficiency for the duration of the contract.
“We had a business on both sides totally driven by service, which is fundamentally important, but the cost followed the service, rather than the cost being balanced against the service where appropriate, which is more fitting for the market we are in now," says Stuart Carlyon, DHL Supply Chain’s vice president, fuels and chemicals. "Therefore there is a danger that there could be an element of complacency with both parties commercially because it’s service, service, service. Culturally, the big thing we are trying to achieve with our Morrisons partnership is a process of continuous improvement.”
This view is echoed by Mark Todd, director of petrol at Morrisions, who believes the structure of the contract now pushes both parties to continually challenge each other to seek ways to add value to the operation. “My emphasis at the time of renewing the contract was that we hadn’t always delivered the balance of commitments within the contract," he says. "While operationally excellent, we both needed to make improvements on the business side because of the challenging nature of our industry. But we had the mechanisms in the contract to manage these things together."
Beating its rivals
The competitive tender process for the contract - which includes fuel distribution to a network of 335 Morrisions forecourts and RDCs across the UK - was a tough one, says Todd, with DHL given no special consideration for being the incumbent. He adds that as bidding for such a contract can be an expensive process for operators, Morrisons very quickly eliminated the majority of companies that “clearly weren’t going to win the business” and whittled it down to three frontrunners.
Carlyon adds that the process was also unusual due to Morrisons itself being an in-house operator. “A lot of what we do is providing a service to people who don’t own trucks. Here, we are providing a service for a company that runs more trucks than my fuels and chemicals business does in total,” he says.
Indeed, Todd explains that he was able to tap into the technical resources available from Morrisons’ fleet management team, who are responsible for managing the supermarket’s 800-strong truck fleet, and obtain advice about vehicle technology, as well as run bidders’ scheduling proposals through in-house network planning tools to ensure their validity.
Tricky times
The partnership between Morrisions and DHL has been formed during a turbulent time in the fuels sector, with fuel usage declining year-on-year (20% in the past five years), traditional players - such as BP and Shell - shifting their focus away from refining in the UK and into upstream activities (finding and extracting oil from around the world), and a consolidation of petrol forecourts, with 5,300 sites closing down in the past 10 years.
Dominic O’Flynn, account director, fuels at DHL Supply Chain, says: “We had seen 25 years of GDP plus 2% growth in fuel usage, so what has happened in the last five years is quite a change and I don’t think anyone who works in the sector has ever seen anything like this. We are facing a new reality.”
He explains that the supply of fuel has become very fragmented, with oil refineries changing hands and a lot of investment from Far Eastern companies into the UK market, as well as the financial difficulties experienced by some prominent refining businesses in the past few years.
For example, when PetroPlus, the operator of the Coryton refinery, decided to close the site in 2011, DHL found itself in a difficult situation. Carlyon explains: “We had an £8m contract with Petroplus to move bitumen around the UK. It was 27 December and I answered the phone and it was not a good time. We had our invoice paid the day before they went bankrupt on 21 January 2012.”
As a result of the instability of the sector, Morrisions and DHL are very keen to ensure their joint industrial relations (IR) strategy is robust.
Todd says: “One of the complaints of the Unite union is the amount of change and the short-term nature in this sector in recent years. We recognise that the structure and terms of the contract must be conducive to a rewarding IR relationship. We believe what we have put in place is something that workers on this contract should appreciate.”
Indeed, DHL says it was proud to be the only large corporate whose drivers delivered a “no” vote to strike action in the Unite ‘Enough is Enough’ campaign, and the six-year duration of the Morrisons contract also offers great stability to tanker drivers working on it.
Driver training
Both Morrisions and DHL have also been involved with the development of the new Petroleum Driver Passport (PDP), which is a national standard for health and safety training that was part of the package that ended the Unite campaign.
However, DHL is still in discussions about whether or not its own training can be accredited as complying with the qualification so as to avoid duplication.
Carlyon says: “One of our challenges is not so much additional training but accrediting our existing training to show it already at the correct level. We, along with a number of others, believe we offer industry-leading training. And I see this as a method of bringing some other operators up to a standard we operate at rather than the whole industry needing to take another step up again.
He adds: “We are looking, as effectively as possible, to embrace the whole concept of the PDP but use what we have in terms of our driver training capability and focus on training our own people. I really don’t want to reinvent the wheel. Hopefully we will be able to accredit it.”
New fleet investment key to contract renewal
Key to DHL’s securing the Morrisons contract renewal was a fleet replacement programme, which meant buying 56 Euro-5 Scania tankers and redeploying the existing ones, which were not at the end of their lifecycle, into the rest of the DHL business. Stuart says DHL considered carefully the differences between Euro-5 and Euro-6 technology, but decided that it was too risky to adopt the latter at such an early stage as it was still not known if there would be additional fuel and maintenance costs. “We articulated to Morrisons that being leading edge on Euro-6 didn’t seem sensible,” says Carlyon.
Service through technology
Morrisions aims to offer fuel customers 100% product availability at the pumps, which means DHL must ensure forecourt stock never runs out. It does this through real-time monitoring of the pumps every 90 seconds via its EPICS wet stock management software, which is operated by the DHL planning team. The system monitors which sites need replenishing, and can even handle huge spikes in demand, such as panic buying during industrial action, and dispatches loads 24/7 to be delivered by a 206-strong team of tanker drivers.
Each Morrisions forecourt is equipped so that drivers can deliver a load at any time of the day or night, without anyone at the forecourt needing to assist. Drivers are the only people to handle the product from terminal to forecourt pump.
“This is fantastic for us,” says Carlyon. “We can have a completely flat driver resource 24/7 because we know that there will be a forecourt that we can do a driver-controlled delivery at any time of the day or night. Our asset profile is also constant, with all the vehicles working 24/7. Our drivers’ shift patterns are constant because they all know they are rostered 24/7 365 days a year, which they like as they know when they are working. Their fixed cycle is consistent.”
