NEW YORK -- Progressive retailers and wholesalers are encouraging cooperation among their buying, transportation and warehouse operations to manage inbound shipments. Such moves are helping them reduce supply chain costs as they gain more control over inbound logistics.
Once handled largely by manufacturers, the inbound process is shifting to an approach involving all groups that have an impact. By doing so, grocery retailers and wholesalers hope to reduce inbound freight costs by as much as 5% to 6%.
Inbound costs typically include the freight to get product from the manufacturer into the grocery distribution center. However, some retailers and wholesalers consider the steps of off-loading, sorting, segregating and preparation for putaway as parts of inbound freight.
When different departments share information about all costs associated with inbound freight, it can have a significant bottom-line impact, retailers told SN.
"That's why buyers are part of logistics," said Stan Eggink, general manager of corporate transportation, Certified Grocers of California, Los Angeles. "The buyers have to understand the cost of transportation and the cost of inventory."
"Let's say a buyer gets a 1% or 2% discount because he buys 500 pallets of a product from a vendor -- but if the cost of getting that product in is 5%, and the cost of trying to receive it and find places to put it in the warehouse because the warehouse is now overstocked on this product is another 5% or 6%, then we haven't saved a thing. In fact, it would have cost us to do that deal," he explained.
Besides achieving actual dollar savings, management of inbound logistics also gives distributors better control of just-in-time arrivals. Such arrivals provide enough inventory so distributors do not run out, but not so much that inventory needs to be stored and take up valuable warehouse space, according to industry sources.
Organizational changes and inbound logistics systems, including those that complement buying systems, are facilitating this change toward more cooperative efforts.
Bryan Goins, director of inbound logistics at Associated Food Stores, Salt Lake City, noted that the chain's buying system complements its inbound logistics system. Its buying system looks at quantities and turns to ensure that a full truckload makes sense.
"As a result of our re-engineering efforts, including the inbound and buying systems, Associated has experienced an incremental savings of $50,000 a month," said Goins.
He noted that Associated has achieved this result despite the fact that some of its vendors do not provide a freight allowance that reflects their true costs.
Certified is also taking a supply chain approach to inbound logistics. Ten months ago, the company implemented cross-functional teams from buying, transportation and warehouse for scheduling and receiving, rather than having the inbound logistics process set by the buyers alone.
Over this time period, Certified's Eggink has seen inbound freight costs reduced anywhere from 30% to 60%, for individual vendors moving freight in the most optimal way. He added that these savings favorably impact the cost of goods to the customer.
"If that's any indication of the scope [of saving] we're talking about -- even on the minimum side of 30% -- that's more than acceptable," Eggink said.
He added that Certified's next step is to upgrade its systems so that when the merchandise is ordered, the systems will be able to provide Certified with information on whether it is more cost-efficient to have the vendor ship product or to go get the load themselves.
The system will use carrier rates in the area and a schedule that optimizes the freight and combines loads. Certified intends to implement software to accomplish these tasks within the next three years.
Associated currently uses an inbound logistics system to help it analyze whether it should pick up product from a vendor or not. The software analyzes price brackets, freight allowances and unload cost to determine the activity-based costing of customer pickup.
The company will begin testing new inbound logistics software in September that will provide the most efficient route, maximize the weight and cube and take into consideration lead time, according to Goins.
Currently, Associated picks up 15% of its inbound freight, consisting of dry grocery and some frozens, with the remaining 85% shipped in by the vendor. The company hopes to increase the pickup percentage to 50%.
"Associated's goal is to analyze every vendor, which will enable us, over the next year, to control 100% of our freight," Goins said. "This means we've evaluated whether or not it's most economical to have it shipped, or for us to consider picking it up with our own fleet or core carrier. But this doesn't mean we necessarily want to pick up 100%."
A grocery retailer, who requested anonymity, said the company's goal is to handle 80% of its inbound transportation, and that the operator is currently consolidating all operating companies into one centralized inbound traffic operation.
The retailer is using a centralized freight optimization system in a multitude of areas, with the exception of produce.
"When this system is fully implemented and rolled out -- it is currently tied in with a new procurement system -- we're hoping to see savings of 8% to 10%," said the retailer.
"I don't think we'll see any more than that," the retailer added. "In fact, we will be very happy to see 5% to 6%. That would be a tremendous dollar figure. Our inbound transportation costs exceed $300 million."
Delchamps, Mobile, Ala., is in the process of setting up communications between its inbound logistics system, located at its distribution center in Hammond, La., with its buying system in Mobile. When both systems are operating together, Delchamps will be able to route orders directly off the inbound system to the carriers, according to Chris Zahnd, traffic manager. The inbound system is used for all merchandise.
Zahnd said these systems should help Delchamps increase its control of inbound freight from the current figure of 20% to 25%, to 50% by the end of its next fiscal year. Inbound freight is mostly dry grocery now, he said, and the expansion will be in the perishable and frozen areas.
Bashas' Markets, Chandler, Ariz., plans to test, by the end of this year, a part of its inbound logistics systems that will help it combine less-than-full truckloads. Bashas' will initially test only dry freight; if the test goes well, Bashas' will expand use of the system to refrigerated foods.
Currently Bashas' uses inbound logistics software, developed by its inbound freight manager Doug McHolm, to help it determine whether it is cost-effective to pick up dry and refrigerated freight or to have the vendor handle it. The system generates $250,000 in annual savings, according to McHolm.
Renato Cellupica, vice president of distribution for Price Chopper Supermarkets, Schenectady, N.Y., said the retailer is in the final stages of evaluating a number of systems to help it optimize the inbound freight into its facilities.
"The savings in freight costs could easily be in the double digits," Cellupica said. He added that Price Chopper would like to control most, if not all of its inbound freight costs, which range from $30 million to $35 million.
"This appears to be the wave in the industry at this point -- controlling as much of the inbound freight as possible," Cellupica said.
"Scheduling is a big piece of [managing the inbound process]," he said. "One area we're working toward is developing carrier alliances, whereby we could work with a limited number of carriers with the sole objective of improving the turnaround time of that carrier at our facilities. This would be accomplished through better scheduling and efficiently getting them in and out of our facilities."