Asda flow logistics drive could push costs upstream

A new initiative from Asda to reduce store backroom stock of its top 1,000 ambient lines could increase supplier costs, manufacturers have warned.

Suppliers attending a conference hosted by Asda to launch the new initiative said there was a mood of "general disquiet" in the audience as the UK's second largest grocery retailer unveiled its new flow logistics project, which will treat Asda's top 1,000, low-volatility ambient lines as if they were fresh produce.

Rather than delivering to a clutch of Asda regional distribution centres in full truck loads or in full pallets, suppliers of the goods in question will be expected to deliver to one central hub in precise quantities on a daily basis.

This will ensure that no excess stock is pushed into stores, and improve the efficiency of Asda's store operations.

Asda says the new processes will deliver the following key benefits: "Less stock, fewer touches, better availability and lower cost to serve."

In turn, Asda's orders are likely to precisely track consumer shopping patterns with low sales Monday to Thursday and heavy peaks between Friday and Sunday.

While this may be more convenient for Asda, it could bump up resource costs to suppliers, who may either have to boost inventory levels at their end or change their production scheduling to fit in with Asda's requirements, which could impact manufacturing efficiency, warned suppliers.

Under the new system, the 1,000 lines in question will switch to seven-day ordering and delivery with 24 hours maximum lead time, which could increase transport costs for suppliers not located near the hub, increase case picking and increase manufacturer stocks, said one supplier.

"Previously it was the case that you would round up deliveries to make up a full truckload or fill up a pallet. The new system doesn't allow for this."

Suppliers will be expected to fund their side of the changes even though Asda will save a lot of money, he added. However, it could increase efficiencies for several manufacturers that are located near the hub, he conceded.

Asda declined to comment on the initiative.