EDISON, N.J. -- Jim Donald, Pathmark's president and chief executive officer, said last week outsourcing to cut costs requires strong ties between the retailer and third-party outfits.
"With third-party transportation and distribution, communication has to be stronger," Donald said.
Donald said Pathmark, Carteret, N.J. used outsourcing to increase its flexibility and lower costs.
He made his remarks during a roundtable meeting of the Council of Logistics Management, Oakbrook, Ill., held here.
He also addressed the role of supply chain strategy in gaining the competitive edge for Pathmark.
"We had a strategic objective to reduce overall distribution costs and improve the store-service level on mis-selections, load quality and on-time delivery," he said.
"But we had no money and rotting facilities. These stores had not been touched in 13 years."
The only logical solution was to outsource to increase flexibility and lower the investment in distribution assets, he said.
"We didn't have a choice," he explained. "With rising costs and 150 stores, we had to outsource to gain efficiency."
The distribution function was given over to C&S Wholesale Grocers, Brattleboro, Vt., with transportation left in the hands of GHI, Brooklyn, N.Y.
While Donald had his reservations about ceding control of the warehouse, he believes that the arrangement has provided his stores with the necessary logistical tools to pull through.
However, he recognized some of the inherent challenges of outsourcing operations.
That's where the stronger ties between retailer and third-party outfits comes in, he said. Pathmark and C&S hold weekly meetings -- without fail -- to ensure the proper flow of goods. Coordinating on lead time and shipping arrangements has provided his stores with a distinct competitive advantage, Donald said.
He attributes much of the company's current strength to the strength of the relationship between retailer and supplier.
In addition, Donald takes maximum advantage of direct-store-delivery options, and makes sure that his team stays on top of negotiations with manufacturers.
According to Donald, the dynamics of outsource relationships are undergoing a significant transformation.
In the past, an outsource retailer simply received the goods and paid the bill, he said. Now, these companies are exerting more control.
"We don't run the warehouse, but we run all the negotiations," he said.
Donald feels that more retailers will be taking advantage of third-party suppliers in the future.
Pathmark has no plans to revert to self-distribution in the foreseeable future.
"In terms of labor management and capital, it doesn't make sense," he said.
"It wasn't what we did. We sold groceries. So we turned it over to an expert."
Donald has been president and chief executive officer since 1996. He has guided it through a restructuring after filing for a Chapter 11 resturcturing last June.