SLOW AND UNSTEADY

MINA WILLIAMS

This is one race slow-and-steady is not winning.

Striving to gain logistical efficiencies, retailers and wholesalers are employing economies of scale -- larger order sizes, smaller inventory item counts and many full pallet shipments. However retailers tie up a good number of SKUs in slow-moving items that tend to feed the very inefficiency the operators are striving to stem.

Wholesale operators struggle to offer variety while providing efficiency. They face the challenge of controlling the number of stockkeeping units necessary to cater to the needs of a wide variety of member retailers who must remain competitive with a variety of channels.

"We have to look at variety vs. duplication and efficiency vs. variety," said Dave Jonckowski, vice president, operations, Associated Food Stores, Salt Lake City. "The uniqueness of independents is in delivering unique and specialty foods as an option without tying up space in the warehouse, which is at a premium."

New items being introduced into the marketplace continue to grow, which has a negative effect on productivity. Although many manufacturers are reducing the number of products by size in specific categories, the trend to expand SKU counts will not stop, according to the Food Marketing Institute's "Food Industry Distribution Center" report.

"In some cases there is too much depth within a brand," said Mike Martin, owner, Red Apple, Benton City, Wash. "That creates a lot of slow movers. But as an independent satisfying my customers each and every time they visit my store is imperative."

Operational execution is a strong point for many retailers, and it is also their chief competitive weapon. Some industry sources report that the ability to service consumers justifies the placement of slow movers within the logistics stream. However most logistics experts call for the removal of slow-moving SKUs that eat up time and space within the distribution center.

"The bottom line is profitability," said consultant Roy Strauss, vice president and principal, Gross & Associates, Woodbridge, N.J. "To keep slow movers in the mix, warehouse operators have to purchase 25% to 35% more space, plus equipment and conveyers. Pickers get fewer hits per order and have to travel a long time to pick fewer selections."

However, some operators believe that having slow-moving items available is key to servicing the consumer. Since consumers vote with their feet, independent operators in particular strive to have items customers want ready on the shelf.

"If purchased and inventoried properly there should be a low investment in slow movers. They shouldn't take too much space in the warehouse," noted Strauss. "The goal should be to use less square feet, not traveling as far to fulfill orders and use less equipment to achieve a complete order."

Wholesalers strive to make it as easy as possible to retrieve items, economizing efforts for maximum yield. Associated Food Stores has taken this approach when slotting in unique items at the company's Salt Lake City distribution center.

The wholesaler recently acquired a facility to add space. This area has given Associated Food Stores the ability to group slow-moving items within the distribution facility. A four-level module is located in the dry grocery portion of the distribution center. Associated Food Stores has identified 2,500 dry grocery items as candidates for inclusion within the module.

The item identification process included analyzing the wholesaler's members' orders over a typical week. If less than one or two pallets of a particular item were ordered by some of the largest retailers in the group, the item was placed on the list for module inclusion. "It was not traumatic for our members," said Jonckowski.

By shifting to this module approach Associated Food Stores was able to increase its selection of items. This allows for the multiple picking of orders simultaneously, which has offered efficiencies in selection.

"Size constraints did play a part in identifying items," said Jonckowski. "We use an automated sortation system and high-cube items, such as bathroom tissue, are too large to fit on the shelves and fit onto the belt. Those items that don't warrant a full pallet selection slot are hand-stocked."

A pick-to-belt system routes items to the loading lane. Once a case has been selected, it is placed on an outbound conveyer, accumulated and loaded onto an outbound truck. Odd-size items, mainly general merchandise, are housed in a separate area of the distribution center that does not have conveyers.

The consequence of this system is that the wholesaler will lose family groupings within the distribution facility. Unique items and live extensions will be positioned within the module.

"Using the module system, inventory will fit in the selection slots," said Jonckowski. "We have generated efficiencies and saved grief."

Another logistic strategy that could be put to work as a means of addressing the consumer service issue is special ordering.

"Operators that do not stock slow-moving items in the warehouse could handle requests as special orders for their top customers," said Strauss. "If operators have really good customers they want to service, using special orders offers the service, without having to stock the items day-in and day-out."

Associated Food Stores is considering taking slow-moving items out of its distribution facilities in Montana and Idaho and consolidating them into the Salt Lake City facility to take further advantage of the module program.

"This will free up warehouse space in Montana and Idaho," said Jonckowski. "With slow movers, service levels are less of an issue than with Miracle Whip. We have to be prepared to accept a lower service level, say in the 90% range, for the slow movers."

Distinct shelf labels at retail let operators know that when they order they have to allow for a four-day lead time. Salt Lake City members will receive their slow movers in the subsequent delivery, said Jonckowski.

Wholesalers are looking at methods of keeping inventory levels low and customer service high. Cross-docking applications are one way to get product in without having to stock it in the warehouse. Some find this a good way to keeping inventory levels low on slow-moving items.

URM, Spokane, has taken this concept a step further. The wholesaler has partnered with a third-party operation to provide specialty, ethnic and gourmet foods that comprise a high percentage of slow-moving products. The wholesaler cross-docks the slow movers and, using special tags, marries the orders with loads. Retailers get these products delivered once a week.

Red Apple's Martin has been using this system, which is proving helpful as the customer base shifts. "I have to be able to get what my customer wants or they will find another place to go and find it," he said. "I have an increasing Hispanic population that relies on me having the specialty items they are looking for which are everyday staples for them."

As previously reported, Supervalu, Eden Prairie, Minn., is aggressively charging warehouse executives and buyers to work together, setting goals to reduce the number of SKUs. The wholesaler also is charging retailer customers for the costs involved in handling slow-moving items, according to Don Vetger, vice president of the company's Northern Region.

"SKUs are not, in and of themselves, inherently evil. In our opinion, it's misguided, over-enthusiastic, irrational behavior that compels a segment of our business to add every item known to man, woman and beast -- that is the evil that we battle. It's the aggregation of items that is the killer," Vetger said.

The number of stockkeeping units carried by Supervalu has doubled since 1983, from 5,274 to 10,552. "Our studies have shown that adding items does not proportionately increase sales. We are spreading the sales over more items, not necessarily gaining more sales -- at least not enough to cover the carrying costs," he said.

Supervalu has set up a separate warehouse for slow-moving SKUs. While retailers may receive seven deliveries a week of fast-movers, there may be only three deliveries of the slower-moving products. For increased slow-moving delivery frequency, they will be charged for that service.

Using that system, retailers can control their destiny, according to Vetger. "We will provide a service to them, but the service is based on cost. The more efficient operators who embrace the opportunities of ordering in pallet quantities, without the full variety, will get the benefit of less cost of service."

Before embarking on any of these options, industry experts suggest warehouse operators conduct a purchasing and inventory study to determine what selections need to be stocked.

"Operators need to determine how much space they require, how much storage they require and at what cost," said Strauss. "Most costs are wrapped up in materials-handling equipment and personnel costs. The object is to match cost to the profitability of items."

Unfortunately, warehouse executives say, the operations departments do not make the purchasing decisions that impact the logistics chain. "Sales and marketing makes decisions that have profound impact on operations," said one industry expert.