Be lean and efficient
The transport of packaged goods can be an awfully costly process. And because retailers operate their store brand programs on shoestring budgets, they need to make sure theyre spending as little as possible for transport.
Retailers need to examine every area of logistics to see where they could, perhaps, reduce spending. But they also need to understand that certain transport efficiencies tied to private brand products require an investment.
Private Label => Store Brands turned to three logistics experts to get their advice on this topic. Sharing their opinions are Colby Beland, vice president of sales and marketing with Fayetteville, Ark.-based CaseStack; Greg Lutkauskas, president of Atlanta-based West Logistics Groups Intelligent Logistics Brokerage; and Scott Oehlberg, director of operations with the Private Label Division of RJW Transport, Woodridge, Ill.
Private Label => Store Brands: When it comes to transportation of store brand products, where could retailers cut costs while still maintaining efficiency, and how?
Colby Beland: The next frontier in transportation savings for store branded products is going to come from creating collaborative-driven supplier consolidation programs. Retailers need to understand that their money is tied up in inventory and facilities to handle the inventory. The standard practice for years has been for retailers to purchase in large enough quantities to get the lowest cost per case possible. The issue is that ordering in large quantities requires tying up money in inventory that is just sitting in their distribution centers, and sitting on inventory requires a significant investment in space, too. So the retailer is tying up significant capital to get what they think is the lowest cost per case.
What most retailers dont realize is that by establishing a collaborative consolidation program, [they] eliminate their supplier order minimums, but at the same time still get the same cost per case from their supplier. This is possible because through consolidation, all of the suppliers are able to offer the retailer full-truckload pricing. The retailer wins because their money is no longer tied up in inventory sitting in warehouses waiting to be sold, and it makes their warehouses significantly more efficient. The supplier wins because they are able to always take advantage of full-truckload pricing.
Greg Lutkauskas: Working for mass retail in the past and working for suppliers of mass retail, and now in third party logistics, I can speak to this easily: Many retailers have moved to ordering in smaller lot sizes and with more frequency. This practice has raised the total landed cost of the goods. The money has to come from somewhere. The producers of goods naturally will have to raise their sale price to the retailers to cover the increased costs. Commodity prices have been on the rise the last four or five years, hence the cost to make goods has also risen. Ordering less often, in larger lot sizes, could help reduce costs if the retailer is able to forecast effectively.
\"Ordering less often,in larger lot sizes, could help reduce costs if the retailer is able to forecast effectively.\"
– Greg Lutkauskas
The ability of the retailer to cut costs comes from within their own daily order systems. The single greatest ability to drive efficiency in the transportation industry is aligning the delivery dates for orders so that trucks can be maximized and labor reduced at the distribution centers. If the retailer takes the time and resources to create a vendor pool and partner with a solid logistics provider, the [money saved] will manifest itself quickly and [go] straight to the bottom line.
Scott Oehlberg: The ability of the retailer to cut costs comes from within their own daily order systems. The single greatest ability to drive efficiency in the transportation industry is aligning the delivery dates for orders so that trucks can be maximized and labor reduced at the distribution centers. If the retailer takes the time and resources to create a vendor pool and partner with a solid logistics provider, the [money saved] will manifest itself quickly and [go] straight to the bottom line.
PLSB: Conversely, where should retailers be spending more to optimize efficiency, and why?
Beland: Retailers need to dedicate a person or group of people to develop a collaborative supplier consolidation program. It sounds complicated, but if the retailer will partner with a company that already has the experience and knowledge of developing these consolidation programs, they will soon realize just how easy it is and how minuscule the investment is to reap huge returns on their working capital.
\"Retailers need to dedicate a person or group of people to develop a collaborative supplier consolidation program.\"
– Colby Beland
Lutkauskas: The simple fact on this topic is related to the above facts. If a retailer orders in a full-truckload quantity factory-direct, that will be the lowest possible landed cost. Make this less than a truckload, and the supplier has increased warehousing costs plus increased transportation costs. Make this a short lead time, and the transportation costs increase once again. A little bit more inventory by increasing the lot size and lead time would reduce overall total landed cost.
\"If the retailer spent a small amount of capital to establish the vendor pool along with the systems it would take to coordinate the order process, the payback would be swift.\"
– Scott Oehlberg
Oehlberg: If the retailer spent a small amount of capital to establish the vendor pool along with the systems it would take to coordinate the order process, the payback would be swift. By spending the initial funds, the orders would flow more quickly and efficiently, allowing for reduced labor and cost savings, thus holding the margin or even gaining a few points. The lead times would be reduced, and shelf in-stocks would rise, leading to greater sales. The revenue benefit would come from many angles and pay back the investment in a short amount of time.
PLSB: Any other observations?
Beland: The worlds largest retailer has utilized collaborative consolidation since 2003 to streamline its supply chain costs. I am honestly surprised [that] more retailers have not dedicated the necessary resources to take advantage of consolidation as well.
Lutkauskas: Yes, this is all simple, and the money will come from somewhere. The idea is to partner and not have [an] \"I win; you lose\" platform. Easy to say; hard to do.
Oehlberg: The largest retailer in the world has used this method and has created a competitive advantage over others in the marketplace. Other retailers would be smart to follow suit and keep pace while putting savings to the bottom line. The model is proven and just needs dedication to the cause from within the retailer organization.