Somerfield on PCC prowl

As I explained last month, Somerfield is desperate to reduce its supply chain costs.

Its chosen approach is to build PCCs (pre-consolidation centres). This means that the supplier delivers full pallets and full loads to a local, regional PCC. The retailer regional distribution centre (RDC) then orders on that PCC in full loads. In this way the RDC still receives full loads and full pallets but can order across thousands of stock keeping units with massive reductions in RDC stockholding and big benefits on operating cost and RDC longevity.

Sounds pretty smart? Well, it might be if Somerfield could afford to pay for the PCC. It goes (almost) without saying that this is not its proposition.

So let's review the implications for an average manufacturer. If you have adequate existing storage capacity, PCCs are really bad news.

First, you will be duplicating stock on the day you start shipments to the PCC. Presently you have your stocks in your warehouse and the retailer has stocks of your goods in each RDC. You have the choice, when short of stock, to serve any retailer based on your judgement of his needs. With PCCs you are adding at least one further stockholding location (the Somerfield PCC).

The sum of PCC and RDC stocks will be greater than RDC stocks alone and, once you place stock in the PCC it is no longer available for other customers. PCC stocks will typically cost £1.50 per pallet per week to store and, with three weeks' stock, you will be paying £4.50 per pallet shipped extra to your current costs.

Second, you have to pay the PCC owner to receive goods, put them to stock and retrieve them again. This typically costs £3.50 per pallet. They typically add £8 to £10 per pallet shipped to total warehousing costs and are, at very best, cost neutral on overall transport costs.

Finally, the sum of the cost per load from your warehouse to Somerfield's PCC plus the PCC's delivery to RDC will almost certainly exceed your current market rate. The on-cost of PCCs can exceed £10 per pallet. Think how many more cases you would have to sell just to stand still on profits!