Multivendor consolidation programs coordinated by third-party warehouse companies can increase distribution efficiency along with the number of full truckloads coming through the distribution center, while reducing product damage, cost of goods and unloading time at the dock.
Such programs can cut the lead time for orders by as much as 50%, according to one multivendor consolidation expert, who added that they can also increase product turns 45% to 65%.
For some retailer participants in vendor consolidation programs, putaway time for orders has also been drastically reduced. One retailer participating in a multivendor consolidation program with a third-party warehouse company reduced its unload time from five hours to two hours, said a source familiar with the situation. Some third-party companies are even labeling products with the retailer's bar code label, and slotting products in their distribution centers for customers.
Retailers such as Lucky Stores, Buena Park, Calif., a division of American Stores, Salt Lake City; Albertson's, Boise, Idaho; Vons, Arcadia, Calif., a division of Safeway, Pleasanton, Calif.; and Smith's Food & Drug Centers, Salt Lake City, are all reportedly working with third-party warehouse companies in multivendor consolidation programs.
Such programs can give manufacturers full-truckload rates for shipping less than truckload quantities -- sometimes as low as $25 to ship one or two pallets, depending upon the delivery distance. The source noted that large manufacturers are shipping more LTL quantities than they have in the past.
But with all the potential for increased profit and efficiency that many industry professionals agree is available through the use of third parties, it's not yet a widespread practice. Information-technology requirements, including systems able to group and route purchase orders as well as create "perfect" truckloads, have limited the process to relatively large manufacturers and distributors.
"[Multivendor consolidation] hasn't been growing in leaps and bounds," admitted Joe Andraski, a former vice president of customer marketing operations for Nabisco, Parsippany, N.J., and current vice president of retail development for a third-party logistics company. He added, however, that it is growing.
"There are financial opportunities to increase sales, reduce overall operating costs and reduce product cost by as much as 50 cents a case," Andraski told SN. "That's the magic."
"[Multivendor consolidation programs] just take a lot," said Bruce Gordon, director of procurement for Fleming Cos., Oklahoma City. "Our difficulty has been to have manufacturers work with the third-party companies," he added, noting that Fleming is working with a large number of smaller vendors.
Despite the hurdles, Gordon said, the use of a third-party for multivendor consolidation is a viable concept. Fleming is motivated by results from a successful test run using a third-party company to consolidate its vendors.
During the test at a product-supply center, Fleming was able to reduce overages, shorts and damages from 8.2 cases to 1.7 cases per load, and reduce unloading time from eight hours to three hours. Base inventory was reduced by 32%, according to Gordon, and average truck payload rose from 37,000 pounds to 42,000 pounds.
"It's a no-brainer," Gordon said of the increased efficiency practice, adding that Fleming is seeking to expand its vendor consolidation efforts through third-party companies. "I'm trying to reduce the cost of goods," he said.
Currently, the wholesaler is working with several third-party companies, Gordon told SN. "We have several projects in the early stages," he added.
"We manage consolidation at our company," said Peter Gunderson, senior vice president of distribution for Shaw's Supermarkets, East Bridgewater, Mass.
"The key [to multivendor consolidation] is to be open-minded and get started," said Jerry Cantwell, director of customer service for Nabisco and a supporter of multivendor consolidation. "We've been involved in vendor consolidation for quite a while -- since Hannaford started their program about five years ago," he added. "We were Hannaford's first participant."
Manufacturers began to look to third parties to consolidate as business became more "demand-driven" and order sizes were reduced. "The order sizes were getting smaller and smaller," Cantwell said.
Currently, in an effort to expand its own multivendor consolidation participation, Cantwell said Nabisco is looking to work with other manufacturers and ship from common facilities. "In certain segments of our business, it does make sense to ship with other manufacturers," he said.
Although the process does not come with hard and fast rules for implementation, there are some standard approaches to working with third-party warehouse companies, according to Cantwell.
The more traditional model uses a third-party company to marry different vendors' freight based on delivery dates, he told SN.
A slightly more progressive and efficient model allows for more retailer participation. The third-party warehouse company provides the retailer with a vendor participant list, allowing the retailer to place orders in "vendor clusters," Cantwell said.
A high-tech approach to the process involves the retailer using its purchase order system to create a "perfect truck" purchase order, and then sends individual purchase orders to the manufacturers and the third-party's distribution center. The third-party company then plans the load from pallet stacking to delivery.
In this model, most orders are done in full layers to avoid loose cases. The technology for most major ordering systems can handle this high-tech approach, industry sources said. In the low-tech model, the retailer creates orders and advises the distribution center of the relevant purchase orders. The third-party company can then marry the freight through its own freight-consolidation program. This is usually done when the third party is also the transportation provider.