DSD Logistics: PepsiCo

MICHAEL GARRY

• PepsiCo is a pioneer — and one of the leading practitioners — of advanced shipping notice-based DSD.
• ASNs have helped drive a significant amount of DSD productivity for retailers and PepsiCo while preventing catastrophic delivery errors.
• ASN-driven DSD has been a catalyst for discussions with retailers about collaborating around a single supply chain.

One area of the supply chain where trading partner collaboration can make a noticeable difference for both parties is direct-store delivery.

The goal of DSD is for the manufacturer to drop off goods — such as snacks, soda, bread and other items not traditionally kept at a retailer’s or wholesaler’s distribution center — as quickly and accurately as possible at the receiving dock of a store. Over the past two decades, technology — notably direct exchange (DEX) and network exchange (NEX) — has been employed by some retailers and suppliers to streamline DSD, replacing manual processing of deliveries with electronic communications.

But in recent years, another electronic system, using advanced shipping notices (ASNs), has emerged as an effective means of expediting DSD while increasing the accuracy of orders. One of the leading manufacturer proponents and practitioners of ASN-based DSD is PepsiCo, Purchase, N.Y., winner of SN’s Supplier Leadership Award for DSD Logistics.

Since 2007, the number of major retailers leveraging ASNs for DSD shipments from PepsiCo has increased from roughly five (operating about 4,500 stores) to “north of 10,” including regional chains, “with a number in the pipeline,” said John Phillips, the company’s senior vice president, customer supply chain and logistics. More recently, the retailers have included not only supermarkets and mass merchants but also club, drug and convenience chains. He declined to name any retailers.

For PepsiCo, ASN-driven DSD has been a catalyst for discussions with retailers about collaborating around a single supply chain and “ripping out a lot of non-productive cost,” said Phillips.

According to a 2005 Grocery Manufacturers Association report on DSD, only 35% of large-format food retailers used some form of an electronic receiving program. Of those, 54% employed DEX (direct exchange), whereby the DSD delivery representative connects a handheld device into a docking station at the retailer's back room to transmit invoice information.

Another 6% used NEX (network exchange), similar to DEX except that the information is sent from a supplier's headquarters to a retailer's headquarters and then to stores. The rest employed scanning (17%), scan-based trading (20%) and ASNs (3%).

In a new GMA study, “Optimizing the Value of Integrated DSD,” 57% of participating retailers said they fully or partially offer automated data exchange of some kind with suppliers; the retailers in the study include Kroger, Safeway, Hannaford Bros., Cub Foods, Save Mart, Wegmans and Winn-Dixie. According to Phillips, who helped with the new study, 90% of the expansion in automated data exchange can be attributed to ASNs “because that’s where the biggest benefit is.” He put the percentage of electronic receiving represented by ASNs in the double digits, “and continuing to grow rapidly.”

Other major DSD suppliers have followed PepsiCo’s lead in adopting the ASN-based process, especially large suppliers delivering multiple pallets of pre-ordered goods. DEX remains a foundational practice for many retailers, as well as for suppliers of more perishable items like cake and bread and for small specialty suppliers, while interest in NEX has stalled, he said.

The ASN process for DSD, which Phillips said is not costly for retailers, works as follows: An order is picked at the manufacturer’s warehouse (PepsiCo bottlers have also begun to do this) and then double-checked for accuracy; a bar code, known as the serial shipping container code (SSCC), is applied to each pallet, detailing the content of cases sitting on the pallet; and an ASN containing the SSCC data is sent via an EDI (electronic data interchange) transaction 856 to the retailer's headquarters and then to specific stores. PepsiCo made a “significant investment” in systems to process and certify ASN-based deliveries, he said.

At each store, the order is delivered and brought to the back room; the receiver scans each SSCC bar code, confirming that its data matches the data in the ASN, thereby performing an electronic “handshake” and eliminating manual data entry; the receiver may opt to audit the contents of pallets, recording the results in a scorecard; and the order goes to the shelf. Retailers can further support the process by comparing pre-delivery notifications against master data authenticated through data synchronization.

By letting stores know in advance what products are on the way, and then electronically confirming that the delivery matches the advance notice, the ASN process “is driving a significant amount of productivity for retailers and PepsiCo,” said Phillips.

For example, by using ASNs, Pepsi reduces the time spent at a store by its delivery people to about five minutes from between 35 and 50 minutes. “We’ve saved hundreds of thousands of hours in our DSD system,” Phillips said. “And every minute we save in the back room is a minute the receiver saves, and shelves are replenished faster.” In addition, the improved productivity allows retailers to redeploy backdoor receivers to other roles such as stocking shelves. Retailers that have “buttoned up the process” are also able to immediately update their stores’ perpetual inventory, which is essential in monitoring out-of-stocks. Perhaps most important, the discipline inherent in the ASN-based DSD process enables retailers to avoid “catastrophic errors,” said Phillips. “Nobody worries about a bag of chips missing,” but ASNs prevent “large quantities of product” from going astray.

PepsiCo regards ASN-based receiving as “one of the most collaborative projects we’ve worked on with retailers,” Phillips said. For example, the company has served as a “sounding board” for retailers, proposing best practices and advising on standard operating procedures, including back-door systems and EDI. With one large retailer, PepsiCo played a “category captain” role, helping to build a scorecard and establish store communications for ASNs. PepsiCo also allows retailers to come to its distribution centers to see how DSD orders are checked and certified. PepsiCo’s efforts on behalf of retailers have helped them to gain confidence in the system and reduce the rate of delivery-accuracy audits on most deliveries to 5%, said Phillips.