STEPS ARE MAPPED TO MELT LOGISTICS COSTS

MARYELLEN LO BOSCO

ANAHEIM, Calif. -- Companies can improve frozen-food logistics costs by reducing the number of warehouses, offering more access to information, and providing customers with value-added services.

"[The] successful companies offer expanded access to logistics information, directly and through electronic data transfer. And they increase their participation with customers by offering them value-added services," said William Drumm, president of Herbert W. Davis & Co., Fort Lee, N.J.

Efforts like these are needed to lower costs and boost customer loyalty -- which most companies have not done, according to the American Frozen Food Institute's 1996 Distribution Benchmarking Survey. The study, conducted by the McLean, Va.-based AFFI and Herbert W. Davis, was presented at AFFI's Western Frozen Food Convention here.

The survey reported on 1996 logistics costs and compared industrywide data with a representative group of 17 AFFI members in the frozen-food business. Prepared-food companies were 41% of the AFFI sample; frozen fruits, vegetables and berries were 40%; potatoes were 18%; and "other" was 1%.

For the frozen-food group, logistics costs averaged 15% of sales, about double the industry trend group. Transportation costs were 7.4% of sales, vs. 2.88% for the trend group, while warehousing costs were 5% vs. 2% for the trend group.

The trend data for the whole industry showed that inventories remain high, despite "a decade of effort to change the turnover rate."

Total logistics costs were up substantially, from 7.1% to 8.01% of sales, with only one in five companies reducing costs in 1996. The news was even worse for the AFFI group, since its overall cost increase was about double the industry group's.

"Carrier rate increases have not been accompanied by better service," said Drumm. "The growing use of third-party logistics service has increased costs, while the value added has not improved manufacturer's business retention."

Other factors contributing to lost efficiencies were cutbacks in middle management and technical staff, which have led to higher transportation and warehousing costs; as well as the war among the large retailers, which is creating stress in the supply chain.

"There is continued customer pressure on suppliers to add services without increasing prices," Drumm noted.