NON-STOP LOGISTICS SEEKS NEW BACKER

MARC MILLSTEIN

SAN FRANCISCO -- Non-Stop Logistics, the firm that caught the industry's attention with its goal of radically streamlining how food products are distributed in the United States, is scrambling to secure new financing just weeks before it was to open its first distribution center.

The company had been scheduled to begin operating a sort-and-load distribution center in Greensboro, N.C., this month at a facility owned by GATX Logistics, Jacksonville, Fla., one of Non-Stop's investor partners. Sixteen manufacturers and one major retailer reportedly were set to participate in the test program.

The launch of the center, however, and the company's future direction, have been placed in jeopardy following the withdrawal of Saugatuck Capital, Stamford,

Conn., last month as Non-Stop's lead financial backer. The company's other investment partners have declined to provide additional funding, sources said.

Instead, SN learned last week, Non-Stop is on the verge of completing an agreement to license its complex software distribution program to a major wholesaler, which will use it within its own distribution system.

An executive at the wholesaler, who insisted on anonymity, confirmed that his company is in the process of drawing up a letter of intent for using the system.

"We are very interested in it. They have done some innovative, visionary work regarding the flow-through distribution concept. They have developed a number of systems that will tie in very nicely with this industry. Their system fits in with the vision of Efficient Consumer Response," he said.

The financial difficulties facing Non-Stop will derail, at least for the near term, its ambitious efforts to create a more efficient third-party flow-through distribution system for handling much of the nation's dry groceries and other food industry products.

The setback also points to the large challenges involved in trying to revamp the complex food distribution system, even with the momentum generated by the industry's ECR initiative.

According to Homer Dunn, president and chief executive officer of Non-Stop Logistics Corp. here, the financial arrangement fell through just as the company was about to complete its third round of funding before opening the Greensboro facility.

"We were to close a funding on June 23. We were raising $12 million. We had written commitments from several investors and were in the last stage of the legal funding process," Dunn told SN.

The collapse of the agreement has forced the company to dismiss all its salaried employees, according to sources familiar with the situation.

While seeking to acquire new financial backing, Non-Stop also reportedly is abandoning its quest to open a full-fledged flow-through distribution test site anytime soon.

Instead, the firm is in discussion with several firms about licensing out its complex product forecasting and distribution system. At least one wholesaler is close to agreeing to terms for using the system.

John Burnet, president of a strategic business unit at Electronic Data Systems in Detroit, confirmed that Non-Stop's intent now is to gain additional financing and viability by licensing out the system to other companies.

EDS, one of Non-Stop's supporters, at one time had more than 40 employees working on rolling out the system. EDS was involved in helping determine the physical hardware and staffing requirements for operating Non-Stop's system on a daily basis.

"Their immediate goal is to put [the system] through a pilot proof of concept. There are a lot of people who look at the [Non-Stop] idea and say, 'I sure want to be No. 2.' But there are very few willing to step out there and catch bullets with their teeth, and that is what they are struggling with," Burnet told SN.

Under Non-Stop's system, products from several manufacturers would be shipped to regional sort-and-load centers and then reconfigured into mixed stockkeeping unit pallets. The pallets would then be shipped on a nearly just-in-time basis to wholesaler and retailer distribution centers or stores.

The system is driven by a software forecasting program said to be complex enough to accurately predict manufacturer and distributor product needs three months in advance.

The Greensboro facility was to have begun receiving goods from seven manufacturers in August, with nine additional vendors expected to join in the test in coming weeks, sources said.

Two supermarket chains in the region, Bi-Lo, Mauldin, S.C., and Boney Wilson & Sons, Wilmington, N.C., a subsidiary of Hannaford Bros., Scarborough, Maine, reportedly were among the possible retail participants in the distribution test program. Officials at both chains declined to comment.