THE OUTSOURCING ROUTE

DENISE ZIMMERMAN

Transportation, like all areas of supply chain management, is coming under increased scrutiny, and some companies seeking cost savings and greater efficiency are turning to third-party providers.

Outsourcing contracts among food distributors vary widely -- from leasing a few tractors up to total fleet management and fully integrated logistics solutions.

For some companies, keeping in step with

the latest advancements in transportation means outsourcing all or part of the operations to a third-party provider. Distributors choosing the option say they can benefit from the newest technologies, such as fuel-efficient electronic engines, without having to purchase new equipment and develop expertise to service it in-house.

"With technology changing so fast, it's panicked people," an industry observer said. "Just when they've made a tremendous investment in technology and think they're caught up, technology changes drastically and they have to make additional investments.

"There comes a point where they must ask: 'Where will this end?' "

Affiliated Food Stores, Tulsa, Okla., posed that question and found an answer in a full-service truck lease contract and is using electronic engines for the first time. Already the company is squeezing out more miles per gallon than was possible with its former fleet.

The wholesaler projects the outsourcing arrangement, which includes leasing more than 100 tractors and trailers, maintenance and training, will deliver overall transportation savings of 10% to 15% annually, said Robert Rippley, executive vice president and chief operating officer.

"Transportation has become extremely complicated both from the routing standpoint and the equipment standpoint," he said. After a thorough examination of transportation operations and long-term goals, the company determined that leasing equipment made more sense than purchasing it.

"In order for us to operate the new fuel-efficient electronic engines, we'd have to invest a considerable amount of money in the acquisition of tractors to begin with, plus our maintenance facility was not equipped to handle that type of equipment so we would have a major retraining situation. We'd also have to purchase diagnostic equipment to work on those types of engines," he said.

Affiliated's contract with a third-party provider also gives the wholesaler access to logistical expertise and technology to streamline routing of delivery schedules for better fleet utilization.

The company is also working with Affiliated on refining inbound logistics, he added.

"We're not experts in the transportation area. We are a wholesale grocery distributor. We understand distribution," he said. Farming out transportation enables the company to focus more energy and resources on critical core programs.

Most companies, whether outsourcing transportation or considering it, said the most compelling reason to do so is that attention can be turned to more important endeavors.

"We're doing a little tractor leasing, and that's more a result of economics, but the real benefit is not having to put out the capital that we can divert to other things," such as store expansion, said Renato Cellupica, vice president of distribution at Price Chopper Supermarkets, Schenectady, N.Y.

"We're in the supermarket business; we're in the business of opening stores," he said.

Price Chopper continues to evaluate outsourcing other aspects of transportation, but has no plans to go beyond equipment leasing. "We periodically look at outsourcing the transportation function itself, but we still feel to this day that we can do it as well, if not better, than anybody else," Cellupica said.

The frequent outsourcing proposals that cross his desk regularly serve as a reminder to monitor operations and to compare benchmarking data "to make sure we're on stride as far as the service we provide our stores."

Mark Stewart, vice president of warehouse and distribution at Kash n' Karry Food Stores, Tampa, Fla., echoed Cellupica's sentiments. "You have to look at the outsourcers -- who's doing it, why they're doing it. It creates the need to be competitive in-house."

"It's good to get [contract] quotes from outsourcing people because you take a better look at yourself and can identify things you may have to do, or may have to omit doing," added Kenton Straub, vice president of distribution at Penn Traffic Co., Syracuse, N.Y.

For C&S Wholesale Grocers, Brattleboro, Vt., outsourcing transportation has been a longstanding tradition, said Kim Keyes, spokeswoman. All store deliveries are made by third-party firms and drivers are on the carriers' payrolls.

C&S owns and performs maintenance on trailers but tractors are the responsibility of outside firms. The comprehensive outsourcing contracts, which also include backhauling, "allow us to focus on the main part of our business, which is warehousing and our customers' procurement," she said.

Oshawa Group, Mississauga, Ontario, also has been outsourcing transportation functions for several years, and the scope of each contract varies widely from division to division, said Peter Reed, vice president of distribution systems.

In Ontario, Oshawa outsourced all distribution, warehousing and transportation functions. "In other parts of the country, certain routes are handled by outside carriers," he said.

"In remote areas, where the geography is such that people are not in concentrated towns, outsourcing transportation is more economical because the carrier may have other opportunities, like backhauling, that we wouldn't have," Reed added.