OSHAWA OUTSOURCING CUTS DELIVERY COSTS

CHRIS O'LEARY

ATLANTA -- Oshawa Foods, a division of Oshawa Group, Etobicoke, Ontario, has slashed costs and inefficiencies by outsourcing all warehousing and transportation operations.

Among the immediate payoffs were reduced per-case handling costs, increased on-time deliveries and service levels, said Jonathan Wolfe, president and chief operating officer for Oshawa Foods, a retail-wholesale company serving more than 350 stores.

During a presentation at the CIES Logistics Management Program here late last month, Wolfe detailed the benefits of outsourcing four warehouses and a trucking fleet to Tibbett & Britten Group Canada, Etobicoke, Ontario. The process was completed in January.

Outsourcing, Wolfe said, "has allowed Oshawa to turn theoretical initiatives into supply chain practices." Cross-docking and continuous replenishment are two projects the company is now poised to pursue aggressively.

Wolfe said immediate and projected benefits of outsourcing include:

Reduced per-case handling costs. Outsourcing reduced the per-case cost from $1.08 to 96 cents this year, he said, adding that cost is expected to drop further, to 90 cents per case, next year.

Improved delivery operations. Oshawa's on-time delivery rating improved from 93% to 94.6% initially. Wolfe said he anticipates to achieve a 96% on-time delivery rate next year as a result of the outsourcing program.

Improved service levels. The number of shortages and selection

errors has declined since farming out warehousing and transportation operations. Prior to outsourcing, service levels stood at 91%, improved to 93% this year and in 1996 are projected to reach 95%, Wolfe said.

"Outsourcing has freed up scarce management resources," he said. "It allows us to concentrate on issues we could never have dealt with if we were worried about getting a truck out on time.

"Now we are focused on what we believe to be higher value-added areas, like continuous replenishment, marketing, technology improvements and category management," he added.

"We now have the potential to do combination [perishable] loads in three-temperature trailers, and expand our very successful continuous replenishment program," Wolfe said.

Another reason the retailer outsourced was to sharpen its competitive edge in a market battered by recession and redefined by the arrival of supercenters and warehouse clubs. "Alternative formats have destabilized our marketplace," Wolfe said.

Wal-Mart Stores, Bentonville, Ark., entered Ontario in force last year and has seen spectacular sales at the expense of traditional retailers, he said. Warehouse clubs like Wal-Mart's Sam's Club and Price/Costco, Kirkland, Wash., are expected to capture an 8% market share in Ontario by 1997.

"In Ontario the status quo is not an option," Wolfe said. "We were behind alternate formats in logistics, technology and buying strategies.

"The Canadian grocery channel was lagging dramatically behind [supercenters] in technology. Relations between distributors and suppliers were less than perfect," he added. "We had higher costs as a channel than alternative formats, and our market share remains under pressure today."

At first, Oshawa planned to re-engineer its distribution system, but decided such a program would take at least three years to get into operation. "We could have retrained our staff, but we made the assumption that the learning curve is extremely long," Wolfe said.

Oshawa decided to outsource transportation and warehousing operations after investigating a similar endeavor undertaken by other retailers, such as J. Sainsbury plc, London.

But Oshawa proceeded cautiously, taking more than two years to negotiate an agreement with the third-party operator. "We worked all the numbers 748 ways, twice," Wolfe said. "We would not have undertaken this if we didn't believe the savings were there."

In February 1994, Oshawa sold off two distribution centers, which accounted for 21% of the company's grocery volume in Ontario, to Tibbett & Britten. "We sold the racking, our fleet and the materials handling equipment," he said.

In January, Oshawa sold the operator the balance of its distribution network: two more distribution centers, including a perishables warehouse.

Wolfe encouraged other companies to explore outsourcing, but warned the process must reduce operating costs to be worth the sacrifice. "The third-party operator must lower your total operating costs," he said. "Your expectations should be well documented and discussed."