Go with the flow, says Asda
We thought until earlier this month that retail-ready packaging was the main current, retailer-led change initiative.
However, in October Asda revealed its 'Flow Logistics' plan to treat the top 1,000, low-volatility, ambient lines as if they were fresh produce.
This change makes perfect sense in end-to-end supply chain terms and we should all applaud Asda's lead in this area. When Asda makes this work, Tesco and Sainsbury will follow suit as sure as night follows day.
This solution will reduce retailers' current costs and avoid / postpone future major investments in regional distribution centre infrastructure.
But what will the changes look like from the Asda perspective?
A single ambient hub and eight spokes; Asda stores will receive goods from four regional distribution centres instead of 12 today; stores will convert warehousing space into selling space; in-store availability will improve.
From the supplier's perspective it means: non-volatile products with more than three and a half pallets a week of national demand are in line for the change; seven day ordering and delivery with 24 hours maximum lead time; no full load or full pallet rounding.
The effect of the changes for suppliers will be more expensive transport, increased case picking and higher manufacturer stocks.
I have some concerns. First, Asda may not cope with the hub congestion implicit in many more part loads.
Second, it will then have to force suppliers to ship via a pre-consolidation centre, funded by the supplier, thus adding to supplier costs and inventory.
Third, the de-stocking could have a detrimental impact on suppliers' sales in the year of change. Expect to lose at least one week of sales in that year and maybe more.
To prepare the negotiating ground for the imposition of the change, suppliers with formal price cards that reflect cost to serve are in a much stronger position that those without one.
Sadly, the latter predominate in the UK food sector. Roll on the next Office of Fair Trading enquiry into retailer abuse of market dominance!
Tim Knowles is partner at supply chain consultancy TKA. Contact him at:gvz.xabjyrf@cebnpgvirybtvfgvpf.pbz
