Concentrate on Consolidation

Less-than-truckload shipments add cost to store brand programs and negatively impact the environment. To help retailers understand how they could reduce these costs, as well as costs associated with warehouse inventory management, Store Brands asked three logistics experts — Bob Christian, chief operating officer, Columbian Logistics Network, Grand Rapids, Mich.; Kerry Byrne, executive vice president, Total Quality Logistics, Cincinnati; and Colby Beland, vice president of sales and marketing, CaseStack, Fayetteville, Ark. — for their advice.

Store Brands: In your view, what are the most common costly mistakes retailers make when it comes to the warehousing, handling and transport of private label goods (foods and non-foods)?

Colby Beland: Carrying too much inventory in their distribution centers is the most common mistake. Because private label manufacturers are spread across the U.S. and ship smaller volumes, retailers rely on less-than-truckload (LTL) service to fulfill their orders. The resulting increased transportation and inventory carrying costs can easily be eliminated by investing in the development of a collaborative consolidation program.

Kerry Byrne: Inventory management is an area where many private label manufacturers end up incurring costs that could be avoided, or at least mitigated, through the process of ordering and consolidating their inventory. We see a number of small- to mid-size companies that don’t order enough product on the front end so that they can experience cost savings on the back end. For example, if a shipper is always ordering based on immediate need versus forecasted need, they aren’t able to capitalize on the cost savings from buying in larger quantities. Additionally, they often have to ship their goods as LTL vs. full-truckload (FTL) when FTL may offer price advantages.

Bob Christian: Silo-based ordering. Many retailers use third-party logistics providers (3PLs), but even those that have in-house warehouse operations are often placing smaller orders more frequently. For example, loads leave the dry grocery warehouse, the soft goods warehouse and the refrigerated warehouse on the same day on three separate trucks. Often, those three trucks could have been consolidated down to two with a simple reference across business units. This redundancy is often made worse when those orders are subject to minimum order fees at a third-party warehouse.

Store Brands: What specific steps could they take to cut costs in these areas without adversely affecting product flow?

Beland: What most retailers don’t realize is that by establishing a collaborative consolidation program, they can eliminate their supplier order minimums and still get the same cost per case. This is possible because in consolidation, all of the suppliers receive proportional full truckload pricing, which lowers their transportation costs. Consolidation offers the retailer true savings because their money is no longer tied up in inventory sitting in expensive warehouses waiting to be sold. Collaborative consolidation programs help retailers and suppliers optimize their supply chain and ensure consumers can always find the products they like for the prices they need.

Byrne: Partner with an established and financially strong transportation provider that can assess your company’s specific needs and adapt their services to meet your needs. Inventory management and warehousing are important, but many manufacturers and retailers underestimate the value of a provider that can offer services such as rate and market analysis of the lanes they ship and assistance with consolidating freight shipments based on the lanes. Also, work with a transportation provider that has access to high-quality equipment and services from trusted sources. Retailers will obviously see long-term benefits by having access to capacity in a tight truck market.

Christian: Internal consolidation of ordering and partnering with complementary businesses can reduce the above-mentioned costs. Internal consolidation of ordering could simply be consolidation of the ordering function for the dry grocery, soft goods and refrigerated warehouses in the example mentioned above. Partnering with a complementary business generally involves utilization of a 3PL to perform some combining of the partner orders to leverage economies of scale.

Store Brands: What specific steps could not only cut costs, but also help retailers build a “greener” supply chain?

Beland: Collaborative consolidation programs are inherently sustainable because they maximize efficiency by streamlining processes and consolidating resources. Collaborative consolidation programs help retailers conserve financial resources by eliminating supplier minimums, reducing supplier lead times to their distribution centers, increasing supplier on-time deliveries, optimizing in-stock levels and rightsizing inventory levels.

Consolidation protects suppliers’ resources by providing proportional full-truckload pricing instead of costly LTL rates, boosting on-time performance, maximizing in-stock rates, limiting the potential for damages/shortages and lowering total logistics costs.

Consolidation programs help conserve natural resources by reducing dock congestion, improving warehouse efficiencies and decreasing the number of trucks on the highway. The resulting supply chain consumes less energy and produces lower amounts of carbon emissions.

Byrne: Work with your transportation provider to optimize your supply chain. Look for opportunities to better manage inventory carrying costs, transportation, distribution and manufacturing. Understand the demand patterns for your business and plan for them as far in advance as possible. Look at options such as package redesign, shipment consolidation and opportunities for reverse supply chain activity. These steps not only help cut costs, but also reduce your carbon footprint in the process. Additionally, look for providers that are EPA SmartWay certified and committed to moving goods in a cleaner, more efficient way.

Store Brands: Talk about regulations impacting the logistics side of business. Anything new that retailers should be aware of?

Beland: Retailers need to prepare for rising transportation costs that will result from the Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability program and revisions being made to the standard hours of service. As regulations continue to tighten, capacity will decrease because fewer companies will be able to comply with the new standards, leaving retailers and suppliers with fewer but more expensive shipping choices.

Byrne: Over the last few years, several regulations have altered the logistics landscape. They have all reduced carrier capacity to some extent, which, in turn, impacts rates nationwide. The California Air Resources Board regulations started to come into play for the logistics industry beginning in 2013. These regulations hold all refrigerated tractor trailer units to stringent performance standards based on their emissions. Carriers are paying $15,000 or more in order to retrofit or replace their existing refrigeration units.

Additional mandates have been put into place requiring trailer skirts and low-resistance tires. MAP 21 instituted new hours of service guidelines, which officially began in July of 2013. These guidelines cut the weekly service of a driver from 82 to 70 hours per week. Also, drivers must now take a 30-minute break between every eight-hour driving period. And by the end of 2015, trucks must be equipped with electronic systems that will track hours of service, replacing the log books of old. All of these extra expenses and losses in productivity for carriers need to be recouped at some point.

Christian: The Federal Motor Carrier Safety Act (FMSCA) that passed recently has pinched a significant number of hours of service out of a driver’s work week. In addition, the FMSCA implemented driver eligibility rules related to sleep apnea and physical fitness. Couple those changes with an aging workforce and the federal mandate that drivers be 21 years old, and there is a significant shortage of drivers throughout the country. A leading transportation data source, DAT Transcore, recently published statistics showing that in Michigan, for example, there are 14 loads for every one driver.

“We see a number of small- to mid-size companies that don’t order enough product on the front end so that they can experience cost savings on the back end.”
— Kerry Byrne, Total Quality Logistics

“What most retailers don’t realize is that by establishing a collaborative consolidation program, they can eliminate their supplier order minimums and still get the same cost per case.”
— Colby Beland, CaseStack

“Partnering with a complementary business generally involves utilization of a 3PL to perform some combining of the partner orders to leverage economies of scale.”
— Bob Christian, Columbian Logistics Network