SUPPLIES SOLUTIONS

MARC MILLSTEIN

ST. LOUIS -- The push to streamline nearly all aspects of the supply chain, combined with the surging importance of deli and bakery in driving sales, is prompting many distributors to seek new solutions to cutting in-store packaging and supply costs.

It is in this light that Bunzl Distribution USA here, a company specializing in distributing a wide range of supplies -- from plastic wrap to food containers -- is playing an increasingly vital role in the industry.

Both retailers and wholesalers today are looking for expanded opportunities -- in all areas of their operations -- to focus more on hiking customer-service levels and boosting sales, and less on maintaining in-house distribution practices that fail to add value, said Paul Lorenzini, president and chief executive officer of Bunzl Distribution USA.

"If distributors don't control packaging costs, and at the same time have 600 to 700 stockkeeping units and an even greater number of slots in their warehouse for supplies, there is going to be a lot of waste," Lorenzini told SN in an interview.

The industrywide costs for packaging and other supplies needed to run today's supermarkets range somewhere in the neighborhood of $2.5 billion, he said.

Acquiring and handling supplies through the traditional supply chain network not only eats up labor costs, but also valuable transportation and storage space that could better be used for items earmarked for consumer sales.

What Bunzl offers is a more efficient method for meeting the product supply needs of distributors, Lorenzini said.

The company, which serves many retail segments but focuses primarily on supermarkets, now has 53 distribution centers and offers cross docking, direct-store-delivery or traditional warehouse delivery programs.

"Distributors have always looked at [the cost of] supplies because it is one of the few areas they could control. But the thing they didn't look at was the distribution costs for supplies," Lorenzini said.

"Wholesalers and chains can't economically handle supplies out of their warehouses. When you look at a grocery load going out to a store [with consumer product], the dollar value might range from $45,000 to $50,000. That same trailer filled with supplies would only be $12,000 to $14,000," he said.

In terms of the savings a distributor might reap from using a third-party program such as Bunzl to meet its supply needs, Lorenzini pointed to a number of key benefits.

"The first thing is that we are going to make available 'X' amount of slots [for the distributor] that can be used for consumer items -- items that will really make some money.

"When you start talking about 2,000 [warehouse] slots for supplies, that's big dollars. Then there's also the costs of handling, ensuring availability and cubic space on the trucks," he said.

The exact savings from moving to a third-party program depend on the specific system and circumstances, "but it could be 12% to 25% of what they are paying today."

Although Bunzl offers customers a broad choice of program options, the big movement now is toward advanced cross-docking systems.

Traditional warehouse-replenishment programs, in which supplies are delivered to the customer's warehouse for storage, account for about 50% to 55% of Bunzl's business today. DSD makes up about 15% to 20% of the business, and cross docking the remainder.

That compares with five years ago when about 90% of the business was warehouse replenishment, 5% to 10% was DSD and none was cross docking.

By the year 2000, Lorenzini predicts that cross-docking programs will make up 50% to 60% of the business; DSD, 20% to 30%; and the remainder warehouse replenishment.

Increased industry awareness of the benefits of cross docking and of information technology, including electronic data interchange, is playing a key role in driving distributors to seek out better solutions to supply chain challenges.

Also prompting greater industry attention on the issue of supply costs is the booming supermarket role of deli and bakery, which are both labor- and supply-intensive departments.

"Produce used to make up 15% of supply costs. Today, it makes up 6%. Deli and bakery combined, on the other hand, used to make up 8% and now make up about 36%. It has been a complete turnaround. The huge emphasis on bakery and deli is driving supply costs higher," Lorenzini said.

As a percentage of sales, the cost of supplies is going down. But as more emphasis is placed on the meal-replacement category, the dollars being spent are rising.

"That gives us an opportunity to add even more value with our services and enhances our position in the market.