There are probably few logistics companies in the business supplies industry that can boast annual sales of almost A$20 million ($14.6 million) with just four employees. But then, Australian outfit Lectronic Trading is no ordinary business.
The Australian OP industry has always been challenging in terms of product distribution due to its vast geographical spread. While European and US wholesalers have investigated the opportunity for their models down under, none have ever been bold enough to launch, with the consequence that the local market has had to find other ways of shifting product through the supply chain.
Bridging the gap between vendor and reseller, Sydney-based Lectronic works by consolidating both product and suppliers. Put simply, the firm provides logistics in the form of real time individual store replenishment and efficiently consolidated product orders for retailers. Products are transferred by manufacturers to Lectronic’s two large warehouses, which in turn supply customers via an Electronic Data Interchange (EDI) system.
Complex technology
The EDI system enables product to be sent to customers without encroaching on the suppliers’ brand and pricing. But as Lectronic owner Mark Gartner explains, while this sounds incredibly simple, the business works at the complex end of the spectrum using EDI trading that enables a seamless flow of information between all systems in the supply chain so that stock can be replaced at the right store at the right time.
Lectronic’s customers include some of the biggest names in Australian retail and B2B business supplies operations, such as Officeworks, Target and OP dealer group Office Brands. “We provide some retailers with over 1,000 SKUs representing more than 100 suppliers,” says Gartner. Lectronic deals with manufacturers such as RB, Unilever, SC Johnson, and Vittoria Coffee.
Since its launch in 2003, the company has worked tirelessly to overcome numerous issues that plague Australia’s specific logistics environment. Gartner believes he is now close to resolving many of the standard issues through its unique system:
- While it is relatively easy for the big suppliers that can afford the investment in technology, what about the smaller supplier with a limited number of very innovative products? Or the supplier that has a focus in a different market but still has several items relevant to this market?
- Australia is a big country to cover when shipping product; there needs to be a certain critical mass to make the shipping costs feasible.
- Minimum order value or quantity. The system falls over if one store needs six items but then doesn’t meet a minimum order value.
- There is a reluctance for some very large manufacturers to pack smaller quantities, when they have worked for many years to get to the point where delivery is in full pallets or rows of cartons. It is seen as a retrograde step to go back to a very large number of small picks.
- The expertise required to maintain the ongoing integrity of the system.
To master all these issues, from the outset there was a massive investment in technology – it took seven months to build the original logistics system before a sale could even be made. Gartner ensured Lectronic became synonymous with a specialisation in EDI ordering, and went to market with no minimum order quantities or values, although the aim was to build a portfolio of products that provided an almost guaranteed reasonable order value.
“Most importantly, we had to create a very low-cost business allowing us to work with large suppliers to convert bulk product into EDI auto-replenishment and still supply to the market at the right price. This low cost also supports the business case for our small-to-medium suppliers,” he says.
Keeping it small
Building a low-cost business isn’t easy however. But, by focusing intently on only carrying cost that adds direct value and by maintaining a small team, Lectronic has achieved just this. Gartner sees the business as an extension of its suppliers’ operation, hence no marketing or direct sales team. EDI takes care of tracking payments, so no accounts team. As the team is small but highly-skilled, there is no need for low-level admin roles.
In addition, from receiving an order to store delivery, none of the logistics systems need any human intervention and all deliveries to customers are carried out by third party providers.
So how does this all work with clients both on the vendor and reseller side that range from innovative one-man bands to large multinational FMCG companies? A major pillar of the operation is that it has become an integrated cog in the supply chain mechanism – not merely an add-on.
Understandably, Gartner baulks at being classified as a distributor, explaining: “We buy product to consolidate it into our warehouse, so we can be too readily described as a distributor. However, we see ourselves as more of an ‘advanced delivery system’ to support suppliers and retailers.
“What we do is different, so we do have to spend some time reminding our suppliers that we are not the customer. Our goal is to work together for the good of the retailer.”
Currently, the company is working on a new platform that will allow smaller customers access to some of the productivity improvements that EDI trading provides. Gartner believes that while the business supplies industry is changing rapidly – Australia is no exception and will soon have to deal with the launch of Amazon – Lectronic is set up to be flexible and that, as the industry changes, so too will Lectronic evolve as required.
