CPG FIRMS' TRANSPORTATION EXPENSES RISE

Michael Garry

WASHINGTON -- Higher-than-anticipated fuel prices have helped boost transportation costs for consumer packaged goods manufacturers by 23% to an average of $1.69 per mile during the past three years, according to a new survey from the Grocery Manufacturers Association here.

The GMA 2005 Logistics Survey determined that transportation now accounts for 62% of all logistics costs. It also found that changes to federal hours-of-service regulations for truck drivers have caused overall shipping capacity to drop. The survey was conducted by IBM Business Consulting Services, White Plains, N.Y., in conjunction with GMA.

"For GMA member companies, responding to the needs of retail customers and reducing costs are constant goals," said Karin Croft, GMA's senior director of industry affairs, in a statement. "However, achieving these goals is more challenging than ever as transportation costs continue to escalate."

In response to these challenges, companies are shifting to different modes of transportation, improving use of trailers, taking advantage of continuous move opportunities and partnering with carriers to secure year-round capacity, the survey said.

The survey also found that on-time delivery and cycle time performance have improved since 2002, and that third-party logistics providers have solidified performance of core functions. On the other hand, the survey indicated that retailer demands for special packages, stockkeeping units and services "continue to complicate distribution processes."

Among its recommendations, the survey suggested that CPG companies "continue to outsource non-differentiating transportation, distribution and information technology functions." It also suggested that CPG firms condition demand through planning and forecasting "to better serve [retailers'] specific requirements for promotions, special packaging and other value-added services."

The survey revealed the following about radio frequency identification (RFID) and data synchronization:

- RFID is being fully implemented within only a small percentage of consumer products companies, with the majority (69%) investing only enough to comply with retailer requirements.

- Just 10% of respondents stated that RFID was extremely effective in meeting objectives.

- Implementation of data synchronization continues to progress, with 52% of survey participants reporting a moderate to high level of adoption.

CPG Logistics Costs

Outbound transportation 40%

Interfacility transportation 22%

DC operations 25%

Custom packaging 6%

Management overhead 7%

Source: GMA 2005 Logistics Survey