SPARTAN IS URGING PARTNERS: USE ABC TO UNBUNDLE COSTS

CHRIS O'LEARY

CHICAGO -- Spartan Stores, Grand Rapids, Mich., whose activity-based costing analyses have revealed ways to improve distribution, will not be able to turn every opportunity into action until trading partners do their part.

The wholesaler has used ABC to evaluate a wide range of practices, from pallet exchange to carrier-run freight handling, and believes long-term solutions can only come when suppliers and carriers do the same, said Doug Randall, manager of traffic services at Spartan.

Spartan's distribution officials, for example, are convinced their warehouse staff can more efficiently unload trucks than drivers or laborers-for-hire, or "lumpers." However, Spartan can't cost-justify adding labor unless manufacturers and carriers show through unbundled costs that they reward such behavior, he said.

"With some type of unbundling and a list of accessory charges such as unloading, hauling and pallet exchange, it's much easier for us to build a case for change," Randall said.

Randall, addressing an audience of third-party frozens warehouse owners, carriers and manufacturers at the American Frozen Food Institute's distribution and logistics convention here, said the supermarket industry must find a way to keep logistics costs manageable.

"We need reduced transportation costs. We need this to remain competitive in the marketplace," he said. "If we end up paying higher transportation costs to [achieve] lower inventories and higher service levels, we have not eliminated costs from the supply chain. We've only shifted costs."

By contrast, ABC will enable carriers and suppliers to identify and reward efficient distributors, while penalizing those who add costs to the supply chain.

"I think carriers need to eliminate the cross-subsidy of their more expensive customers by their less expensive customers," Randall said. "If we are able to introduce some very efficient unloading procedures, we don't want to pay the same rate as another distributor who's back in the Dark Age."

Making unloading trucks the responsibility of its warehouse employees, not truck drivers, represents real potential for savings, Randall said. Drivers who unload trucks are often unproductive and have a high rate of workman's compensation claims, while lumpers hired by drivers work at premium wages and pose some liability issues.

"Let's take the carrier out of the loop," Randall said. "The driver is often already tired, and lumper costs are excessive.

"The [employees] on our dock are probably the most qualified people to unload the trucks," he added. "But if indeed we're the best people to do unloading, how do we get compensated for it?

"As a supplier, why don't you give us some kind of efficient unloading allowance so we can cover those costs?" Randall asked the audience. "Manufacturers can give allowances for faster unloading or by reducing the overall cost of goods."

Spartan has made some headway with its carriers by renegotiating contracts so that product-handling charges are listed separately. In the past, the carriers charged a lump sum that incorporated all their cost factors.

The wholesaler also hopes the use of ABC will convince its manufacturer and carrier partners that pallet exchange programs are ultimately more expensive than pallet rental.

"We've got to take the carrier out of the pallet [exchange] loop," Randall said. "I don't know why carriers got into this mess in the first place."

By breaking down the costs of pallet exchange, carriers will be able to determine how long their drivers have to travel to obtain acceptable pallets, the amount of time spent by drivers sorting and exchanging pallets and the amount of space pallets require in a trailer.

"Carriers estimate pallet exchange costs them from $50 to $120 per load," he said. Pallet exchange "also increases costs for manufacturers and distributors; we spend a great deal of energy and money buying, selling, storing and recovering pallets."

Randall acknowledged that pallet rental programs require a major initial investment. "Rental pallet programs are not cheap, but at least the costs are consistent and easier to manage," he said.