THINKING OUTSIDE THE BOX 1998

LINDA PURPURA

Third-party warehouse companies are moving beyond their role of providing additional storage space at peak times. Some of these companies are serving as important links in managing critical parts of the supply chain for retailers, especially in the area of slow-moving products.

Third-party warehousing and logistics companies can be effective at picking slow movers and creating store-ready pallets to load onto their trucks, according to industry experts. They can also be a viable resource for consolidating loads from multiple vendors and handling the logistics process for entire categories.

Star Markets Co., Cambridge, Mass., for example, uses a third-party company to handle logistics, from storage to selection and delivery, of all its frozen-food products, according to Nona Cusick, vice president of distribution.

Retailers can also set up systems at a third-party warehouse for their use. Giant Food, Landover, Md., has an inventory management system in a third-party warehouse providing it with total data on the movement of its products. Store buyers can determine whether frozen merchandise is in Giant's warehouse, at the third-party warehouse or on a truck going in either direction, according to a source familiar with the program.

Third-party warehouses help retailers to streamline distribution of grocery products and make the supply chain more efficient by processing orders and handling slow movers.

"A lot of retailers use third-party warehouses for outside storage, but I think if they are going to streamline their business come the millennium, retailers will have to look at third-party companies differently," said Roland Johnson, manager of grocery warehouse for Associated Grocers, Seattle. "There are some real opportunities out there."

In addition to storage of frozen products, Associated Grocers uses third-party warehouses for a program called Unique Item Support. With this program, some of the wholesaler's "extremely slow movers," such as specialty and natural foods, are selected and shipped to the distribution center by the third-party company.

"This is totally invisible to our customer," Johnson said. "When our customers input orders to us, our system splits off orders for those [extremely slow-moving] items and they're sent electronically to the third party.

"The third party selects the items and prepares them into a store-ready pallet," he explained. "We then pick that pallet up from the third party and bring it into our distribution center to cross dock it with an outbound load to that customer."

By handling the slowest movers this way, Associated Grocers offers its customer base a broader item count. In addition, Associated is able to free up limited space in its 1 million-square-foot grocery and perishables distribution center.

The idea of a third-party warehouse managing slow movers for several retailers in a region is a hot topic of discussion in the industry.

"Some multidivision companies, like Ahold USA, Atlanta, and Supervalu, Minneapolis, have enough divisions where they can open a slow-moving facility to service their segments," said a Northeastern retailer who requested anonymity.

"Those of us who are not multidivisional are at a disadvantage because we can't do that," the retailer added. "So a regional [third-party facility] to service independent retailers or single-divisional retailers would probably make some sense."

C&S Wholesale, Brattleboro, Vt., is developing a business called OneSource, which is based on the idea of a centralized facility focusing primarily on slow-moving items. These items are defined as products that move one pallet or less from a distributor's warehouse weekly.

As the third party, OneSource will store manufacturer products and pick them as needed, to create cross-dock store-ready pallets for delivery to the distributor within 24 hours, according to Jack Haedicke, executive vice president and chief operating officer of OneSource.

Haedicke spoke about third-party warehousing of slow movers at the Multivendor Product Consolidation Workshop, sponsored by the Grocery Manufacturers of America, Washington, held last month in Elizabeth, N.J.

Using C&S Wholesale as an example, "of the 22,500 stockkeeping units in dry grocery, I'm going to peel 8,000 [slow movers] out and they would go into a consolidation facility," Haedicke said. "In essence, I'm not going to have to warehouse the product because it's somewhere else.

"The product is sent to the customer as cross-dock store-ready pallets, simplifying the task of picking the remaining SKUs for C&S," he added. "Instead of making trips to pick all these SKUs for all these different retailers in all these different orders, it's much less."

One retailer, who asked not to be named, said while this is "not a bad idea," it raises buying, warehousing and transportation issues worth addressing before implementation. "No vendor ships one item. Some are fast, others are slow movers," said the retailer. "If you take either one out of the mix, then it becomes difficult for the retailer to buy the other."

"The third party has a problem too," said the anonymous retailer. "They need the volume. Even though you take the slow movers out, it's still not sufficient volume to support the third party. So you have to pick a category where the majority of the items are slow movers, such as baby food."

Haedicke agreed the third-party warehouse must "have a big enough volume to be able to order direct from the plant one SKU per truckload from the vendor, and ship a daily full truckload of slow-moving SKUs to the distributor. [In my opinion,] it takes about $15 billion of retail sales to get the volume to make a [centralized facility for slow movers] to work."

Establishing centralized facilities for the slow movers among a region's retailers is still in the early stages. However, third-party warehouses for consolidation of products from multiple vendors are much more common, with interest growing in the industry.

A&P, Montvale, N.J., is currently involved in a multivendor-consolidation program that was developed from a long-standing partnership with a local third-party logistics operator. Approximately 26 vendors are involved in the program.

The process begins with a purchase order transmitted to a vendor or broker, either electronically or via fax. The vendor passes the purchase order to the third-party company. Each morning the third-party company faxes a list of open purchase orders to the inbound freight coordinator at each A&P distribution center.

The inbound freight coordinator reviews the service level requirements and deadlines for each purchase order. Based on the service-level needs, the inbound freight coordinator builds multivendor loads.

As the loads are prioritized and information is faxed back to the third-party company, it selects the products and loads the trailers to A&P's pallet specifications. The retailer's transportation department is notified when the process is completed. The loads are then picked up and received into A&P's facility.

Multivendor consolidation via a third party allows for "smaller orders, with less inbound trucks, which frees up the receiving door," said John Hinkel, senior vice president of distribution for the greater New York metropolitan region of A&P.

In addition, the pallets come in prepared to A&P's specifications for the correct pallet layers and heights, he noted. "There is less dock congestion and the entire receiving process becomes more efficient. By not filling out trucks with unneeded product, we achieve lower inventory levels and faster turns."

A&P is exploring different applications to conduct automated consolidated ordering with all purchase orders for a given trailer due on the same day.

Hinkel spoke about the company's consolidation efforts with the use of a third-party logistics and warehousing company at last month's Multivendor Product Consolidation Workshop.