ABC CALLED SPECIALTY LINE COST-CUTTER

AMITY K. MOORE

BALTIMORE -- Implementing an activity-based costing program can benefit retailers interested in reducing the handling costs associated with specialty foods.

That was the message during a presentation of study results given by Jon Hauptman, associate, and Paul Weitzel, senior associate at Willard Bishop Consulting, Barrington, Ill. The presentation was made during the Chicago-based National Food Distributors Association's convention here.

In an effort to help the industry make more informed decisions about the distribution and costs of specialty food items, Willard Bishop Consulting observed three supermarket retailers that did not want to be identified. The firm analyzed all costs -- from when the product arrived at the back door of a retailer's warehouse to when the consumer purchased the product.

In analyzing expenses associated with warehousing, transporting and stocking products, retailers could see that using ABC allows them to identify the costs incurred when moving a product through their self-distribution system.

"When they start to see the costs that they incur doing it on their own, it helps them make more informed decisions of which categories they may want to manage on their own vs. which categories should go to a specialty foods distributor," Weitzel said.

It depends on the category and on the product, but it is often financially beneficial to the retailer to outsource the distribution to someone else, he said.

"For example, if the product has low velocity and the cost of the item is high, then there's no way the retailer should be managing the product," he said.

For those items, he said, it makes sense for a specialty foods distributor to handle the product because the distributor will put less inventory on the shelf and there's no inventory in the warehouse, which ultimately frees capital in the warehouse.

Specialty items cost 3.7 cents each to shelve, while a standard item runs only 1 cent, it was said.