RANCHO MIRAGE, Calif. — By making several changes in their distribution and replenishment practices, Giant Eagle and General Mills improved sales of General Mills products in the chain's stores over the past two years while reducing inventory and out-of-stocks, according to executives from the companies.
Joseph Hurley, senior director of supply chain for Giant Eagle, reported that sales of General Mills products at the chain's stores have grown 200% vs. competitive stores while inventory has dropped 50% and out-of-stocks have been slashed 75%. Giant Eagle, based in Pittsburgh, operates 158 corporate supermarkets and more than 130 convenience stores while supplying 65 independently owned stores.
According to Kevin Fitzpatrick, director of customer supply chain strategy, General Mills, Minneapolis, sales of General Mills products at Giant Eagle stores have grown 125% vs. competitive brands. In addition, forecasting errors have dropped 40%, direct shipments from factories have doubled and special packs, at Giant Eagle's request, are down 50%.
Hurley and Fitzpatrick provided the update here this month at the Food Marketing Institute's Supply Chain Conference, which was held concurrently with the Grocery Manufacturers Association's Information Systems/Logistics Distribution (IS/LD) Conference.
“We consider ourselves best in class with General Mills from an inventory position,” said Hurley. “But this was not an inventory reduction project,” he added, pointing to the sales gains for Giant Eagle and General Mills.
The joint efforts of Giant Eagle and General Mills represented one of several trading partner collaborations discussed at the conferences, including Wegmans and Coca-Cola, and Safeway and J.M. Smucker. Those companies describe their partnerships as “News Ways of Working Together.” (See “Wegmans Takes Supplier Relationships to Next Level,” SN, April 7, 2008, Page 1.)
Michael Bargmann, recently retired chief logistics officer for Wegmans, who was master of ceremonies at the FMI conference, observed that a collaboration of the kind described by Giant Eagle and General Mills “is something you can only do with certain trading partners, not with every trading partner you have.”
Hurley attributed the gains made by Giant Eagle and General Mills to several changes the companies orchestrated. One was switching from a five-day to a seven-day replenishment cycle, adding Saturday and Sunday, with warehouse deliveries taking place every day.
That change required rejecting the viewpoint that “I can't receive trucks on Saturday and Sunday because it costs me X,” said Hurley. What became more significant was the fact that “we sell 50% of our products on Saturday and Sunday.”
Fitzpatrick noted that out-of-stocks were worsened by the policy of not delivering on weekends. Moreover, going to a seven-day cycle enabled Giant Eagle to “smooth the workflow so you don't have peaks during the week that drive overtime,” he said. “And it ultimately reduces inventory for both of us because it's a more reliable flow.”
Another change was getting away from the practice of allocating 1.5 cases of product to shelves “irrespective of demand,” Hurley noted. With that approach, “the shelf is wrong 85% of the time.” Instead, Giant Eagle began setting shelves in accordance with demand for each product.
Using demand to allocate products also made reordering more straightforward. Order takers now order when the product reaches a certain number of items left on the shelf, whereas in the past order takers needed to be familiar with sales forecasts. “Today we can take an 18-year-old and say, ‘Here's an order gun. Place an order,” Hurley said.
Giant Eagle has also introduced “fixed-timing events” in its product flow.
“The receiver or stocker no longer has to guess when a truck is going to arrive,” said Hurley. “The truck will arrive at 8 a.m. and they know they can set their labor to that.”
As a result of these changes, Giant Eagle has been able to clear out its back rooms. “The back room used to be full of clutter,” said Hurley. “You never knew if you were ahead or behind.” Now, what comes into a store goes directly to the sales floor. “You don't have to decide what goes in the back room or wonder if there's product in the back room when you're ordering.”