SAFEWAY TO CHANGE THIRD-PARTY OPERATOR OF DISTRIBUTION CENTER

DENISE ZIMMERMAN

PLEASANTON, Calif. -- Safeway here will turn over to a third-party distribution company on Jan. 1 operations and assets of its massive distribution center in Tracy, Calif.

Discussions are ongoing but the two parties have agreed in principle that the 1.8 million-square-foot facility will be operated by Summit Logistics, a subsidiary of Tibbett & Britten Group North America, Florham Park, N.J. Summit then will service about 250 of the chain's stores located in northern California, Nevada and Hawaii.

Financial terms and duration of the contract were not disclosed.

The agreement calls for Summit to lease the distribution center and either lease or buy assets including a fleet of 240 trucks and 620 trailers, warehouse racking and materials handling equipment, according to Safeway. Approximately 1,400 warehouse employees are expected to be transferred to Summit's payroll Jan. 1.

The distribution center is currently operated by Specialized Distribution Management, Tracy, Calif., whose contract with Safeway expires Dec. 31.

David Weed, senior vice president and northern California division manager of Safeway, said outsourcing distribution to Summit will result in improved supply chain efficiencies but the company declined to elaborate on goals or projections.

Mike Sprague, president of Tibbett & Britten Group North America, said distribution advances made in Europe, where Tibbett & Britten's parent company is based, can be duplicated in the United States.

"I've been saying to anyone who will listen that a lot of what is happening in Europe can happen here," he told SN.

"One of the things we as a European company are constantly amazed at is the high levels of inventory in the U.S. distribution chain," he said.

"While Efficient Consumer Response seeks to reduce inventory from about 106 days to 61, the norm in Europe is more like 40 days. Some of that is [possible] because of the shorter distances," he acknowledged, "but best practices in Europe is 30 days."

For Summit Logistics, the move is viewed as a strategic one, Spraque said. "Our interest is not just managing a Safeway facility. We can use the facility for a number of other purposes."

At 1.8 million square feet, the Tracy facility has a great deal of extra capacity that can be leveraged in other ways, he said.

"The Tracy distribution center is located in the heart of the fruit and vegetable growing district of northern California. One of our projects will be to offer it as a consolidation center for produce for certain U.S. and Canadian clients of other Tibbett & Britten Group companies," he said.

Summit Logistics' arrangement to take over Safeway's Tracy, Calif., distribution center follows a similar arrangement between Summit and Safeway in Canada. In April, Summit acquired from Safeway Canada a 500,000-square foot facility just outside Vancouver, British Columbia.

Sprague said the company will evaluate technological opportunities but the immediate focus will be on improved labor management.

"We'll look at technology as technology is needed but believe it or not we think the big wins in the short term are about managing people and introducing discipline," he said. "Distribution is a very people-intensive business."