NON-STOP LOGISTICS: READY FOR TAKEOFF?

MARC MILLSTEIN

SAN FRANCISCO -- Non-Stop Logistics Corp. here has a vision about flow-through distribution that -- should it become reality -- holds the potential to significantly change the way a product goes from manufacturer to store.

Non-Stop's vision, as the company name suggests, holds that products should never stop moving. Products from many manufacturers would be shipped to regional sort-and-load centers, based on precise order forecasts generated three months in advance.

There, store-ready, mixed-stockkeeping-unit pallets would be created on a nearly just-in-time basis, combined to maximize truckload efficiency and delivered to retailer or wholesaler distribution centers or stores.

So if the company has its way, the traditional means of distributing products, typically involving single SKU pallets shipped from individual manufacturers and requiring extensive warehouse handling and storage, would give way to a new era.

Can Non-Stop's scheme work? There's a lot of debate on that subject coming from the conventional side of the distribution industry, ranging from a desire to get on board to a desire to maintain a distance.

The system may seem far-fetched, but the first sort-and-load center will be up and running by early 1995, according to Homer G. Dunn, Non-Stop's president and chief executive officer.

"Our objective is to open the initial test site in the first quarter of next year. We will bring one sort-and-load center up and make sure it is working right, whether that takes one month or six months," Dunn told SN in an interview.

"Once we have that one right, we will move to open other centers as quickly as we can. We expect to have six of them operating within a calendar year after that," he said.

The first six sort-and-load centers will be situated in Atlanta, Chicago, Dallas, Los Angeles and in locations in northern California and in the Northeast that have yet to be determined, Dunn said. The first center will probably be in Atlanta, he added.

The company's business plan calls for eventually operating 40 such sort-and-load facilities throughout the United States, many of them located adjacent to or near existing distribution market warehouses. The system would handle only dry grocery items at first. It later would be expanded to include frozens.

According to the Non-Stop model, the sort-and-load centers would function in a sort of cooperative fashion to allow distributors the opportunity to streamline their product handling and transportation practices for some situations and to continue operating as usual for others, Dunn said.

The big question now is whether the vision Non-Stop has crafted for the food industry, which requires the considerable participation of major manufacturers, wholesalers and retailers to succeed, can become a reality.

"We are aware of Non-Stop. We have talked with them," said an executive at a large wholesaler, who asked not to be named. "Some executives at our company, especially those who have been around a long time, see them as a threat to our business and don't want anything to do with them. But others of us are willing to consider working with them. We have to change. It is a matter of survival. This may be the way to go."

Gary Capshaw, vice president of logistics at Fleming Cos., Oklahoma City, was more blunt. "We've talked to Non-Stop. But so far we don't see any value in utilizing their services. We think we're in a better position to do those types of things. Obviously, we like to think we can distribute product better than anyone else.

"I don't see them becoming a big player in the industry. The one thing they have done, though, is cause everyone to take a much deeper look at the distribution situation and talk about the issues," he said.

For retailers and wholesalers, the Non-Stop system, as envisioned, would eliminate much of the need to break down and reconfigure pallets for store delivery. It would dramatically reduce the need for extended product warehousing and significantly cut distribution labor costs.

For manufacturers, the system would offer the advantage of an enhanced forecasting system, resulting in a much more predictable flow of product demand. It would eliminate much of the need for stockpiling safety products in warehouses and boost transportation efficiency.

The firm already has sparked considerable debate in the industry and attracted several major companies to sign on to the program, offering both financial backing and providing key services. Among them are Americold, Exel Logistics North America, GATX Logistics, J.B. Hunt Transport, Nielsen Marketing Research, Oracle Corp., Schneider National and Sun Microsystems.

Three large packaged-goods manufacturers -- Kraft General Foods, James River Corp. and Scott Paper Co. -- also have openly expressed support thus far for the Non-Stop concept, at least in theory. No vendor has yet formally signed on to the program.

According to Dunn, however, the wheels are well in motion for rolling out the system. A total of 23 major manufacturers, along with several retailers, have signed mutual nondisclosure agreements with Non-Stop and are actively working with them, including sharing confidential pricing and cost information, to develop the program.

"None of the 23 manufacturers have yet agreed in writing to work with us. But a dozen have verbally said they are very, very interested. What we are working on now is getting them specific rates for our program and start-up dates," Dunn said.

"To get started I only need five manufacturers to participate. But the ideal number of vendors we need is 60. The top 60 vendors represent 70% to 80% of the dry grocery cubic volume flowing through the channel. That is more than enough to make it a roaring success," he said.

The single biggest hitch now in getting the program up and running is developing an accurate enough forecasting system to predict product demand, Dunn claims.

To succeed, the system must be able to let manufacturers know well in advance precisely how much product will be required at the sort-and-load centers. It also must ensure that the flow-through system's forecasts are on target to deliver exactly the right amount of the product to wholesalers and retailers when and where it is needed.

"The thing we are doing that has never been done before is predicting the flow of product. Everything else has been done before in some industry: the transportation management, creating warehouse facilities to build mixed-SKU pallets," Dunn said.

"The worst thing that could happen to us is that we start the program and we screw it up. Then everyone says, 'The hell with it,' and we would be left trying to get a second chance. That is probably our single largest concern," he said.

"So it has to work the first time. I am more concerned about it working right the first time than whether we start up in October or January or February or March. We are going to test it until it is right," he added.

To create the forecasting system, Non-Stop is working primarily with one large retailer in the Southeast, possibly in the Atlanta area. That retailer reportedly has supplied Non-Stop with three years of product movement data from more than 80 of its stores and is updating the information on a weekly basis. Dunn declined to name the retailer.

Non-Stop is now in the process of comparing its own forecasts of product demand with the retailer's actual data to fine-tune the program, Dunn said.

"We have three years of data from 80-plus stores, as well as less extensive information from other distributors. We are getting the data every week and comparing it with our forecasts. We are looking at every SKU and computing the service levels to detect any abnormalities [in the system] and find out why they occurred," he said.

Although some retailers and manufacturers and are already in the process of implementing computerized programs to predict product orders, the Non-Stop system would go considerably further. It would generate precise ordering needs three months in advance and build a complex distribution system around those projections.

In addition to developing an accurate forecasting system, one of the big obstacles the company has had to face involves convincing wholesalers and retailers that Non-Stop's system is designed to work with distributors, not replace them.

According to Dunn, the firm's initial business plan did call for delivering the store-ready pallets direct to the store, possibly cutting out the need for traditional distributors.

Now Non-Stop envisions acting primarily as a channel for delivering manufacturer products to distributors, and only if they want, to individual stores.

"Wholesalers were concerned that we were going to take over their business, that the retailers they were serving would suddenly say, 'We don't need you anymore,' " he said.

But Non-Stop's profits, Dunn implied, will come from enhanced transportation and handling efficiencies generated between the manufacturer and distributor, not between the distributor and individual store.

"It's partially our fault. Once we started this new process of letting distributors control everything from the sort-and-load center down to the store level, their reception to our concept has improved. But we have only been doing that for about a month," Dunn said.

Another problem has been convincing some distributors that Non-Stop would provide a service that they couldn't.

"In order to create this system, though, the first thing you have to do is have access to manufacturer and distributor costs, in detail. You have to know the transportation, handling, inventory and labor costs," Dunn said.

"I don't think that a manufacturer is going to share that information with a Fleming or a Supervalu. In fact, I am positive they won't," he said.

In addition, for the system to work, the sort-and-load centers must not only obtain information and gain the participation of most major manufacturers, but it must also be willing to provide its services to all distributors in a given market area.

"You would have to serve all my customers in this area. You would have to serve Fleming. You have to serve Safeway. You would have to serve everybody. And everybody would have to agree to share with you all the store data, all the pricing, promotion and product movement information, to make it work," Dunn said.

"They have to be willing to give that to you. Are they going to be willing to give that to you? Some might. But most won't. So there is a major obstacle there in terms of getting control of the information needed to set up this type of system," he said.

Although Dunn is optimistic his system can work, he is not underestimating the difficulty of introducing a new distribution system into the food industry.

"I come out of an industry, the computer industry, where everything moved very quickly. Technology changed constantly. The whole industry has to constantly adapt to rapid changes in how it operated," Dunn said.

"But people in the food industry has been operating the same way for 40 years. They may have a computer printing the picking tickets in the warehouse instead of a punch card machine, but essentially they are doing what they have always done," he said.

"They have learned to do what they do extremely well. But now all of a sudden things are changing and a lot of them just don't know what to do. They don't know whether we are a competitor or a friend or a supplier. So it is going to take time to prove that this process works," he added.