A new logic in logistics

By Paul Gander

- Last updated on GMT

Retailers are demanding that product is delivered in multiple ways
Retailers are demanding that product is delivered in multiple ways

Related tags Supply chain

Sharing is caring - about your distribution costs. Paul Gander finds out how collaboration and consolidation help both manufacturers and retailers

Key points

According to the Freight Transport Association, food and drink accounted for 26% of all domestic road freight in 2010. More recent figures are not available, but it is a safe assumption that increases in online shopping and home deliveries have continued to push food's overall share of road transport upwards.

What has been happening in manufacturer-to-retailer logistics is rather more nuanced because, while consumer demand has remained healthy, the emphasis is falling more heavily on greater operational efficiency, increased consolidation and sharing of facilities.

That potential for efficiency is illustrated by the relationship between logistics provider DHL, the 4,000-strong Nisa convenience store network and the retail arm of BP. DHL acted as the matchmaker in a 2010 partnership between these two retail customers.

Jon Stowe, supply chain director at Nisa, says: “In the southeast, Nisa vehicles deliver during the day, but are often parked in the evening. BP, on the other hand, has a lot of garages around the London area that are happy to take evening deliveries.” ​He adds: “The solution is very low in investment and easily replicable across retailers.”

Trading manager at BP Nikki Rogers explains that most of her company's operations with DHL run out of the Lutterworth distribution centre. “Instead of sending a number of vehicles to Lutterworth, we trunk products to Nisa's depots in Harlow and Stoke,”​ she says. “These goods are then delivered in the afternoons using Nisa’s fleet.”

The logistics provider estimates that, thanks to these and other efficiencies and improved planning, Nisa’s distribution costs for 2013 were £5.5M less than for 2010.

Concerns (Return to top)

DHL’s vice president grocery and convenience Bernie Breslin says: “While the food and drink market has been less responsive to the idea of sharing facilities due to concerns about losing competitive advantage, this is now starting to change.”​ Nonetheless, DHL is keeping very quiet about proposals first mooted in the March issue of Food Manufacture​ for Iceland to share capacity with another retail customer.

Mike Flynn, director at chilled logistics specialist Gist, points out the greater complexity that has come to the sector since the migration away from more uniform retailer-controlled networks. In many cases, he notes, parallel consolidation among manufacturers has made running their own outbound networks more logical.

“What has resulted is a more sophisticated picture for manufacturers, with options for working within a retailer-run network, options to run their own network and options to use a shared network, such as the one we operate,”​ says Flynn.

As manufacturers know only too well, there is precious little ‘slack’ left in the upper reaches of the food supply chain. All involved want to reduce inventory, which means tighter schedules and shorter lead times. Many manufacturers also want to focus on core activities, maximising space available for production and, in some cases, outsourcing the packaging, labelling and order fulfilment.

Inventory reduction (Return to top)

Inventory reduction is nothing new to the UK, but the scale of current reduction is unprecedented. Martin Sealy, business unit director for manufacturing at Wincanton, states that as little as five years’ ago, many food manufacturers were operating on six weeks cover of stock. “That might have moved to four weeks now, and we have one leading-edge client which is pushing the boundary of two-and-a-half weeks,”​ he says.

This type of change has been driven by a combination of cost reduction pressures, improved forecasting and 'lean' manufacturing philosophies, says Wincanton. “There’s a big benefit in being able to use working capital instead to drive efficiencies or invest in developing brands,”​ Sealy explains.

“What was formerly a 50,000-pallet client may now be operating successfully with only 40,000 pallets,”​ he says. “That releases capital, but they will then be stuck with space for 10,000 pallets – and looking for a way to unlock that value. For the last five years or so, Wincanton has been looking to place other clients’ stock in that excess warehouse space. It’s a collaboration which drives value for both parties.”

One expanding area for Gist has been ‘factory clearance’, or the outsourcing of many of a manufacturer’s post-production operations and storage offsite to shared facilities. “Product is not stored in a factory warehouse, it’s cleared off the end of the line,”​ says Flynn. “It tends to be in our facility for hours rather than days, but this acts as a buffer to production lines.”​ Where necessary, this capability can include elements of packaging and labelling before product enters an integrated network.

Of course, retailer as well as manufacturer requirements have gone through a transformation in recent years, and have had the most telling impact on logistics patterns. “There’s been a move to ‘less, more often’,”​ says Sealy at Wincanton. “Like their suppliers, retailers have been reducing their working capital.”​ And the supply chain has been left to pick up the pieces.

These challenges are often felt most acutely in the chilled sector, as Gist explains. “The retailer is increasingly requiring product to be delivered in multiple waves, which of course can lead to inefficiencies for the producer,”​ says Flynn. “Consolidation can compensate for that inefficiency.”​ In other words, by consolidating different dairy products, for example, from several suppliers at a single Gist-operated site, integrated, composite loads can be created, offering greater efficiencies all round.

“These days, the major retailers are running to seven-day requirements,” ​says Wincanton’sSealy. “Planning cycles used to run on the basis of ‘day one for day three’, but there’s a lot of ‘day one for day two’ now, and a considerable amount of ‘day one for day one’.”

At Norbert Dentressangle, director of the food business unit Martin Atkinson confirms that ‘day one for day two’ is now typical for all the major multiples, with Sainsbury now moving towards ‘day one for day one’, with orders by 12.00 midday for delivery by 10.00pm the same day. This type of trend makes it difficult to plan for the availability of resources, particularly at the busiest times of year, he says.

Short planning horizons (Return to top)

But otherwise, says Atkinson, there is nothing inherently problematic about these short planning horizons. “It’s more of a challenge when you get mixes of different cycles, and it becomes more difficult to create the fill on a vehicle.”

The company, which specialises in the frozen sector when it comes to food, says it has always been about shared user capacity and the flexibility that goes with this approach. “In frozen food, very few players have the critical mass to run their own dedicated fleets,”​ says Atkinson.

But the question of ‘critical mass’ is not limited to frozen food. At consolidation specialist Fowler Welch, sales and marketing director Richard Slater points to some of the supply chain obstacles facing small-to-medium-sized producers of ambient and chilled goods, too.

“Without access to extensive fleets across the country, in addition to fast-moving storage facilities and stock-management systems, it can be more challenging to be responsive to fluctuating demands,”​ he says. “This can result in missed opportunities.”

Flynn at Gist highlights some of the other barriers for smaller businesses. “Retailers are dramatically more stringent about on-time deliveries than they were 10 years ago,”​ he says. “But also about electronic pre-advice, the provision of advanced data and the communications that go back and forth. It’s become a more sophisticated process. It’s a lot more challenging for smaller operators, and less attractive for them to run their own activity.”

More dynamic planning (Return to top)

Logistics providers agree that, across chilled, ambient and frozen, planning has had to become more ‘dynamic’. But what does that mean in practice? “It means, for instance, that vehicles and drivers can be reassigned while on the road, if a new opportunity comes up, or if things go wrong and plans have to be amended,” ​says Sealy at Wincanton.

As many know from experience, consignments rejected by retailers because of mislabelling or other anomalies constitute a growing problem. This is not just a cost issue for the supplier. “The vehicle will typically be scheduled to go on somewhere else, probably for a collection,”​ says Atkinson at Norbert Dentressangle. As has already been noted, many manufacturers are reducing or doing away with on-site storage. “So pick-up times are critical. Otherwise, a delayed collection can end up stopping a line.”

While tautliner trucks may remain the lifeblood of many food and drink supply chains, the increased sophistication of logistics in general has had an impact on the mix of vehicles, too.

The logistics pendulum has swung backwards and forwards before. The same may happen with collaboration; but for now, it is an increasingly popular route towards greater efficiency.

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