Lean and mean wins the race

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Lean and mean wins the race

03/19/2013

Running lean and efficiently on the logistics front is a balancing act. According to Greg Lutkauskas, president of Intelligent Logistics Brokerage, West Logistics Group, Atlanta, retailers have to keep an eye on raw material costs, transportation costs and more if they want their store brand program to be successful.

"To keep that balance in an inflationary environment is difficult," he says.

And all too often, retailers dont devote enough time and resources when transporting and warehousing their own-brand products. Scott Oehlberg, director of operations for Woodridge, Ill.-based RJW Transports Private Label Division, says this mistake is many retailers biggest money-waster.

"They are focused on sales and getting the new items to market – which makes complete sense – but leaving profitability on the table," he says. "By shining a light on the supply chain to a high level, I believe the rewards would outweigh any initial investment."

Even though it might require a bit more spending, a strong long-term plan with adequate devoted resources would pay back in a short amount of time, Oehlberg says.

Take care of your truckloads
Another major logistics issue many retailers face on the store brand side is carrying too much inventory in their distribution centers, says Colby Beland, vice president of sales and marketing with Santa Monica, Calif.-based CaseStack. Their private label suppliers often are spread across the country, and their orders – which tend to be small-volume orders – generally deliver via less-than-truckload (LTL) shipments. This reality differs from that of major consumer-packaged-goods manufacturers, which tend to own a large number of brands that sell at multiple retail banners, thus providing enough volume to ship via full-truckload (FTL) shipments.

So then, how does a retailer turn an LTL shipment of store brand products into a more-economical FTL shipment? Through retailer-driven supplier-consolidation programs, Beland says.

"Retailers need to develop collaborative consolidation programs that allow for consolidation of multiple suppliers purchase orders [with] the same purchase-order due dates," he explains. "This will allow the suppliers to work with a third party to consolidate multiple prepaid LTL [shipments] into full truckloads. Both the retailer and the supplier benefit from collaborative consolidation programs."

According to Beland, such benefits include elimination of supplier minimums, reduced supplier lead times to distribution centers, improved in-stock levels, improved supplier on-time deliveries, reduced inventory levels, increased supplier turns, reduced carbon emissions (from the reduction in the number of trucks used) and more.

Of course, retailers also could build FTL shipments by ordering products less frequently. Lutkauskas notes that placing three smaller orders of store brand products every week might keep costs low and decrease the risk of overstocks. However, its more costly to pay for three smaller shipments per week instead of fewer larger ones, and doing so increases the cost per unit, which, in turn, could drive up the products cost on shelves.

"Why order a high-velocity SKU three days per week?" he asks. "Order the same high-velocity SKU in two full truckloads per week, [which will result in] less cost, higher in-stocks and improved sales with goods on the shelf."

Consider multiple suppliers
Retailers also could cut logistics costs in their store brand program by employing multiple reputable suppliers to manufacture a single product or line, each one doing so for stores in a particular region, Beland says. True, relying on a single manufacturer for a product or line reduces the risk of product inconsistencies. But when a multiregional retailer uses a single supplier to manufacture and distribute a particular product or line, transportation times and costs rise.

Relying on multiple suppliers "will allow the retailer to significantly reduce transportation costs and reduce inventory carrying costs required to maintain acceptable inventory levels in the distribution centers," he explains.

Innovate through automation
Another way to reduce logistics spending is through automating the receiving process. Scott Bolduc, director of supply chain strategy with Minneapolis-based SPS Commerce, points out that U.S. retailers often dont handle the receiving process electronically when sourcing store brand products from overseas.

"The process can look just like what the domestic guys are doing today," he says. "Purchase orders go out, acknowledgements come back in; its done electronically, usually with EDI – electronic data interchange."

Bolduc notes that when a vendor has picked up a shipment and put it on the road, they could send advance shipment notifications (ASNs) to the retailer, and then place labels on cases that can be scanned when the cases arrive at the warehouse. When the labels are scanned, the software identifies the EDI data, allowing the purchase order to be updated.

"That does speed up the receiving process if you have less people needed to unload the trailer," he says.

ASNs allow retailers to have complete visibility of a shipment, Bolduc states. They know where the shipment is during every phase – manufacturing, packaging, ready for consolidation, etc.

"Advance visibility of the shipment is what the retailer buyers want," he says.

Before automating the receiving process, one of SPS Commerces retail clients said it took four employees two days to unload a trailer. After automating the process, it took one person only four hours to do the same job, Bolduc reports.

"Thats a time-waster, right?" he asks. "And not just the transporting and warehousing, but ... the amount of time thats wasted for folks sending e-mails and having phone conversations [about the shipments]."

Of course, in the end, retailers need to make sure that – first and foremost – their third-party logistics provider understands the retail and transportation industries – and has good, long-term relationships with its clients here.

"Relationships are everything," says C.J. Cowie, engineer of development with TOPS Worldwide, Flint, Mich. "If your provider is not taking care of you, find one that will and stick with them. Even if the cost goes up a little here and there, it will balance out."

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